Iran and Armenia have signed a major arms deal worth $500 million, a source familiar with the situation told Iran International, in a move that could anger Azerbaijan as Tehran supplies Yerevan its infamous suicide drones.

Armenia and Azerbaijan have fought two major wars since the collapse of Soviet rule in the early 1990s, with Azerbaijan retaking large chunks of its territory in 2020. Its forces last year captured the region of Nagorno-Karabakh, the chief focus of the long-running conflict.

Iran has repeatedly warned that it will not tolerate any changes to international borders in the region.

The reported agreement has been broken up into several contracts and was signed in the past few months, according to the source, who is a senior military official in the Middle East. Iran International has not identified them for their protection.

Iran International has obtained an exclusive list of the military items Iran is set to supply Armenia. That includes drones such as Shahed 136, Shahed 129, Shahed 197, Mohajer, and air defense missile systems like 3rd Khordad, Majid, 15th Khordad, and Arman.

This deal has not been reported before. The foreign and defense ministries of Iran and Armenia did not respond to Iran International’s separate requests for comments.

Update: After the publication, Armenia's Ministry of Foreign Affairs did not deny the deal, in an official email response to Iran International. "Armenia is currently diversifying its security relations within the framework of international law. We don't have any further comment on this," said a spokesperson for the Ministry of Foreign Affairs of the Republic of Armenia.

Armenia's Foreign Affairs Ministry sent another email after that, referring Iran International to an article written in a local Armenian publication, where the country's Ministry of Defense dismissed our reporting as fictitious and false. Iran International reached out to Armenia's Defense Ministry and never received a response.

Farzin Nadimi, an arms expert from the Washington Institute, said a deal of this scale is substantial for the Caucasus nation.

“Iran has sold Armenia drones [before] for example, and some other arms, but nothing at this scale,” said Nadimi.

Armenia’s Ministry of Finance reported that defense spending in 2024 increased by 81% as compared to 2020. Armenia’s defense budget in 2024 was about $1.4 billion, so the amount being allocated to Iran through this deal is about a third of that budget. It is not known how Armenia can afford this, but some analysts believe loan payments could be an option.

The Iran-Armenia arms deal goes beyond supplying suicide drones and air defense missiles. It also involves intelligence cooperation, close military relations, training, and the establishment of bases on Armenian soil, the source has revealed to Iran International.

“I don’t think the region will be happy. I don’t think the United States will be happy,” said Nadimi.

The source said that security cooperation between the two countries, including advancing arms deals, had been discussed during the visits of high-level delegations and technical teams from Iran in recent months.

Iran-Armenia ties have not come without some controversy.

During an interview with Armenian radio on June 28, Mehdi Sobhani, the Ambassador of the Islamic Republic of Iran in Armenia sent a bold message to the United States, stating “my message is that they [Americans] should not interfere unnecessarily in the relations between Iran and Armenia.”

Safeguard from Azerbaijan: lessons learned from the war 

Alex Vatanka, the Middle East Institute’s Iran Program director, said Armenians are looking elsewhere, to France, India, the US and Iran for their security needs.

“Armenia is not in a good place militarily. The last few years have not been good for them. They've lost in two major campaigns to their historic nemesis, Azerbaijan. And they have lost confidence in their historic protector Russia,” said Vatanka.

An arms deal between Iran and Armenia would help Tehran to remain relevant in the Caucasus, said Vatanka.

In 2020, after decades of intermittent skirmishes, Azerbaijan launched a 44-day military operation that became known as the ‘Second Karabakh War.’ Several thousand people were killed on both sides.

Military analysts attribute Azerbaijan’s victory, breaking through Armenian defenses, to drones acquired from Turkey and Israel.

From 2016 to 2020, Israel accounted for 69 percent of Azerbaijan’s imports of major arms, according to the Stockholm International Peace Research Institute.

Turkey made up 2.9 percent of Azerbaijan’s imports of major arms, including missiles and armed UAVs, from 2011-2020.

“Armenia wants to catch up on that front. If Iran can provide drones, why not?,” said Vatanka.

The arms deal between Iran and Armenia would go beyond the two nations and impact Iran-Azerbaijan relations especially after Iran elected an ethnic Turkish speaking as president.

“Azerbaijan will be very, very angry about his deal. But Iran wants to show its dissatisfaction with Azerbaijan, as well, because Azerbaijan is a major customer of Israeli weapons. Azerbaijan and Israel have had strategic relationships. I think Iran will use these deals to show Azerbaijan that its relations with Israel would further move Iran toward Armenia,” said Nadimi.

Armenian security analysts, who are in direct contact with the government, declined Iran International for an interview, citing that they don’t believe that a deal of such magnitude exists. Those experts said Armenia is moving closer to the West and wouldn’t risk its relations with the US, for example, over Iran and sanctions violations, believing that to do so would be a public relations disaster for the tiny nation. One Armenian analysts said he heard that Iran is pushing the deal, but that Armenia declined. 

The experts were referring to the Armenian government's efforts to expand ties with the West since Russia became entangled in the Ukraine quagmire. Yerevan has forged military cooperation with France and the United States, including nine days of joint military drills with US forces in July.

The Russian Equation and the War in Ukraine? 

Military expert Frederic Labarre from the Royal Military College of Canada said the massive deal could happen for several reasons. He said it signifies a ‘necessity’ for Armenia to defend itself against Azerbaijan, but it could also be a way for Russia to acquire arms through Armenia.

“It could be a way in which Armenia can still endear itself to Russia by being the go between Iran and Russia, especially in the provision of drones and, such equipment, in such a way that. It will be difficult for Western powers or other powers to pressure Armenia,” he said.

Labarre, who specializes in Russia and Ukraine defense and military, hypothesizes that Armenia may be transferring weapons on behalf of Russia.