Konstantin Makienko

The outlook for Russian-Iranian Arms Trade: opportunities and risks

O n November 23, 2000 Russia officially informed the U.S. State Department that it was withdrawing from the protocol signed on June 30, 1995 within the framework of the Gore-Chernomyrdin commission. A Russian government source told Interfax that Moscow's decision to withdraw from the Gore-Chernomyrdin agreement was "dictated primarily by the positive changes that have taken place in the internal political life of Iran." But the decision was also influenced by "the United States' violation of the principle of the confidentiality of the agreement." Under the June 1995 protocol, Russia pledged to complete all existing contracts to deliver conventional arms to Iran by December 31, 1999 and to not sign new contracts.

Russia's intentions to reject the obligations it assumed under this agreement were first announced in March 2000 by then Security Council Secretary Sergei Ivanov. Then Defense Minister Igor Sergeyev had earlier mentioned the existence of such an agreement, and warned that Russia would demand that it be revised. In October 2000 the influential Russian daily Nezavisimaya Gazeta published an article by commentators Dmitry Gornostayev and Igor Korotchenko that talked about the financial losses Russia would suffer from implementing the protocol. It said that the losses "are estimated by experts at about $4 billion, of which $2 billion in losses from the cancellation of contracts already signed with Teheran and another $2 billion on contracts in the stage of development and to be scrapped as a result of the Gore-Chernomyrdin agreement. Lost benefits from Russia's pledges not to develop cooperation with Iran in certain directions should also not be forgotten"[1] . Moreover, the authors pointed out the legal provisions written into the protocol under which it could be cancelled. These included a change in the political situation in Iran (point 5 of the Memorandum) and a review of relations with this country by the signatories to the Wassenaar Arrangement on export controls for conventional weapons (point 7). The article also said that the "United States did not prevent the unsanctioned transfer of U.S. arms from the Near and Middle East to zones neighboring Russia".[2] It is notable that Russian officials used this argument, plus the fact that the American press divulged some of the provisions of the agreement during the U.S presidential election campaign, to justify Russia's decision to withdraw from its obligations under the 1995 protocol. It is obvious that the publication of this article in Nezavisimaya Gazeta was part of the propaganda effort to pull Russia out of the protocol.

After Russia informed the United States that it was withdrawing from the protocol, Defense Minister Igor Sergeyev visited Iran. The Russian delegation included the deputy general director of the just formed state arms exporter "Rosoboronexport", Viktor Komardin, who heads the company's work with Iran. The topic of military-technical cooperation (MTC) with Iran was also in the spotlight during Iranian President Mohammad Khatami's visit to Russia. But as of the beginning of April, Russia and Iran had not signed any new contracts for conventional arms. Such contracts may be signed in the course of this year, and their execution is not expected to begin earlier than next year.

Soviet-Iranian and Russian-Iranian military-technical ties

Soviet-Iranian military-technical cooperation began soon after the end of Iran's drawn-out war with Iraq. During this war the former USSR was an active arms supplier to Iraq, which was the main thorn in Soviet-Iranian relations. Neither the Soviet invasion of Afghanistan, nor the ideological differences between the two authoritarian regimes created such tensions as Soviet deliveries of aircraft and armor, as well as military advice, to Iraq. Iran's chief supplier of arms and military hardware during the war was China.

But immediately after the end of hostilities, the USSR and Iran established close contacts that by 1989 had already resulted in the signing of the first agreements. In that year Russian military training facilities began to accept the first Iranian students.

A total of four Soviet-Iranian intergovernmental agreements were signed, on November 5, 1989; May 17, 1990; April 24, 1991 and November 13, 1991 worth a total of about $5.1 billion, according to Russian press reports[3]

These agreements are described in the following table.

Soviet and Russian contracts and deliveries to Iran since 1989

Source: Igor Korotchenko. "Rossiya i Iran vozobnovili sotrudnichestvo", Nezavisimoe voyennoe obozrenie, No. 1, January 12-18, 2001, p.6

It is worth noting that Iran did not get its hands on any really state-of-the-art and/or really destabilizing weapons systems. The delivery of large numbers of battle tanks and infantry fighting vehicles partially rectified the imbalance that existed between the Iraqi and Iranian armies throughout the first war in the Gulf. The S-200 air-defense system has a long range, but the guidance system is obsolete and probably well-known by the U.S. and Israeli military. The 877EKM-class submarines have a large displacement that prevents their effective use in the shallow waters of the Persian Gulf. Theoretically, they could be used in the Arabian Sea, but even there their combat effectiveness is reduced by the lack of missile systems fitted to Russian submarines of the later 636M and 677 (Kilo) classes. The MiG-29S fighters delivered to Iran do not have high-precision capabilities for ground targets, and can only apply unguided air-to-ground weapons. The most sensitive contract that could have had a destabilizing impact on the situation in the Persian Gulf was the delivery of the 12 Su-24MK fighters. But even this transfer looks more than modest alongside the delivery of dozens of Tornado and F-15E/F fighters to Saudi Arabia.

