By Robin Emmott, John Chalmers and Tuvan Gumrukcu
BRUSSELS/ANKARA (Reuters) - The European Union has frozen plans to blacklist more senior executives at Turkey's state-owned Turkish Petroleum Corporation (TPAO), four diplomats said, in the clearest sign that a diplomatic offensive by Ankara this year is bearing fruit.
EU leaders in December had proposed asset freezes and travel bans over Turkey's "unauthorised drilling activities" for natural gas in disputed waters in the eastern Mediterranean, although they did not specify individuals.
The EU had also agreed to weigh tougher economic sanctions at a summit on March 25-26, after a difficult year in which Turkish President Tayyip Erdogan expressed publicly his hope that protests in France would topple President Emmanuel Macron.
But a more constructive tone from Erdogan this year, German Chancellor Angela Merkel's support for a more conciliatory approach and the first direct talks between old foes Turkey and Greece in five years have all helped to change the mood.
The new administration of U.S. President Joe Biden has also urged Brussels not to impose sanctions at a time when Turkey, a NATO ally and EU candidate country, appears more willing to compromise, European and U.S. diplomats said.
"Work has stopped on additional blacklistings of Turkish individuals, and we are not talking of economic sanctions anymore," one EU diplomat said.
A second EU diplomat said the work "never really took off" and a third said "the diplomatic track is being prioritised".
The EU's foreign service declined to comment.
CALMING TROUBLED WATERS
Diplomats say a video conference between Erdogan and the head of the European Commission on Jan. 9, followed by Turkish Foreign Minister Mevlut Cavusoglu's face-to-face talks with the EU foreign policy chief and separately with NATO's secretary-general marked the change in Turkish diplomacy.
The EU had blacklisted two TPAO executives in February 2020, including its vice president Mehmet Ferruh Akalin. After the EU leaders' December decision, the bloc was set to sanction more board members, including TPAO's chairman, Melih Han Bilgin, a fourth EU diplomat said.
Ankara has denied any wrongdoing and considered the proposed sanctions to be biased and unfair.
Greece and Cyprus, strongly backed by France, wanted to punish Turkey for what they see as provocative oil and gas exploration by Turkish vessels in disputed waters. Ankara says the activities are taking place in its own territorial waters.
The EU also accuses Erdogan of eroding democracy and destroying independent courts and media.
But Merkel, who is expected to step down later this year after 16 years as German leader, favoured an approach that prioritises EU investment in Turkey, and both Macron and Greece came on side, the diplomats said.
A report on relations with Turkey commissioned by EU leaders that was originally expected to list the disagreements over energy, human rights and migration, will now be neutral in tone, they said.
A demand by a Turkish prosecutor to ban the pro-Kurdish HDP party is unlikely to revive any talk of sanctions, although it may be discussed by the EU, one diplomat added.
Erdogan's foreign policy adviser Ibrahim Kalin held a meeting in Ankara last week with French and German political advisers. Erdogan is also expected to hold a video conference with the leaders of the EU Council and Commission on Friday.
Cavusoglu said this month that the change of tone was sincere and that Ankara wanted the EU to reciprocate: "We are focusing on... how we can work together."
Ankara wants progress on Turks' right to visa-free travel to the EU, an upgrade of its trade agreement and recognition of its claims to hydrocarbons off its maritime shelf.
The EU is also expected to provide fresh funds from 2022 for 4 million refugees that Turkey hosts.
However, the warmer mood does not mean anything has been resolved, the EU diplomats said, adding that Turkey must meet required targets to make progress in its long-stalled EU membership bid.
The EU's top foreign affairs official for Turkey, Angelina Eichhorst, said the bloc needed to manage Ankara's expectations.
"Some may think that because of a few actions, we can go high again," she said last month. "We have to calibrate this, because there are processes that do take time."
(Additional reporting by Dominic Evans in Ankara, John Irish in Paris and Gabriela Baczynska in Brussels; Editing by Gareth Jones)