FACTBOX-Five risks to watch east of the EU

By Guy Faulconbridge

MOSCOW, Aug 12 (Reuters) - East of the European Union, investors will be closely watching border tensions, Ukrainian elections, fluctuating oil prices, tensions between Turkey's ruling party and the military and a court case seen as a litmus test for investment security in Russia.

Below is an overview of the key risks in the region.

SECURITY OF INVESTMENT IN RUSSIA

Foreign investors in Russia are closely watching Norwegian telecom Telenor's (TEL.OL) battle to block a forced sale of its stake in Russia's second-biggest mobile phone operator Vimpelcom VIIP.N, a case that has rekindled investor concerns over the treatment of foreign firms in Russia.

A Siberian court ordered Telenor to pay a $1.7 billion award to Vimpelcom after Farimex, a tiny Vimpelcom shareholder, accused the Norwegian firm of holding back Vimpelcom's expansion in Ukraine.

Telenor lost a lawsuit last month to block a forced sale of its stake in the firm, but promised to appeal the decision. It regards the court battle as part of a protracted dispute with Alfa, a powerful conglomerate run by Russian billionaire Mikhail Fridman, although Alfa has denied any link with Farimax. [ID:nLS730399]

It is the first major dispute involving a foreign company since last year's row over oil giant BP's (BP.L) Russian subsidiary TNK-BP, in which Fridman's conglomerate ultimately wrested control.

The TNK-BP dispute coincided with a verbal attack on New York-listed coalminer Mechel by Prime Minister Vladimir Putin, which helped prompt a sell-off of Russian shares that was closely followed by a wider market nose-dive after the Georgia war and demise of Lehman Brothers.

RUSSIAN OIL PRICES

Russia's economy is heavily dependent on oil and gas exports so any sharp fall in prices would be likely to lead to a sell off in the equity and bond markets and undermine forecasts for domestic demand that have driven foreign direct investment.

If oil prices average less than $55 dollars over the next three years, Russia would have a bigger budget deficit than forecast and will have to borrow more than the $60 billion abroad that the Finance Ministry plans under current forecasts.

While Russia would probably have little problem selling Eurobonds, officials privately recognise that such large external borrowing is only a short-term solution to the deficit.

A decline in the oil price would limit the Kremlin's ability to ease social tensions resulting from the recession and could put pressure on the relationship between President Dmitry Medvedev and his patron, Prime Minister Vladimir Putin.

Any serious tensions between the two, who say they have good relations, could tear the government apart with unpredictable consequences. Putin's assertion that he brought stability to Russia after the chaos of the 1990s would also be undermined.