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Monday, March 19, 2007

Russia's changing Iran policy

In an apparent recognition that its earlier efforts to engage Tehran failed to bring any meaningful results, Russia lashes out at Tehran's obduracy, announcing a delay in the Bushehr nuclear power plant project.

Commentary by Sergei Blagov in Moscow for ISN Security Watch (14/03/07)

Russia's state-run Atomstroiexport company announced on 12 March that the Iranian-based Bushehr plant would not become operational sooner than November due to delays in funding commitments from Iran. The company said that even if Iran renewed funding, Bushehr would not join Iran's power grid before 2008. On 13 March, the company voiced confidence that Iran would pay up, warning that if it failed to do so, the project could be shelved.

Russian nuclear power agency Rosatom said that under an agreement signed last September Iran was due to pay Russia US$25 million a month, but paid nothing in February. Rosatom said the lack of funds would affect the date arranged to send nuclear fuel to Iran. Iran's Atomic Energy Organization has reportedly denied Russia's claim of payment delay, insisting that Tehran has honored all its financial commitments.

Signed in January 1995, the Bushehr contract involved the Russian supply of one VVER-1000 reactor, the training of Iranian specialists and the delivery of nuclear fuel for the reactor. Bushehr was originally expected to go online this year. In recent years, Iranian officials suggested that Russia could become a partner in lucrative projects to build 20 nuclear power stations in Iran with a total capacity of 20,000 megawatts.

Last September, the two sides agreed on a new timetable under which Russia would deliver fuel to the power station this March, six months before the start-up of the reactor that was scheduled for September 2007 in order to produce energy in November.

The Russian announcement of a delay in the Bushehr contract was followed by accusations that Tehran had abused Moscow's patience. On 12 March, Russian news agencies quoted an anonymous high-ranking source in Moscow accusing the Iranians of abusing Russia's "constructive" approach, inflicting foreign policy damage and undermining Russia's image. The source urged Iranians to "answer for themselves."

Tehran appeared to take the Russian accusations seriously, dispatching a senior official to Moscow. On 13 March, the Russian Foreign Ministry said Moscow and Tehran had "confirmed their loyalty to the diplomatic settlement of the Iranian nuclear problem." Russia also urged Iran to respect UN Security Council and International Atomic Energy Agency (IAEA) resolutions. The statement was made following a visit to Moscow on 12-13 March by the deputy head of Iran's Supreme National Security Council, Ali Hosseinitash.

The UNSC may vote on proposed sanctions by the end of this week, possibly including an embargo on arms exports and a ban on government loans to Iran. Russia holds a veto in the UNSC.

Until recently, Moscow was keen to mediate in the dispute between Iran and the West, suggesting a plan to meet Iran's uranium needs by carrying out enrichment on Russian soil. Tehran repeatedly indicated interest in the joint enrichment plain, which could have broken an international deadlock, but Teheran refused to suspend domestic enrichment in return.

In January 2006, Russia proposed creating a global nuclear processing infrastructure for all interested nations. Russia offered to build an international center on its soil to offer nuclear fuel services, including uranium enrichment under IAEA control.

A month later, Iran claimed it had reached a "basic agreement" with Russia on joint enrichment, but little actual progress has been achieved so far due to Tehran's refusal to suspend domestic enrichment, the main demand of the West.

In March 2006, the Iranian Foreign Ministry said Tehran was no longer considering Russia's proposal to move uranium enrichment to Russia and was instead considering large-scale uranium enrichment at home. Foreign Minister Sergei Lavrov lashed out at Tehran for its reluctance to accept the Russian compromise.

Nonetheless, Russia reiterated its opposition to sanctions against Iran until it had seen hard evidence that Tehran was pursuing nuclear weapons.

Permanent members China and Russia, both with significant commercial interests in Iran, oppose UN sanctions against Iran. They have yet to endorse a draft Security Council statement by the other three permanent members - the US, the UK and France - that calls on Iran to halt all uranium enrichment and demands a new IAEA report in the next two weeks.

