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Iran may punish Russia for $ 4 billion

July 18, 2012, 12:26 UTC+3

Claim against Russia’s Rosoboronexport for its refusal to supply to Iran the S-300 air defence systems is very high

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MOSCOW, July 18 (Itar-Tass) - Kommersant has learnt that the leadership of the Russian Federation has arrived at the conclusion that the risk that the Geneva Court of Arbitration sustains Iran’s 4-billion dollar claim against Russia’s Rosoboronexport for its refusal to supply to Iran the S-300 air defence systems is very high. Failure to comply with the court decision threatens the Russian Federation with serious reputational losses. Under these conditions, Moscow, according to the publication, intends to seek the withdrawal of the action by Tehran. In case of these efforts’ failure, experts do not rule out that Russia can begin the supplies of the S-300 systems to Iran.

The newspaper’s sources in the Russian government have admitted that “the situation with the Iranian claim is extremely serious.” “Unfortunately, we have no reason to believe that the court will take into account all the nuances of the current difficult situation in Iran,” said the official. “There are apprehensions that that a huge fine will be imposed on Russia. The sum of 4 billion US dollars is almost one-third of Russia’s annual proceeds from arms sales, which, according to the Federal Service for Military-Technical Cooperation, in 2011 amounted to 13.2 billion US dollars.

Moscow is not happy with the prospect of paying 4 billion dollars. The Kommersant’s source in the Russian government called the story with the claim “ugly” and the Iranians “ungrateful.” “We support them, take a constructive stance in the negotiations on the nuclear issue, and that’s with what they repay us,” he complained.

The fact that the Iranian Ministry of Defence and the Iranian state-owned company Aerospace Industries Organisation filed with the International Court of Arbitration in Geneva a lawsuit for 4 billion US dollars became known from the annual report published on July 5 by Rosoboronexport that is the defendant in the case. The “subject of the suit” article of the report states: “on the reparation of damage worth 3,985,159,773.32 US dollars on compelling to fulfil an obligation to supply special equipment.” It turned out that the Iranians filed the lawsuit on April 13, 2011 - six months after Russia refused to supply the S-300 systems to it.

Under the contract that was signed in late 2007, Russia was to supply to Iran five battalions of the S-300PMU-1 systems worth about 800 million dollars. However, on September 22, 2010, President Dmitry Medvedev signed a decree “On Measures to Implement the UN Security Council Resolution 1929 of June 9, 2010,” which prohibits the transfer of modern Russian arms to Iran, including the S-300 system. Russia has returned to Iran an advance payment worth 167 million dollars, but Tehran turned to the court all the same. The court proceedings are to begin in the near future.

According to Kommersant, Russia at the upcoming proceedings will stress that it just acted to fulfil the conditions of the UN Security Council resolution introducing sanctions against Iran. According to managing partner of Bartolius law firm Yuly Tai, a key point is whether they refer to the conclusion or fulfilment of the contract. “It seems logical that sanctions should apply also to the earlier concluded (in 2007) contract, if it had not been fulfilled by the time of their introduction in 2010,” he explained. “If the UN ban includes the type of weapons that Russia was to deliver to Iran, it frees Rosoboronexport from the fulfilment of the contract.”

The Iranians, according to the publication, intend to contest the last point. In this situation Moscow is trying to persuade Tehran to withdraw its lawsuit. “The story of the lawsuit is an annoying moment in our cooperation, which we hope to resolve,” said a source close to the Russian system of military-technical cooperation. He said the issue was discussed during the recent visit of Russia’s delegation to Tehran, but the Russian proposal to withdraw the claim was rejected by the Iranian authorities.

Meanwhile, according to director of the Centre for Modern Iran Studies in Moscow Rajab Safarov, Tehran needs from Moscow not money, but the resumption of arms exports. “Iran claims the status of the regional superpower. Russia’s refusal to supply the air defence systems that Iran needs was perceived there as a public slap in the face,” says the expert. “But Tehran is ready to provide an alibi to Moscow, help it explain to the West why it still needs to fulfil the contract, otherwise it will lose money.” According to Mr. Safarov, Iran would withdraw the suit if Russia resumes military-technical cooperation with it. “However, Moscow’s coaxing or exerting pressure on Iran will only backfire,” the expert warned.

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