The European Union has threatened to impose sanctions on Turkey over the country’s “illegal” drilling for gas and oil off the coast of Cyprus. A draft of a joint decision between national envoys in Brussels seen by Reuters said that planned negotiations with Turkey over an air transport agreement would now be suspended, along with other dialogue, and that financial assistance to the country would be scaled back. Turkey has vehemently denied that it is acting illegally by drilling for gas in the waters near Cyprus, saying that it is acting within its own continental shelf or in the territorial waters of northern Cyprus, which only Turkey recognises as a breakaway state. A state-of the-art drilling vessel, the <em>Fatih</em>, launched offshore operations two months ago. On Wednesday, Turkey said it was to expand its exploration efforts with a second vessel, the <em>Yavuz</em>. Cyprus, which claims exclusive economic rights, said it will defend its rights against Turkey’s encroachment with all diplomatic and legal means. Greece and Cyprus have previously urged the EU to take punitive measures against Turkey amid the escalating tensions in the eastern Mediterranean. “Despite our best intentions to keep good neighbourly relations with Turkey, its continued escalation and challenge to the sovereignty of our Member State Cyprus will inevitably lead the EU to respond in full solidarity,” said Donald Tusk, president of the European Council of ministers, on Wednesday. The EU committed to give US$5 billion to Turkey for political reforms and other projects between 2014 and 2020 so it could prepare itself for potential accession. It previously withheld $200 million due to deteriorating human rights in the country. The bloc warned Turkey last month that they would impose sanctions in solidarity with Cyprus. Brussels has voiced grave concern over the declared intention “to illegally conduct” a new drilling operation off the island. In a statement on Monday, the EU’s foreign policy chief, Federica Mogherini, pledged that it would continue to stand by its most easterly member, describing the dispatch of the second drilling ship as an “unacceptable escalation”. Ms Mogherini has now urged Turkey to stop actions that have a “serious negative impact” on EU-Turkey relations and asked them to respect Cyprus’ sovereignty in line with international law. Cyprus has already issued around 20 international arrest warrants against three international companies assisting the <em>Fatih</em>.