Outlook for Russian-Iranian relations

In the next few years Russian-Iranian military-technical cooperation will develop under the influence of the following factors:

• Russian efforts to minimize the negative impact of arms deliveries to Iran on Russian-American relations, and Russia's relations with the rich monarchies of the Persian Gulf;

• the presence in Iran of a relatively developed, by regional measures, defense industry, as well as a sufficient number of qualified technical personnel;

• the limited financial potential of Iran, which cannot afford to allocate major resources for conventional arms purchases abroad;

• the considerable heterogeneity of Iran's stock of armaments, the large number of obsolete Soviet/Russian, American and Chinese weapons in the Iranian airforce, navy and ground forces.

Consequently, in the next two to three years it is most probable that Russia will deliver air-defense systems, modernize the aircraft fleet and armored units, and transfer licenses for production in Iran of non-destabilizing weapons systems.

In 1998 Iran showed an interest in continuing and expanding MTC with Russia. It announced plans to buy eight divisions of S-300PMU1 (SA-10) air defense missile systems, 1,000 Igla (SA-18) portable anti-aircraft missile systems, 25 Mi-17-1V (Hip H) military transport helicopters, eight Su-25 (Frogfoot) jets, as well as S-300VM (SA-12) anti-aircraft missile systems, Gamma-DE and Kasta-2E2 radars, and other military goods worth a total of about $2 billion[4] .

"Rosoboronexport"'s Viktor Komardin said during the Russian defense minister's visit to Iran that Iran could become the third largest importer of Russian arms, buying up to $300 million worth annually. Teheran is thought to be most interested in building a comprehensive air-defense system for the country, air-defense for nuclear and defense industry installations, licensed production of a number of ground, naval and airforce weapons systems, modernizing its existing combat aircraft, setting up servicing, repair and training centers, and cooperation in space programs.

Russia will probably be quite restrained when it comes to supplying Iran with modern, destabilizing weapons systems. It is not definite that long-range S-300PMU-1 air-defense systems will be supplied to Iran. The country will not get its hands on the S-300VM air-defense system, which has considerable anti-missile potential. And considering the possibility of re-exports to Palestine and Libya, Russia may refrain from selling Iran Igla portable SAM systems.

Iran desperately needs to modernize its big and motley aircraft fleet, so the next priority after the purchase of medium- and short-range air-defense systems will probably be to modernize MiG-29 fighters, and possibly its American F-14s and F-4s. But it is unclear if Russian companies and design bureaus have the technical capabilities needed to update American planes. Theoretically, Iran's ground forces are also interested in modernizing the 422 T-72S main battle tanks delivered in the 1990s, and possibly the 413 BMP-2 infantry fighting vehicles delivered over the same period. Moreover, Russia is still contractually obligated to deliver another 578 of the tanks and 1,087 AIFVs under the contract signed on November 13, 1991. But Iran may want to revise this contract in order to buy more modern hardware, for example T-90S tanks and BMP-3 instead of the obsolete T-72S and BMP-2.

Even if Russia receives such a request from Iran, it will not agree to supply Teheran with anti-ship missiles, modernize existing submarines in order to install missile systems, or supply the heavy, multi-purpose fighters of the Su-27/30 (Flanker) family. All these systems could be used for a blockade of the Straits of Hormuz, and their delivery would trigger a crisis in Russia's relations not only with the United States, but also with the rich oil monarchies of the Persian Gulf.

Limits to Russian-Iranian military-technical ties

Russian-Iranian military-technical ties will be restricted by the following factors:

• American pressure on Russia to restrict or completely end military-technical ties with Iran;

• Iran's financial limitations;

• the possible negative reaction of the Arab monarchies in the Persian Gulf;

• competition from other arms exporters on the Iranian market.

