By Kristina Jovanovski, Euronews

The European Union is ready to ramp up sanctions against Turkey in retaliation to its drilling for gas and oil in the waters off Cyprus.

A draft statement seen by Reuters shows the EU is set to curb contacts and funding for Ankara in retaliation for what it calls Turkey’s “illegal” drilling.

Turkey has denied it is doing anything illegal on the divided island – where a huge discovery of reserves has set off a race to tap into the resources.

Euronews reporter, Kristina Jovanovski, explained why oil is so crucial to Turkey:

“Turkey has almost no energy resources within its own country that has led to it having to rely on countries like Iran and Russia for its energy needs.

“And that has led to problems with some of its major allies, such as the United States. As well as countries like Russia where it has diverging interests in the region. Which means Turkey has had to limit its original ambitions.

“If it can get its own energy resources, it means that, one, it does not have to buy energy from other countries. As well as potentially financially benefiting from exporting this oil and gas,” she added.

On Thursday, national envoys in Brussels were discussing a joint decision to punish Turkey, a draft of which said:

“In light of Turkey’s continued and new illegal drilling activities, the (EU) decides to suspend negotiations on the Comprehensive Air Transport Agreement and agrees not to hold further meetings of the high-level dialogues for the time being.”

“The Council endorses the (European) Commission’s proposal to reduce the pre-accession assistance to Turkey for 2020 and invites the European Investment Bank to review its lending activities in Turkey, notably with regard to sovereign-backed lending,” it said.