Despite western concerns, Moscow has long insisted it would sell weapons to any country that had not violated international regulations. Moscow signed a US$700 million deal to supply Iran with 29 units of TOR-M1 (SA-15 Gauntlet) surface-to-air defense systems, delivered late last year. Russia also sold eight aerial tankers for refueling Iranian aircraft. In July 2006, Rosoboronexport reportedly signed a contract with Iran to upgrade 30 Su-24 jets, which are believed to be capable of serving as carriers of tactical nuclear weapons.

In the early 1990s, Russia delivered three Project 877 diesel submarines, eight MiG-29 fighters and a T-72 tank production license to Iran, as part of a series of deals dating back to the 1980s. In 1995, Russia and the US signed a secret memorandum obliging Moscow to stop weapons deliveries Iran by 31 December 2001, and to refrain from signing any new arms deals with the country. Russia pulled out of the deal in 2000.

In March 2001, Russian President Vladimir Putin and then-Iranian president Mohammad Khatami signed a cooperation treaty. In October 2001, Moscow and Tehran signed framework agreements for US$300-$400 million a year of Russian military supplies to Iran, including spare parts for Russian-made weapons, new fighter jets and possibly air defense, ground-to-ground and anti-ship systems.

Iran had the potential to become Russia's third largest arms customer, after China and India. Tehran is also reportedly interested in acquiring medium- and long-range air defense missiles, ground-to-ground missiles, Sukhoi-27 fighter jets and armored infantry vehicles. It is also reportedly keen to buy anti-ship missile systems in order to control crucial sea routes in the Persian Gulf. Some Iranian officials indicated that Russia could overall earn up to US$7 billion by resuming full-scale military cooperation with Iran. However, these deals have never materialized, with Russia reluctant to antagonize the West.

Earlier this year, Washington imposed new sanctions on three Russian companies and organizations - arms exporter Rosoboronexport, Russia's Tula Design Bureau of Instrument Building (KBP) and the Kolomna Design Bureau - for allegedly selling missiles and weapons goods to Iran and Syria.

In January, Russia criticized the US sanctions, describing them as "an illegal attempt to apply its internal legislation on foreign companies and force them to abide by the US rules." Rosoboronexport dismissed the sanctions as "unfair competition."

Russia has a history of being targeted by US sanctions, designed to forestall arms sales to Iran. Among others, in August 2006, the US imposed sanctions against two of Russia's major arms exporters, Rosoboronexport and Sukhoi, for arms deals with Iran. The sanctions fall under the Iran-Syria Non-Proliferation Act. Moscow dismissed the sanctions as the practice of "dishonest competition."

In November, Washington formally lifted the sanctions against Sukhoi, which is developing the Russian Regional Jet with Boeing.

Apart from the Bushehr project, Russia has significant economic and energy interests in Iran. Trade between Russia and Iran was up from US$660 million in 2000 to US$2 billion in 2005, including US$1.9 billion in Russian exports to Iran. Last year, bilateral commerce remained stable at about US$2 billion, with Russia still enjoying a healthy surplus.

In December 2006, Russian deputy Industry and Energy Minister Ivan Matyorov said in Tehran that Iran had suggested cooperation with Russian oil and gas giants in developing new deposits. Russian state-controlled oil company Rosneft could soon start developing deposits in Iran, while LUKoil Overseas would develop Iran's Anaran deposit, he said. "[Iranians] would like to cooperate with Gazprom" in Iran and other countries, including Venezuela and Bolivia, he said. Such plans between Gazprom and Iranian companies in Venezuela and Bolivia could come as an apparent affront to Washington.

Russia's Gazprom has been already developing Iran South Pars phases 2 and 3, the giant gas field, near the border between Qatari and Iranian waters in the Persian Gulf. The gas field is estimated to contain around 812 trillion cubic feet (14 trillion cubic meters) of gas, equal to seven percent of the world's proven reserves and roughly 50 percent of Iran's.

Russia also mulled some major multilateral projects involving Iran. Russia, India and Iran signed an agreement on the development of the North-South corridor in September 2000.

Therefore, even apart from nuclear and arms deals, Russia still has a lot to gain, or loose, in terms of economic ties with Iran. Nonetheless, as Moscow's patience with Tehran has been wearing thin, the Kremlin now seems prepared to review its Iran policy, despite possible economic repercussions.
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