U.S. Pressure

The United States, which reacts very negatively to any economic, not to mention military, relations between Russia and Iran, will probably put heavy pressure on Moscow not to allow new arms sales to Teheran. The United States has an extensive arsenal with which to bring pressure to bear on Russia, including:

• the ability to influence the position of international financial organizations such as the International Monetary Fund and World Bank in order to prevent Russia from receiving new loans, as well as the World Trade Organization;

• the ability to exert influence on the London and Paris clubs of creditors on the issue of restructuring Russian debts;

• the ability to restrict the access of Russian metals, mineral fertilizer and textile producers to the American market;

• the ability to impose restrictions on Russian companies' access to American technology;

• and even the ability to impose restrictions on the launch of U.S. satellites aboard with Russian rockets.

The combined economic and commercial damage of all such potential sanctions is impossible to measure, but it is obvious that it would considerably exceed the gains of resuming Russian-Iranian military-technical cooperation. For example, just the launches of American satellites or satellites with American technology or components earned Russia's Khrunichev space center more than $2 billion from 1996 through 2000, or an average of $400 million per year. Therefore it can be said with a fair degree of confidence that Russia will not resort to selling Iran weapons that the United States would consider a threat to its military and political interests or the interests of its close allies - Israel, Saudi Arabia and Kuwait, among others. Such weapons include the heavy, multi-purpose fighters of the Su-27/30 family, the Su-30MK, Su-35 and Su-32FN; anti-ship missiles of various type that could threaten the security of navigation through the Straits of Hormuz; portable anti-aircraft missile systems that Iran could pass on to Islamic extremists in Libya, Palestine and other regions. The delivery of main battle tanks, BMP-2 infantry fighting vehicles, multiple launch systems, self-propelled artillery and other weapons and hardware for ground forces, Su-25 attack jets, combat helicopters of the Mi-24 (Hind) family, and Mi-8 (Hip) and Mi-17 transport helicopters, on the other hand, would affect the balance of power between Iran and Iraq, and would not threaten the security of the vulnerable monarchies on the southern coast of the Gulf.

Iran's limited financial resources

Iran is a country with limited resources suffering from a shortage of means for intensive economic advancement and securing social and political stability on its basis.

The Iranian economy is still dominated by the inefficient government sector and marked by significant misproportions. Besides, Iran's solvency directly depends on world prices on oil and oil products the exportation of which brings up to 70% of its export returns and 50% of budget revenues. Thus, in 1998/1999 Iran's financial position sharply worsened after a drop in world oil prices from $16 for a barrel in 1997/1998 to $10.5 for a barrel in 1998/1999. The GDP growth contracted from 3.1% in 1997/1998 to 2.1% in 1998/1999, a deficit appeared in the current balance of payments and the budget deficit grew to 6.7% of the GDP. The government was forced to take emergency steps reducing forex reserves, cutting imports and restructuring foreign debt payments.

Resurging world oil prices in 1999/2000 strengthened Iran's position on the international financial market: it regained a surplus in the current balance of payments ($4.7 billion) and boosted export returns from $13.1 billion to $19.7 billion as well as forex reserves. However, the government continued a stringent policy in spending and industrial growth figures were below the levels of the mid-1990s. The GDP rise in 1999/2000 is estimated at 2.4% while the second five-year plan set the size of average annual growth at 6%. The per capita GDP is not increasing but even declining due to the rapid growth of the population, which doubled in twenty years. Direct foreign investments, mainly in the oil sector, remain low at merely $400 million in 1999/2000.

The Iranian leadership refrains from overheating the economy for the needs of its defense policy or the advancement of the armed forces. In 1998/1999-1999/2000 military spending remained at $5.7 billion while in the mid-1980s it exceeded $10 billion in stable 1999 prices[5] . It is indicative that Iran's per capita military spending is below $100 while in neighboring countries of the Persian Gulf (the United Arab Emirates, Kuwait, Saudi Arabia, Qatar) and in Israel it exceeds $1,000.

