Russia urges West to refrain from sanctions

By Conor Sweeney

MOSCOW (Reuters) - Russia and European powers took a step back from confrontation over Georgia on Friday, with Moscow urging the EU not to rush into punitive action and France saying now was not the time for sanctions.

Western governments have criticized Russia for sending troops deep into its ex-Soviet neighbor Georgia and recognizing Georgia's two breakaway regions as independent, drawing comparisons with the rhetoric of the Cold War.

Georgian President Mikheil Saakashvili made a surprise visit late on Friday to the flashpoint port of Poti, which Russian troops continue to patrol as part of a Moscow-imposed security zone hotly contested by the Tbilisi government and the West.

"They are occupiers here, they are occupiers all around Georgia," Saakashvili told reporters, referring to Russian troops who man checkpoints just outside the town.

Earlier, Tbilisi said it would cut diplomatic ties with Moscow after Russia recognized its rebel South Ossetia and Abkhazia regions. A Russian Foreign Ministry source told the RIA news agency that Moscow would close its embassy in Tbilisi.

Diplomats said they received signals from the Kremlin that Russia would retaliate if the EU imposed punitive measures when leaders of the bloc, which depends on Russian energy imports, meet in Brussels on Monday.

But Russian oil companies and government officials denied a British newspaper report that they were preparing to restrict oil supplies in response to sanctions.

A senior diplomat for EU president France said sanctions would not be adopted at the summit, contradicting remarks on Thursday by French Foreign Minister Bernard Kouchner, who said sanctions were among the options on the table.

"The time to pass sanctions has certainly not come," the French diplomat said.

REASON VS EMOTION

A spokesman for Russia's Foreign Ministry said some countries -- which he did not name - were trying to take the EU down "the road to confrontation."

"We hope that reason will prevail over emotions, that EU leaders will find the courage to refrain from a one-sided assessment of the conflict," Andrei Nesterenko told a news conference in Moscow.

Russia mounted a huge counter-attack on land, sea and air after its pro-Western neighbor Georgia sent in troops in a failed attempt to retake its breakaway region of South Ossetia three weeks ago.

Moscow says it intervened to prevent a "genocide" of South Ossetians and was staying on to prevent further aggression.

The West says the Kremlin used excessive force in Georgia, a key non-Russia route for Caspian Sea energy exports. The conflict has underscored the vulnerability of the route.

Azerbaijan's state oil company SOCAR said it expected next year to send up to 400,000 tons of crude to a Russian pipeline and not the BP-led Baku-Tbilisi-Ceyhan pipeline in part due to instability in Georgia.

U.S. TOOL

Western policy-makers drafting a response to the Kremlin's actions must weigh the fact that Russia supplies more than a quarter of Europe's gas and that its support is vital to maintain pressure on Iran over its nuclear program.

Russian Prime Minister Vladimir Putin, who on Thursday hinted cooperation on trade and nuclear non-proliferation could be at stake in the row over Georgia, said Europe should not act as a tool of U.S. foreign policy.

"If European states want to serve the foreign policy interests of the USA, then, in my opinion, they will gain nothing from this," Putin said in an interview with German television station ARD that was shown on Russian television.

European diplomats said on Friday they were expecting Russian retaliation if the EU took punitive measures.

"They've been saying loud and clear that they feel they could do whatever they want with impunity," said one diplomat.

"But I think any kind of reaction they would take to the EU would be in kind, like visa restrictions or a business contacts freeze. I don't think the retaliation would include the kind of things like restricting oil."