A week ago, a Russian newspaper reported that Russia was preparing to sell Azerbaijan two batteries of S-300 air defense systems. That report has yet to be confirmed, and it has been denied by all sorts of sources, but it has nonetheless resulted in a tidal wave of speculation in Yerevan and Baku.

The deal, if it actually happened, would be worth $300 million and be the largest single purchase by any post-Soviet state (other than Russia). There are reasons for skepticism: $300 million is about a quarter of Azerbaijan's current defense budget, which is a lot to spend for two air defense systems. And Russia hasn't sold Azerbaijan any arms of note since the early days of independence, Moscow, of course, being more traditionally aligned with Armenia. One Armenian report called it a "betrayal."

Regional analysts all are all over the map on whether it's true...

Nezavisimaya Gazeta reports that the source in the Russian Defense Ministry confirmed Moscow’s readiness to sell two divisions of S-300 PMU-2 Favorit anti-missile complexes. The amount of the possible contract is at least $300m. Other facts also confirm the possible deals.

According to sources in the Russian defense ministry, Azerbaijani military students have been studying at the military academy of Airspace Defense in Tver also studying anti-missile S-300. The source considers that Rosoboronexport did it right to dismiss statements about the sale of Favorits to Baku. “This deal is just being negotiated but the government has already passed a principal decision on this issue”.

or not ...

Those statements containing information about Moscow’s possible delivery of anti-aircraft missile launchers C-300 to Azerbaijan are not true, an unnamed defense ministry senior official told Russian Interfax agency.

“There are not any agreements on C-300, and they will hardly be signed in the near future. It is impossible to describe the absurdity of the whole thing. Those statements are bluff, a profanation,” the source is quoted by Interfax as saying.

He said “the supply of Russian C-300 rockets to Azerbaijan is impossible today.”

But it seems clear that it would make a big difference in the balance of forces:

Azerbaijan’s purchasing two batteries of the S-300PMU2 Favorit air-defense system will cause a radical change in the regional arms race, the military expert Artsrun Hovhannisyan told NEWS.am. Although the information has not yet been confirmed, official sources are normally silent in such cases, he stressed.

Russia’s official position is logical: since there is an agreement to supply air-defense systems to a state, which is an enemy of Russia’s strategic ally, Armenia, their unwillingness to comment on the deal is natural. Any comments that the supply of such air-defense systems to Azerbaijan is unlikely or that S-300 is a purely defensive system and does not pose any threat to Armenia are, at least, unfounded. The S-300PMU2 Favorit air-defense system are of much superior quality than the arms that have until now been supplied to the South Caucasus.

It is with this last factor that military experts should be concerned most, as the old offensive weapons (missiles with a flight range of 500km and rate of fall of 4-4.5km per second) will become highly vulnerable. Moreover, the presence of the S-300PMU2 Favorit air-defense system in the region may enhance the quality of offensive weapons. Overcoming the defense of the S-300PMU2 Favorit air-defense system necessitates the purchase of the Iskander-E missile system, the MGM-140 Army Tactical Missile System (ATacMS) or powerful radioelectronic systems with their own carriers.

“These systems are very expensive, but there is no alternative in ensuring national security,” the expert says. Some air-to-ground missiles are effective against S-300PMU2 Favorit, but, of purchased, they require powerful carriers.

But for now, it seems wise to follow the advice of ace Armenian analyst Alexander Iskandaryan, and not worry about it quite yet:

[I]t is early to speak about the reliability of the information. He noted that such large-scale transactions are reported to international organizations, while there is no report for the present.

Still, very much worth watching.