Long delays in payments for delivered arms remained a serious problem in Russian-Iranian arms trade throughout the 1990s. Thus in 1994 overdue debts for military property deliveries amounted to $380 million[6] . The shipment of the third submarine ordered by Tehran in 1990 was put off many times over payment problems. There were also regular delays in financing the organization of the production of T-72S tanks and armored personnel carriers in Iran. These and some other circumstances prompted Russian government experts to draw the following conclusions in the mid-1990s:

• given the unstable financial situation in Iran the interest of its leadership in acquiring big quantities of Russian armaments is economically groundless (in 1995 Tehran expressed readiness to raise imports of Russian machine-building goods and military hardware to $1 billion in one or two years),;

• Iran will hardly be able to assign more than $100-150 million a year for arms purchases, not counting spending on the organization the production of T-72S tanks and armored personnel carriers under license the cost of which would also amount to $100-150 million a year. Thus, Iran's combined imports of Russian arms and military hardware can not exceed $300 million a year;

• the Iranian leadership will strive to acquire arms and military hardware at advantageous terms, namely with medium-term export loans and partial payment with deliveries of Iranian commodities;

• at least in the first years after the resumption of full-scale arms trade and related services Iran will largely purchase spare parts and components to the weaponry delivered earlier.

Today in conditions of a more favorable situation on the world oil market (until December 2000 a barrel of crude cost over $30) and a significant stabilization of Iran's financial situation its solvency is somewhat better, but still there has been no radical change. It is also believed that in defense Iran will concentrate its main financial and intellectual resources on its ballistic program.
Before resuming large-scale cooperation in the military-technical sphere with Iran Rusisa will have to settle the question of debts and mutual payments, make an inventory of the mutual commitments under earlier agreements. The organization of bank services of Russian-Iranian arms trade contracts will constitute a separate problem: American banks will be closed for such transactions and settlements through West European banks will evidently be complicated.

Negative attitude of neighboring countries

The resumption of full-scale military-technical cooperation with Iran may have grave consequences for Russia's future contacts with conservative wealthy Arab monarchies, primarily the United Arab Emirates and Kuwait.

Until the mid-1990s Russia sold relatively big quantities of armaments to Iran, but later it turned its attention to countries in the south of the Persian Gulf that were especially anxious about Iran (and Iraq) and delivered certain defense systems to them. It is Iran (along with Iraq) that has been an thorn in the side of conservative Arab regimes for a long time prompting them to step up military spending and import the latest arms systems from Russia as well as in the Untied States and Western Europe. Among the recent deals one should mention the contract with the United Arab Emirates for 50 "Pantsir"-S1 (SA-19) surface-to-air missile systems estimated at $720 million. It was the biggest contract for the delivery of Russian arms outside "the zone of traditional partners" - India and China. There is no need to speak of the significance of the deal for the manufacturer - the Tula-based KBP Instrument Design Bureau. The Russian "Antey" Concern has started developing contacts with Saudi Arabia and in spring 2000 tested the "Granitsa" control and monitoring system.

Thus during the 1990s Russia managed to consistently advance in both promising markets - Iranian and Arab. However, it is understandable that such efforts imply certain restrictions in the deliveries of offensive and destabilizing arms systems. This applies primarily to weaponry that can be used for blocking the Strait of Hormuz, for instance, the Yakhont (SSN-X-26) air-to-ship and surface-to-ship cruise missiles together with aircraft and naval carriers for them. Russian experts believe that deliveries of offensive weapons to Iran are undesirable because of the country's proximity to Russia's southern borders. In their opinion, the emphasis should be on deliveries of defense armaments and dual-purpose equipment and also on assistance in developing the military infrastructure: the construction of airfields, naval bases and a repair network[7] .

Competition from other countries

Remaining in relative isolation during the past two decades Iran was forced to establish military-technical ties with such countries as China, South Korea, Libya, India and Poland. At the beginning and in the middle of the 1990s Ukraine and Poland tried to intercept the Russian contract for T-72 tanks. In 1994-1995 Poland sold over 100 T-72M1 tanks to Iran. Ukrainian "Ukrspetsexport" arms trader won a long-term contract for the delivery of spare parts for Soviet-made tanks. Georgia and Moldova also attempted to enter the Iranian arms market by offering Su-25 attack aircraft and MiG-29 fighters respectively. In both cases the deals were foiled by U.S. interference. China delivered a group of F-7 fighters (the Chinese version of the MiG-21 (Fishbed) fighter), 155 mm artillery guns and C-802 (Saccade) air-to-ship missiles.

