* EU leaders meet on Russia, Ukraine and energy issues
* Leaders may add up to 12 names to Russia travel-ban,
* No consensus on "third phase" of stricter financial
* EU and Ukraine to sign association agreement, boost trade
(Adds quotes, details)
By Luke Baker and Adrian Croft
BRUSSELS, March 20 European leaders will agree
to expand a list of those subject to travel bans and asset
freezes on Thursday but stop short of harder-hitting measures
against Russia over Crimea, biding their time to retain EU unity
and gauge Moscow's reaction.
With Russian officials so far mocking the EU's response to
the seizure of Crimea, leaders are expected add around a dozen
names to the 21 Russians and Crimeans placed under EU travel
bans and asset freezes last week.
While agreeing to expand the list to include figures closer
to Putin would be a step forward, it is a long way short of the
powerful financial and trade sanctions diplomats and analysts
say are needed to make Moscow pay attention.
German Chancellor Angela Merkel said a discussion of
financial sanctions - what the EU refers to as phase three of
its response - would take place at the summit, but no agreement
on imposing the measures is expected.
"The (summit) will make clear that we are ready at any time
to introduce phase-three measures if there is a worsening of the
situation," Merkel said in a speech to parliament.
French President Francois Hollande echoed that line, setting
out an objective of containing Russia's actions. And as already
proposed, he said the next EU-Russia summit would be cancelled,
a move to suspend political relations with Moscow.
"If Russia agrees to open discussions, if a de-escalation
can be confirmed, we won't move to other sanctions," he said.
"But if on the other hand there is an increase of
illegitimate claims, if there are troop operations, if there are
threats, then there will be other sanctions. So we move to a new
phase, individual sanctions, and we prepare others in case."
Britain's David Cameron confirmed names would be added to
the asset-freeze and travel-ban list, but did not say how many.
Any decision would not become law until it is published in
Russian forces took control of the Black Sea peninsula in
late February, after the toppling of former Ukrainian president
Viktor Yanukovich. Moscow-backed Yanukovich fled following
months of protests spurred by his decision to reject closer
trade and political ties with the EU and pivot to Moscow.
NO "PHASE-THREE" YET
When the EU's 28 leaders last met on March 6, they issued a
statement saying they would consider financial sanctions - such
as freezing trade financing and targeting specific companies -
if there were "any further steps by the Russian Federation to
destabilise the situation in Ukraine".
At the time, it was not clear whether the forces in Crimea
were sent by Putin and if he planned to seize the peninsula.
Since then, Russia has not only occupied the region, but a
referendum has been held in which Crimeans voted 97 percent in
favour of seceding from Ukraine, and Putin has incorporated
Crimea and its 2 million people into Russia.
Rather than seeing those events as justification to move to
the next stage of sanctions, most EU member states are inclined
to hold off, keeping phase three for any further move by Russian
forces into eastern parts of Ukraine.
"There's no appetite, no consensus to move to stage three at
this point," said one European official preparing the summit.
While Russia or the United States can largely act on the
directions of one person, the European Union can only move with
the unanimous agreement of 28 prime ministers and presidents.
Germany, Britain, France, Poland and one or two other
countries largely agree about the need to respond vigorously to
Russia, potentially including some measure of financial
sanctions, but most of the rest have severe reservations.
UKRAINE AND GAS
What they are likely to be able to agree on - beyond the
adding of some names to the asset-freeze and travel-ban list -
is financial support to the rest of Ukraine to help prop up the
economy and bring it closer into the heart of Europe.
Leaders will sign the political elements of an "association
agreement" with Ukraine's interim prime minister on Friday,
opening the way for around 11 billion euros ($15 billion) of
financial assistance to flow to Kiev as soon as it strikes a
deal with the International Monetary Fund.
The EU has also agreed to bring forward trade benefits for
Ukraine, cutting customs duties on nearly all Ukrainian imports,
delivering savings of 500 million euros a year for exporters.
The signing of the association agreement will be a
symbolically significant step for Ukraine's interim leadership
since it was Yanukovich's rejection of the agreement in November
that provoked the protests that led to his overthrow.
From Europe's perspective, if steps can be taken to bolster
Ukraine's economy and integrate it more closely with the EU,
growth will pick up and per capita incomes will rise, making
Ukraine more attractive in comparison to Russia.
At the same time, the EU faces a geopolitical challenge in
trying to move away from its dependence on Russian energy.
While Moscow considers itself a reliable supplier of gas and
oil to Europe, which takes about 30 percent of its energy from
Russia, the relationship could easily come under strain if the
Ukraine dispute worsens.
Leaders will discuss ways to diversify their supplies,
potentially including more wind and solar power, shale-gas
exploration and imports of liquefied natural gas from the United
States and Middle East.
Britain circulated a paper to EU member states ahead of the
summit suggesting that one solution in the long term could be
taking more oil and gas from Iraq.
But while many ideas and proposals are circulating, the EU
will struggle to reduce its reliance on Moscow in the short-term
and most alternatives will be more costly than the oil and gas
that is currently pumped directly to the West from Russia.
(Additional reporting by Noah Barkin in Berlin and Barbara
Lewis and Robin Emmott in Brussels; Editing by Giles Elgood,
Anna Willard and Philippa Fletcher)