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Analysis & Opinion
01.07.10 Expensive Diplomacy
By Tai Adelaja

Moscow’s Backpedalling on its Deal with Iran Could Have Dire Consequences for Russia’s Interests in the Middle East

For a nation just barely wriggling out of the worst economic recession in 15 years, a $1 billion arms sales contract may be a tidbit too tempting to ignore. Yet Moscow said in mid-June that it would freeze the delivery of S-300 air-defense systems to Iran, following a new round of UN sanctions imposed on Tehran on June 9, prompting industry experts to question the wisdom of Moscow’s move.

"Taking into account penalties from the breach of contract, Russia’s direct financial losses will amount to $1.2 billion," Ruslan Pukhov, director of the Center for Analysis of Strategies and Technologies, wrote in an article published Wednesday in Nezavisimaya Gazeta.

The S-300 contract is worth some $800 million, while Russian officials estimate the forfeit penalty for the S-300 contract at $400 million, RIA Novosti reported. Pukhov, who also sits on the Defense Ministry’s public advisory board, said that Iran, which has been buying between $300 million and $500 million worth of arms from Russia annually, could now turn to China for its future weapons and military equipment needs, thereby depriving Moscow of a serious source of revenue. Iran has already stopped negotiations about acquiring Russia's Tu-204SM passenger aircraft, even though Russia had expected the Islamic republic to increase its purchases from five to 30 units before talks were stalled, Pukhov said.

Russia sold $8.5 billion worth of arms last year, mainly to customers in India, Algeria, China, Venezuela, Malaysia, Syria and Vietnam, the Federal Agency for Military Cooperation reported. Iran remains a key customer, however, as Russia has strong energy and military cooperation with the Islamic Republic, including the construction of a nuclear power plant at Bushehr. “Russia is losing the whole Middle East arms market because it wants to kow-tow before America,” Pushkov said by telephone Thursday. “We had the opportunity to supply the missiles before the UN resolution, but for some reason officials were dragging their feet. The immediate loss may be minimal, but the long-term loss is going to be considerable,” he said.

Earlier in June Iran banned its airlines from using Russian-built Tu-154 airliners on domestic and international routes. In addition, there have been reports of the imminent deportation of Russian pilots because the Islamic Republic already has “enough qualified flight personnel,” RIA Novosti reported. Iranian Defense Minister Ahmad Vahidi told the Fars News Agency last week that Russia will bear the consequences of its failure to deliver the S-300 surface-to-air missile systems. He said the delivery of the air-defense systems would not violate Russian or international laws. “Russia has a duty to fulfill its obligations... Implementing the S-300 deal is not against Russian laws or international regulations,” Vahidi said. “It is obvious that [Russia] is responsible for the damages caused by its failure to implement the deal.”

Russia signed a contract with Iran on the supply of at least five S-300 air defense systems to Tehran in December of 2005, as its relations with the United States soured after a series of U.S.-supported color revolutions in some former Soviet states, which Russia regards as its area of interest. Russia finished assembling the missile systems in 2009 but has not been able to honor the contract because of increased pressure from Washington and Tel Aviv, experts say. Both the United States and Israel have not ruled out military action if diplomacy fails to resolve the dispute over Iran's nuclear program, and have expressed concern over S-300 deliveries, which would significantly strengthen Iran's air defenses. The advanced version of the S-300 missile system, called S-300PMU1, has a range of over 100 miles and can intercept ballistic missiles and aircraft at low and high altitudes, making it effective in warding off airstrikes, RIA Novosti reported. In addition, Russia is also eager to live up to expectations after the two former Cold War enemies pledged to reset relations.

Mikhail Dmitriyev, the head of the Federal Service for Military-Technical Cooperation, said in April that Russia has continued to hold talks on deliveries of the missile systems to Iran. “Contracts have been signed, and they are being implemented – they have not been torn up,” RIA Novosti reported Dmitriyev as saying. However, a June 9 UN Security Council Resolution 1929 slammed a new set of sanctions on Iran over its nuclear program, including tougher financial controls and an expanded arms embargo. The resolution places a ban on all countries providing military vehicles, aircraft or warships and missiles or missile systems and related material to Iran, as well as a ban on training, financing or assistance related to such arms and material and restraint over the sale of other arms and material to Iran.
The Russian Foreign Ministry’s initial reaction was that the new UN sanctions do not forbid the delivery of S-300 air-defense missiles to Iran since they are not included in the UN Register of Conventional Arms. Foreign Ministry spokesman Andrei Nesterenko told journalists that the UN resolution does not apply to air-defense systems, with the exception of shoulder-fired missiles. Dmitriyev, whose agency oversees arms trade, also said that the new UN resolution wouldn't affect the S-300 deal. "Russia is in no way bound by the UN Security Council resolution in relation to supplies of the S-300 air-defense systems to Iran, and work on that contract is underway," Dmitriyev said. He added that restrictions being introduced refer only to offensive weapons and that there are also other issues on which Russia will keep working with Iran.

However, experts from the Federal Service for Military and Technical Cooperation soon concluded that the missiles did come under the new set of sanctions, prompting an immediate response from Foreign Minister Sergei Lavrov who said the issue could be resolved only through a decree issued by Russian President Dmitry Medvedev. "A decree will be prepared to determine which deliveries and which weapons do not fall under the resolution," Lavrov said, adding that "no one had been asked to interpret the provisions of the resolution" until the decree was complete. P.J. Crowley, a U.S. State Department spokesman also told reporters in Washington at the time that the UN resolution does not specifically prohibit Russia from supplying the S-300. "However, for the first time, the resolution calls for states to exercise vigilance and restraint in the sale or transfer of all other arms and related material," Crowley said. "We appreciate Russia's restraint in the transfer of the S-300 missile system to Iran."

Viktor Ilyukhin, a communist State Duma deputy and former prosecutor, said the S-300 debacle should not be allowed to rock otherwise cordial and mutually beneficial relations with Iran, stressing that delivering S-300 air-defense missiles to Iran would not threaten regional security. “This is one instance in which national interests conflict with international obligations. We must take into account that so far no one has proved that Iran is developing nuclear weapons,” Ilyukhin said. “Over centuries of its co-existence with other nations, Iran has never initiated a war against any of its neighbors.”

Meanwhile Tehran continues to intensify pressure on Moscow by hitting where it hurts. The Iranian Ministry of Intelligence held a meeting with the local members of parliament and called for a reduction of contacts with Russia, Radio Free Europe reported. Iranian parliamentarian Hossein Ebrahimi told the semi-official ILNA news agency that the demand was discussed during a meeting between committee members and officials of the Intelligence Ministry. He said lawmakers favor reducing ties with Russia as well as China because of their support for the June 9 UN resolutions that imposed new sanctions on the Islamic Republic over its sensitive nuclear activities. The head of the Iran-Russia Parliamentary Friendship Committee, Mehdi Sanae'i, was quoted as saying on June 24 that "Moscow's failure to deliver the air-defense missile system to Tehran would not only hinder cooperation between the two states, but also damage the country's status in finding new partners in the region."
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