UPDATE 1-EU lending arm EIB set to keep tight Turkey restrictions in place

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LONDON (Reuters) – The European Union’s lending arm, the European Investment Bank, expects to keep its lending heavily restricted in Turkey this year, as an EU row with Ankara over oil and gas drilling off Cyprus rumbles on.

The EIB was one of Turkey’s biggest sources of financing last decade, pumping almost 19 billion euros into the country, but all but turned off the taps last year when diplomatic tensions over the drilling worsened.

It stopped lending to infrastructure projects or any firm with links to the Turkish government but kept open the option to lend to parts of the private sector.

The drilling row has again deteriorated. Turkey’s energy minister said on Friday a new drilling ship was about to set off for Cyprus, and EU foreign affairs commissioner Josep Borrell said on Monday sanctions were in the works.

Asked about the EIB’s lending restrictions, a spokesman for the bank said it would continue to act “in line with the approach adopted by EU Member States and the EU Commission.”

“Unless there is a change in direction at EU level, we will probably maintain the selective approach (to lending in Turkey) we have had in the past couple of years, at least for the foreseeable future,” he said.

The EIB’s website shows it has approved only one loan in Turkey since last July’s announcement that it was reviewing its work there.

There is also friction over the creation of a ‘buffer zone’ inside Syria, from where Turkey had feared another cross-border exodus of refugees to join the 3.5 million already in Turkey.

The EIB disbursed over 52 billion euros ($57.31 billion) last year but lent only 117 million euros in Turkey, its figures show. This compared to more than 2 billion euros lent in Turkey in all but one of the years between 2009 and 2016. Its overall Turkish exposure is about 15 billion euros.

Turkish Vice President Fuat Oktay said in November the EU’s sanctions resolutions over the drilling were “null and void” and that Turkey had started another set of operations south of the Karpas peninsula.

Additional reporting by Tuvan Gumrukcu in Ankara, Editing by Timothy Heritage

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