Russian made S-300 missile, Kremlin
A Russian-made S-300 missile Photo by Kremlin
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Russia will return to Iran an advance payment of $166.8 million to compensate for its failure to deliver S-300 missile systems, the head of state-controlled conglomerate Russian Technologies, Sergei Chemezov, said on Thursday.

Russian President Dmitry Medvedev banned the delivery of the high-precision air defense missiles to Iran last month, saying that sending them would violate sanctions adopted by the UN Security Council against Tehran in June.

Iran had criticized Russia for abandoning the deal, which the United States and Israel had urged Moscow to drop because of fears Tehran could use the missiles to protect nuclear facilities they suspect are part of a weapons program.

Russian officials had made conflicting statements about whether Russia would have to compensate Iran for failure to fulfill a contract Tehran first revealed publicly in 2007.

Chemezov suggested compensation was required under the contract, but the announcement also appeared aimed at appeasing Iran after pleasing Washington and Israel by scrapping the missile deal.

"We annulled the contract, now we are conducting talks about how to compensate the losses they have incurred," Chemezov, accompanying Medvedev on a visit to Cyprus, told reporters.

Chemezov said that Russian Technologies expected to receive the money from the state and would then make the payment to Iran. He said it was unlikely to happen until next year.

In recent years, Russia had appeared to use the missile contract as a lever in diplomacy with Iran and the Western nations pressing to punish Tehran over its nuclear program.

Moscow's support for a fourth round of UN sanctions was part of a gradual shift closer to the tougher stance the United States and European Union have taken towards Iran.

Russia, which has built Iran's first atomic power plant, supports Western efforts to make Iran prove its nuclear program is purely peaceful, but strongly opposes the use of force against it.
Iran is Russia's biggest trading partner in the Middle East.

Bilateral trade totaled e3 billion in 2009, of which Russian exports to Iran -- mainly ferrous metals, cars and arms -- accounted for 93 percent.