'The sale of two submarines to Iran is not on our agenda because of difficulties in reaching a settlement between Russia and Iran on the delivery of special equipment and military materials,' said Vladimir Pakhomov, who heads the military-technology co-operation department in the Russian Foreign Trade Ministry.
On Thursday Moscow made it clear that it planned to go ahead with its plan to sell two diesel-powered submarines and two small nuclear reactors, despite repeated US protests.
The Russian government has relaxed controls of arms sales in the hope of expanding the weapons trade to provide much-needed foreign currency for economic reforms. But Western governments, and the US in particular, are concerned that a Russian arms selling spree would make certain regions more unstable.
Western governments are also being lobbied furiously by Western arms dealers who are facing tougher competition from the cheaper Russian products now flooding the international market.
The dispute over the proposed sale of the submarines burst into the open in New York this week after the acting US Secretary of State, Lawrence Eagleburger, said he was concerned it might create more instability in the Middle East. If the sale had gone ahead, Iran would have been the first Gulf country with submarines. US Navy officials took the view that this would have introduced a new threat to naval operations there.
In the face of the US concerns, Russia immediately backed down. Mr Pakhomov said that the sale of submarines would not go ahead for the time being because of a dispute over payments covering trade between the two countries.
One of the reasons why the US is so concerned about Russian arms sales is that, despite the end of Soviet power, much mystery still surrounds arms sales by Moscow.
For example, the Russian government says that it sold dollars 1.5bn of arms last year but this figure is misleading. It was calculated by taking into account a massive devaluation of the rouble, and does not include huge discounts given to some long-standing clients, such as Syria and Libya. The true figure is closer to dollars 4bn or dollars 5bn, according to government sources. In the deliveries were 553 tanks, 658 other armoured vehicles, 1,783 missiles of various types and other items.
During the 1980s the Soviet Union sold up to dollars 12bn of arms a year but nevertheless the lower figure today represents a substantial challenge to Western arms dealers, because the Russian government is selling in markets that Moscow once found ideologically unacceptable.
In the case of Iran, which was the former Soviet Union's best client last year and which is being developed aggressively by Russian arms traders, strong rivalry is developing between Russia and the US.
The Russian Foreign Minister, who is in New York for the United Nations General Assembly, has brushed aside US concerns and defended the sale for strategic and economic resaons. An official at the Russian foreign ministry in Moscow said the US concerns about the sale of the submarines were 'being dictated not by political considerations, but by the desire of the United States to return to the Iranian arms market, which it had controlled under the Shah'.
The US government is likely to keep up pressure on Russia to maintain stricter controls over its arms sales because Russian arms manufacturers are now allowed to market their weapons and negotiate arms deals freely.
WASHINGTON - President George Bush is likely to sign into law a nine-month moratorium on US nuclear testing and a 1996 halt to the testing, congressional and administration sources said yesterday, Reuter reports.
But Mr Bush is likely to sign that law with a clear understanding that he will try to revise it later to allow US nuclear testing beyond 1996, the sources said.