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In the 1970s Iran paid Britain for thousands of tanks, but when the Shah fell they were sold on to Iraq. Now Tehran wants its money back.

The Independent can reveal that Britain is to pay back nearly £400m to Iran’s defence ministry after finally admitting defeat in the dispute in a move that will be heralded by Tehran as a major diplomatic triumph while it continues its international brinkmanship with the West over its nuclear ambitions.

Financial restrictions imposed by the European Union on Iranian banks, which freeze any of Tehran’s assets held abroad, mean that Iran will not be able to access the funds. They will instead be held in a trust account overseen by independent trustees. The money will join £976m of Iranian assets already frozen in Britain.

But the surrender of a large sum of public money to the very arm of the Iranian government accused of spearheading the development of a nuclear weapon is embarrassing for Britain and likely to be seized on by Tehran as evidence of British hypocrisy in its dealings with the Islamic regime. One British source said: “Given the context of current relations, a large payment of this type looks like a propaganda gift.”

It is understood that the settlement between International Military Services (IMS) Ltd, the state-owned private company used by the MoD to strike the tank deal with the Shah in the 1970s, and the Iranian Ministry of Defence and Support for Armed Forces Logistics (MODSAF) wil... >>>