PARIS/NEWPORT Wales (Reuters) - Western insistence that Russia is sending troops to Ukraine has forced France into reviewing a deal to supply Moscow with helicopter carriers, but Paris has carefully left the door ajar to their final delivery.
French officials had until now vowed to go ahead with the sale of the first of two Mistral ships, due to be delivered on Nov. 1, saying that scrapping the 1.2-billion-euro deal would hurt France and its defence sector more than it would Moscow.
Russia's Mistral purchase would give it access to advanced technology, alarming some of France's NATO allies who consider Paris is blindly strengthening Moscow militarily. British Prime Minister David Cameron said it was "unthinkable" that Britain would conduct the deal in such circumstances.
Paris initially hit back by accusing its detractors of hypocrisy. But when accusations surfaced of Russia sending thousands of troops into southeast Ukraine to support pro-Moscow separatist rebels last week, Francois Hollande changed tack and said a final decision would now only be taken that same month.
"Once we established there were Russian troops in Ukraine there had to be some response," said a French diplomatic source of a Russian presence officially denied by Moscow.
"What we're saying today is that the contract is neither suspended nor cancelled, but that if we had to decide to deliver it today under current conditions then we wouldn't," the source said of a decision announced on the eve of this week's NATO summit in the Welsh city of Newport.
The first ship, the Vladivostok, is nearly ready to be sailed away by the Russian sailors currently conducting training on it in the Atlantic port of Saint-Nazaire in eastern France.
The long-discussed French sale was Moscow's first major Western arms purchase in the two decades since the fall of the Soviet Union. Then-President Nicolas Sarkozy had hailed the signing of the contract as evidence the Cold War was over.
With as many as 1,000 jobs at stake, there is immediate concern at home. But more worrying for Paris is what impact the cancellation of the contract would have on future defence export deals and on the defence industry, which employs 40,000 people.
Officials have said that this is a key reason to not back out as it would send a negative message to defence customers that France does not always honour its deals.
France is in final negotiations to conclude one of its biggest defence deals in its history to sell India 126 Rafale fighter jets as well as a multi-billion dollar deals to sell warships and refuelling planes to Saudi Arabia.
Paris' decision to condition the Russian deal on what happens on the ground in the next two months gives it some breathing space from criticism by its allies.
It also gives France sufficient wiggle-room to go ahead with the deal should there be a de-escalation, and to work out a contingency plan for the compensation to Moscow that would have to be paid if there is finally a cancellation.
"The possible ceasefire ... must take effect and of course there needs to be a political agreement so that there are no clashes between Ukraine and Russia, either directly or through a third party," Foreign Minister Laurent Fabius said.
"The conditions aren't there today, but we hope they will be in the future."
Francois Heisbourg, head of the Paris-based International Institute for Strategic Studies, called the French decision "cunning", saying it left the onus on Russia.
"This not a locked door. It's cunning and puts the burden of cancellation in Russian hands. The French aren't cancelling - they are just not delivering," he said.
Russian reaction on Thursday was ambiguous - with Industry Minister Denis Manturov telling Interfax he expected the deal to go ahead, and another official lambasting Paris for falling to heel behind the United States, its most powerful NATO ally.
"France's reputation as a reliable partner that carries out its contractual obligations has been thrown into the furnace of American political ambitions," said Foreign Ministry deputy spokeswoman Maria Zakharova.
Writing by John Irish; editing by Mark John and Giles Elgood