By Conor Sweeney
MOSCOW (Reuters) - Russia and European powers took a stepback from confrontation over Georgia on Friday, with Moscowurging the EU not to rush into punitive action and Francesaying now was not the time for sanctions.
Western governments have criticised Russia for sendingtroops deep into its ex-Soviet neighbour Georgia andrecognising Georgia's two breakaway regions as independent,drawing comparisons with the rhetoric of the Cold War.
Georgian President Mikheil Saakashvili made a surprisevisit late on Friday to the flashpoint port of Poti, whichRussian troops continue to patrol as part of a Moscow-imposedsecurity zone hotly contested by the Tbilisi government and theWest.
"They are occupiers here, they are occupiers all aroundGeorgia," Saakashvili told reporters, referring to Russiantroops who man checkpoints just outside the town.
Earlier, Tbilisi said it would cut diplomatic ties withMoscow after Russia recognised its rebel South Ossetia andAbkhazia regions. A Russian Foreign Ministry source told theRIA news agency that Moscow would close its embassy in Tbilisi.
Diplomats said they received signals from the Kremlin thatRussia would retaliate if the EU imposed punitive measures whenleaders of the bloc, which depends on Russian energy imports,meet in Brussels on Monday.
But Russian oil companies and government officials denied aBritish newspaper report that they were preparing to restrictoil supplies in response to sanctions.
A senior diplomat for EU president France said sanctionswould not be adopted at the summit, contradicting remarks onThursday by French Foreign Minister Bernard Kouchner, who saidsanctions were among the options on the table.
"The time to pass sanctions has certainly not come," theFrench diplomat said.
REASON VS EMOTION
A spokesman for Russia's Foreign Ministry said somecountries -- which he did not name - were trying to take the EUdown "the road to confrontation."
"We hope that reason will prevail over emotions, that EUleaders will find the courage to refrain from a one-sidedassessment of the conflict," Andrei Nesterenko told a newsconference in Moscow.
Russia mounted a huge counter-attack on land, sea and airafter its pro-Western neighbour Georgia sent in troops in afailed attempt to retake its breakaway region of South Ossetiathree weeks ago.
Moscow says it intervened to prevent a "genocide" of SouthOssetians 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. Theconflict has underscored the vulnerability of the route.
Azerbaijan's state oil company SOCAR said it expected nextyear to send up to 400,000 tonnes of crude to a Russianpipeline and not the BP-led Baku-Tbilisi-Ceyhan pipeline inpart due to instability in Georgia.
U.S. TOOL
Western policy-makers drafting a response to the Kremlin'sactions must weigh the fact that Russia supplies more than aquarter of Europe's gas and that its support is vital tomaintain pressure on Iran over its nuclear programme.
Russian Prime Minister Vladimir Putin, who on Thursdayhinted cooperation on trade and nuclear non-proliferation couldbe at stake in the row over Georgia, said Europe should not actas a tool of U.S. foreign policy.
"If European states want to serve the foreign policyinterests of the USA, then, in my opinion, they will gainnothing from this," Putin said in an interview with Germantelevision station ARD that was shown on Russian television.
European diplomats said on Friday they were expectingRussian retaliation if the EU took punitive measures.
"They've been saying loud and clear that they feel theycould do whatever they want with impunity," said one diplomat.
"But I think any kind of reaction they would take to the EUwould be in kind, like visa restrictions or a business contactsfreeze. I don't think the retaliation would include the kind ofthings like restricting oil."
