The Iraqi establishment is so deeply corrupt and brimming with incompetent politicians that allegations of embezzlement and ineptitude in the government are no longer making a public uproar or even hitting newspapers’ banner headlines. But Iraq’s Prime Minister Nuri Al-Maliki’s scrapping of a $4.2 billion arms deal with Russia this week over corruption suspicions has caused a rare public scandal around the issue amid stunning allegations of graft and speculation of confusion and political miscalculations.

The deal, which would have made Russia the second largest military supplier to Iraq after the US, was initiated by Al-Maliki and Russian Prime Minister Dmitri Medvedev during Al-Maliki’s visit to Moscow in October.

The weapons deal for Russian MI-28 attack helicopters and anti-aircraft systems was also perceived as an overture for a broader strategic partnership that would also include Iran and Syria, Russia’s two closest Middle East allies.

Ali Al-Moussawi, a spokesman for Al-Maliki, said Saturday that the prime minister has cancelled the purchase and ordered an investigation into the deal after a parliamentary anti-corruption committee refused to endorse it on the ground of “entailing huge corruption”.

On Sunday Iraq’s Defence Minister Saadoun Al-Dulaimi, who played a major role in negotiating the deal, contradicted Al-Moussawi and said Iraq has not cancelled the deal and denied any wrongdoing. Government spokesman Ali Al-Dabagh on Monday added more confusion by announcing that the deal was not signed and will be renegotiated with Moscow.

Iraqi lawmakers and local media outlets, meanwhile, continued to heap criticism on the controversial deal as being tainted by corruption and indiscretion. Many lawmakers demanded a thorough parliamentary investigation and urged the prime minister to disclose the names of officials who negotiated the deal.

Bahaa Al-Aaraji, head of parliament’s Integrity Committee, spoke of widespread corruption in the deal including Lebanese arms dealers. Jihad Hassan, a Kurdish member of the parliamentary Security and Defence Committee, pointed the finger at the Ministry of Defence Procurement Department saying it was “responsible for corruption involving this deal”.

Another member of the committee, Hakim Al-Zamili of the Sadrist Movement, told Baghdad’s Al-Mashraq daily Monday that Al-Maliki was in charge of the negotiations of the deal and “he knows all those who are involved” in bribery.

Hamid Al-Mutlak, a Sunni lawmaker and a member of the Security and Defence Committee, said: “This deal is shrouded in a lot of confusion and fog and surrounded by suspicions of corruption.”

The London based Al-Hayat quoted sources at the prime minister’s office on Monday as saying that several of Al-Maliki’s aides are suspects in graft. The paper said bribes paid in the deal amounted to $200 million and were to be received by at least 11 of Al-Maliki’s staff members.

Iraq’s government establishment has been haunted by corruption accusations for years and several top officials have been accused of embezzlement. Last month Iraq’s cabinet sacked the governor of Iraq’s Central Bank Sinan Al-Shibibi following accusations of corruption in the Bank including fraud, currency manipulation and money laundering. Al-Shibibi denied the charges, saying he was the victim of a government campaign to try and control the autonomous bank’s foreign reserves.

According to the annual report of Transparency International, Iraq is one of the world’s most corrupt countries. Yet public exposure of corrupt officials is seen as largely aimed at blackmailing opponents, rather than attempting to combat the practice or bringing the wrongdoers to justice.

The Russian arms deal scandal is raising new questions about how vast corruption is undermining Iraq’s political system and even the country’s stability and has played havoc with the country’s economic, social and local government spheres.

Many observers believe the timing of the scrapping the arms deal with Russia suggests a cover-up of a political misjudgment on the part of Al-Maliki himself. Some also sense game-playing by Al-Maliki who is seen as not fully meeting the demands of Iraq’s transitional leadership.

The cancellation followed Baghdad’s warning to a Russian oil company to quit oil deals with the country’s autonomous Kurdistan region or pull out of its contracts for oil fields in southern Iraq.

In August, Gazpromneft, the oil arm of Russia’s gas monopoly Gazprom, acquired interests in two blocks with the Kurdistan Regional Government. The ultimatum is the latest in an long-running row between Kurdistan and the central government, which regards any contracts signed with the Kurdish region as illegal and has told companies they must choose between work in the northern region and the rest of Iraq.

The Russian oil contracts, therefore, seemed to have angered Baghdad and raised its concerns about the competition for oil control in Iraq’s Kurdistan that have already strained relationships between Baghdad and other world oil giants.

American ExxonMobil and French Total were the first majors to sign oil deals with Kurdistan, and the companies are now at the centre of a dispute with Baghdad which threatens to cancel their contracts.

Also, the cancellation of the weapons deal came a day after Russian President Vladimir Putin fired Defence Minister Anatoly Serdyukov who was behind the arms deal. The decision came after an investigative panel said the state suffered damages of millions of dollars in cases of sales of military assets.

There has been no word about whether Russian officials are involved in the scandal but the Baghdad newspaper Al-Mada reported Saturday that senior Iraqi government officials are involved with a brother of Putin in the deal.

More interestingly, Serdyukov, is married to the daughter of Viktor Zubkov, who is chairman of the state-controlled gas monopoly Gazprom. Although Russian media hinted that a clash of interests inside the sleazy Russian establishment could be behind the firing, foreign media suggested that Iraq’s oil deals could also be a factor in the arms deal debacle.

While there was no official reaction from the Kremlin to the stunning scandal surrounding the arms deal, Moscow’s Kommersant newspaper reported Monday that Russia has demanded that Baghdad should explain why it was canceling the deal. The paper quoted a government source as saying that Moscow has not been officially informed about the cancellation and need clarification.

RIA-Novosti news agency on Monday quoted Russian military experts as saying that the deal may be cancelled due to pressure from Washington which has signed lucrative military deals with Baghdad and hopes to make Iraq dependent on its weaponry.

Director of the Centre for Analysis of World Arms Trade Igor Korotchenko told the agency that if the deal does get axed, it would be an unprecedented event in the history of Russia’s arms trade. Other Russian experts warned that Iraq may incur harsh sanctions and multi-million dollar losses by paying off punitive fees for the move.

As Iraqi media and rival politicians continue a feeding frenzy over the Russian arms deal, many questions remain, leaving observers speculating about the real reasons behind the cancellation of the deal and its political impact.

A deeper look reveals that the cancellation is associated with corruption as much as with the Iraqi leadership’s error of judgment at a time of deepening government crisis inside and simmering regional conflicts outside.

The Russian weapons deal has been a sort of Catch-22. Al-Maliki has proven to be incapable of handling all the contradictory political and geopolitical constrains surrounding such a huge deal.

Kurdish leaders have vehemently opposed the purchase and warned that they might be used against the Kurdish region. Washington which has signed contracts for US weapons, equipment and training worth more than $12 billion with Baghdad considers Iraq to be its turf and it is unlikely taking the deal lightly.

The West’s conflict with Iran over its nuclear programme and its regional ambitions, which pitch Washington against Moscow, and fear of a broader anti-western alliance emerging in the Middle East is another key factor which Al-Maliki seems to have ignored.

And yet international struggle for control of the newly discovered oil wealth in Kurdistan remains a tremendous challenge to Al-Maliki’s government.

From the perspective of realpolitik, Al-Maliki seemed to have signed the weapons deal with Russia without doing his homework, and the turnaround could be a useful time-out for second thoughts.