Making sense of Russia's arms deals with Iran and China

In a surprising turn of events, Russia announced plans on April 13 to go ahead with the delivery of S-400 long-range surface-to-air missile systems to China and S-300 missile systems to Iran. The two announcements were made on the same day but for very different reasons. On the surface, this is seemingly Russia’s attempt yet again to irritate the U.S. with potentially game-changing moves for the Middle East and East Asia, but the real reason is Moscow’s attempt to save its emerging but vulnerable alliances. 

The Iran missile deal

The contract for delivery of Russian S-300 missile systems to Tehran was initially signed in 2007 but cancelled by President Medvedev in 2010 due to international sanctions against Iran. Russia’s decision was seen by many as a gesture to the U.S. during the “reset” period in bilateral relations. Iran was furious at Russia and filed a $4 billion suit with the Geneva Arbitration Court against Russia for canceling the $800 million deal.

The announcement of a framework deal on the Iranian nuclear program on April 2 was certainly worrying to Russia (even though Moscow is part of the P5+1 group negotiating it). Both Russia and Iran benefit from their alliance into which they were forced by Western sanctions. But once and if the Iranian market opens up to the West when sanctions are lifted, Russia’s position as a strategic partner will be undermined in many areas, including defense and possibly, the nuclear industry.

Russia’s plan is to lock Iran into as many arms deals as possible before international sanctions get lifted. The nuclear deal is expected to be reached in June of this year, and sanctions against Iran could be lifted in 2-3 months. This means that as soon as autumn 2015, Tehran could be engaged in arms talks with Western countries. If Russia fails to get Iran to sign a new deal before the end of June, Tehran may decide to look for another arms supplier and this is exactly what Russia is trying to prevent.

In February, Russia indicated that it might supply upgraded its S-300VM (Antey-2500) missile systems instead of its older S-300 type to Iran. But there is not enough time before June to negotiate a new contract for the S-300VM, meaning that Russia is likely to go ahead with the old S-300 as per the 2007 contract, which doesn’t require additional talks and which is readily available.

It is noteworthy that the announcement regarding the lifting of the ban on S-300’s delivery to Iran came hours after reports that Russia had started supplying grain, equipment and construction materials to Iran in exchange for oil under a barter deal. Announcing the barter deal two and a half months before the expected technical deal on the nuclear program doesn’t make much sense unless Russia expects that Tehran, which is strapped for cash, will continue paying for missile systems with oil in the future. 

The Chinese missile deal

The announcement of a contract for S-400 missile systems with China did not come as a surprise to analysts. Putin approved this deal back in March 2014, and reports in November indicated that the contract had, in fact, been signed. This time the Head of Rosoboronexport, Russia’s state defense company, announced that China had signed the contract for 6 divisions of S-400 and would become its first foreign buyer. 

Many foreign clients have expressed interest in the S-400, including China, Saudi Arabia, Belarus, Turkey and Kazakhstan, but Russia was reluctant to put it up for sale primarily due to its ambition to equip the Russian Army with this system first. The timeframe in which the decision about the delivery of S-400 systems to China was made is also very telling. Between March and November 2014 when a contract for the delivery of S-400 to China was being discussed and finalized, Moscow and Beijing sealed a “historic” gas deal worth $400 billion.  

Gazprom is believed to have made significant concessions to China in terms of the price of gas and investment plan to have the deal signed after decade-long negotiations. Gazprom went as far as to “reject”a $25 billion pre-payment for the gas pipeline from Beijing, which was likely a result of China’s pressure. At a time when Russia was seeking to showcase its energy pivot to Asia due to tensions with Europe over the Ukraine crisis, its readiness to make numerous concessions to Beijing is not surprising. The delivery of the S-400 could be one of these concessions Russia was forced to make to China.

The article first appeared in Russia Direct