Relations between those countries and Iran in the future are also quite possible given the long experience of cooperation, including contacts on questions of operating Russian-made military hardware (repairs, upgrading etc.). Besides, Tehran has reiterated on many occasions its policy of diversifying suppliers of arms and military hardware. Thus, in 1996 Defense Minister Mohammed Foruzande in an interview disagreed with the claim that in the past Iran had been fully dependent on the United States in defense and then became similarly dependent on Russia. "Even though we satisfy part of our needs by importing armaments we do not depend in any way on some one country," he said.

In the future, if the EU lifts its embargo on arms deliveries to Iran, Germany and France will enter the market. They are beginning to cooperate with Iran on a number of civilian projects and to invest in the Iranian economy. Besides, Germany is Iran's biggest creditor. After Mohammad Khatami came to power in Iran in 1997 and adopted the policy of reforming the country and expanding democracy, the improvement of relations with West European countries and the EU became a key foreign policy direction. One should not rule out the possibility that Ukraine will intensify efforts to expand its presence on the Iranian arms market (rocketry, armored vehicles, radioelectronic combat means, repair services).

Russia's Iranian dilemma: foreign policy tool or geostrategic partnership

In the long run Russian-Iranian military-technical relations depend on their current and future essence. On the one hand, it is possible that Russia's rhetoric and diplomatic activeness at the time when this article is written (April 2001) that have not led to new contracts, are nothing but an instrument of receiving economic and military-political compensation from the United States and other Western countries. This hypothesis explains the clearly exaggerated estimates of possible Russian-Iranian military-technical cooperation ($4-7 billion). It is also more or less clear what compensation Russia could be interested in. In the military-political sphere it could be the renunciation of NMD by the United States, in trade and economy - access to the U.S. steel and textile markets, the restructuring of Russian debts and the removal of restrictions on space launch services.

However, a different philosophy of Russian-Iranian cooperation in arms trade is much more probable. In the framework of this other approach arms deliveries to Iran will become only one, possibly first but not only and even not the most important element of the entire set of bilateral relations. The other components of these relations could be:

• cooperation in resisting Sunni unification efforts in the Caucasus and Afghanistan;

• cooperation on defining the Caspian Sea status;

• the development of a common approach to oil pipeline routes;

• the military-political deterrence of Turkey with its rapidly growing military and defense industry potential;

• the implementation of joint projects in civil aviation. Ukraine is currently working on one - the Antonov-140 short-range aircraft. The Russian Aircraft Corporation "MiG" is negotiating the beginning of a similar but more ambitious program of the Tu-334 short-range aircraft;

• the exportation of Russian space services, satellites and technologies to Iran;

• and finally cooperation in organizing a transport corridor from the Baltic Sea, down the Volga-Caspian system to Iranian ports on the Persian Gulf coast.

In the framework of the scenario Iran would become not simply a military-political partner but a key geoeconomic partner of Russia in the Middle East. In the world today geoeconomic alliances also strive to rapprochement in defense. Thus, in case the second scenario materializes Russian-Iranian arms trade will somewhat expand despite all the limitations named above.

Conclusions and forecasts

It is most likely that Russian-Iranian arms trade will develop as an element of their broader geoeconomic partnership. Its volume will not exceed $200-250 million a year with possible peaks approaching $300 million. The main aspects of arms trade will be deliveries of short and medium range air defense systems, the completion of a large-scale license agreement on tanks and armored vehicles, the repairs and upgrading of Soviet/Russian and possibly American arms and military hardware delivered earlier. Russia will not agree to sell offensive armaments or such weapons that may be used to threaten safe seafaring in the Strait of Hormuz or the sovereignty and territorial integrity of the United Arab Emirates or other monarchies of the Gulf.

Notes:

[1] "Sdelka Gor-Chernomyrdin: ushcherb Rossii - chetyre milliarda?", Nezavisimaya Gazeta, No. 198, 19.10.2000, pp. 1,6
[2] Ibid.
[3] Igor Korotchenko. "Rossiya I Iran vozobnovili sotrudnichestvo", Nezavisimoe voyennoe obozrenie. No. 1, 12-18.01.2001, p.6
[4] Ibid.
[5] Estimates of the International Insitute for Strategic Studies, The Military Balance-2000/2001, IISS, London, 2000.
[6] Information of Russia's Ministry for Foreign Economic Relations, INFO-TASS, "Oborona i Bezopasnost" database, 01.12.1996
[7] Sergei Kandaurov, "The Military-Technical Cooperation of Russia and Iran: Possibilities and Prospects", Eksport Vooruzheniy, No.6, 2000, pp.5-10