MOSCOW - It has only recently emerged that Russia and Iraq have been secretly working on major arms deals. During Iraqi Prime Minister Nuri Al-Maliki's visit to Moscow in October, it was revealed that Iraq had already signed a contract to purchase 30 Russian-built military helicopters and 42 rocket launchers for $4.2 billion, with plans to purchase additional Russian fighter planes.

However, this past Saturday an advisor to Al-Maliki announced that the Russian-Iraqi contract was cancelled. “When Al-Maliki returned from Russia, he was suspicious about corruption in this contract. That is why he decided to re-examine the whole deal,” Ali Musavi, the advisor, announced, adding that there was an investigation underway.

Immediately after the suprise announcement, Iraqi military officials tried to smooth things over, with Defense Minister Saadun al-Dulaimi holding a press conference denying the details of Musavi’s announcement. He suggested that there might have been a misunderstanding because of delays in the delivery of information to Iraq’s anti-corruption committee. But he stressed that the deal was still on.

Regardless of such assurances, Moscow is demanding an official explanation from Baghdad. “We are already in the middle of negotiations with our Iraqi counterparts, clarifying their position, including the contradictory announcements on Saturday,” a Russian government source told Kommersant. “We did not receive any notification of a change in plans on Baghdad’s part.”

According to Kommersant’s sources, neither of the government agencies responsible for handling the contract were notified about a possible cancellation of the contract, nor did the information make its way through government channels.

U.S. return on investment?

Kommersant’s sources said that there could be complications in the contract, but that they would come from a third party. “The United States has spent significant effort to disrupt the deal,” said one source close to the Russian government. “I would not be surprised if they tried to break it up or complicate it after it's done.”

Another military source was more blunt: “The Americans didn’t fight in Iraq for so many years to then give away the weapons market to Russia.”

Yet another source knowledgable with the Russian military exports explained that the first post-Soviet country to try to sell weapons in Iraq was Ukraine, but Russia beat them to it. That might have engendered hard feelings in Kiev.

Opponents to the deal have drawn particular attention to the cost -- $4.2 billion -- and tried to convince Baghdad that this was grossly overpriced for the goods Iraq would receive. As proof, the deal’s opponents brought out a 2006 deal between Russia and Syria that they said demonstrated that the Iraq deal was overpriced.

“There are indications that a number of our competitors in the weapons market were suggesting to Baghdad that there was corruption. They have been saying that the real cost of what we will provide is much lower and that the difference will line pockets,” said one source familiar with the negotiations. “When we wrote out the agreement with the Iraqi military, they did not ask those kinds of questions, and there was no talk of corruption.”

Experts also don't rule out the possibility that political factors inside Iraq may be complicating the Russia-Iraq deal. “Part of the Iraqi territory might become part of an independent Kurdistan,” said the Director of the center for strategic analysis Ruslan Pukov. “Representatives from the Kurds in the Iraqi government might be reluctant to arm the central government in Baghdad with the Russian fighter planes and helicopters that might be used against the Kurds.”

If the contract is in fact cancelled, the United States will remain the No. 1 weapons supplier for Iraq -- and Russia will remain second. This would still create good conditions for the long-term growth of Russia in Iraq’s weapons markets, which experts say is full of potential. After the end of the war in Iraq, the country’s defense ministry started a comprehensive re-arming program that has already led to purchases of more than $12 billion from the United States.