Russian officials say the country plans to reimburse Iran, after Moscow canceled the sale of an air defense missile system to Tehran. The announcement comes as the Russian president is on a one-day state visit to Cyprus.
In the scope of a $800 million contract brokered in 2005, Russia was obliged to send Iran at least five S-300 missile systems.
But last month, Russian President Dmitry Medvedev banned the sale of the missile systems following United Nations sanctions against such arms sales.
The U.N. imposed the sanctions in June for Iran's refusal to stop enriching uranium.
Mr. Medvedev also outlawed the sale of tanks, aircraft and sea vessels to Iran.
The proposed deal caused alarm in the United States and Israel as the S-300 can track 100 targets at once and fire on aircraft up to 75 miles away.
Possession of S-300 systems would have also boosted Iran's defense of its nuclear facilities against attack from the air.
The news comes on the heels of Russian President Dmitry Medvedev's first ever state visit by a Russian leader to the Republic of Cyprus.
Security was high in the capital, as the Cypriot government views this visit of crucial importance and a chance to display their strong ties with a superpower.
Government spokesman Stefanos Stefanou told VOA News that Russia and Cyprus will sign fifteen agreements during the visit ranging from a tax treaty to healthcare and tourism deals.
"It is very significant; I would say its very historic official visit. Russia is a very significant country in the world; it's a permanent member of the Security Council and very important country for Cyprus regarding the political and economic aspect of our relations," he said.
Ties between the two countries are strong with more than 10,000 people of Russian origin living and working in Cyprus. The island is one of the largest foreign investors in the Russian economy.
"The Soviet Union at that time was one of the first countries that recognized the Cyprus republic, and since then the bilateral relations between the two countries are at a very good level," said Stefanou.
Thousands of offshore companies registered on the island are Russian, which re-invest profits, taxed at a lower rate in Cyprus, back into Russia.
Cyprus is also a big foreign destination for Russian money, receiving $16.6 billion since 1991.
"The investments of Russians in our country are very high, so the financial aspect of the visit is very significant as well. So, and politically and financially the official visit of Mr Medvedev is very important for our country," Stefanou added.
The Russian president, who is accompanied by a multi-party delegation, leaves the island Thursday night.