Russia’s invasion of Ukraine has prompted Italy to suspend its $21 billion Arctic LNG 2 project, led by private Russian gas producer Novatek, sources told Reuters.

The West has taken unprecedented steps to isolate the Russian financial system and economy. So far, the energy sector has been exempted, but sanctions affecting the industry remain in place. The potential for additional sanctions has prompted Italy to rethink the loan for the gas processing plant, valued at 500 million euros ($ 561m), the sources said.

The Italian state bank Cassa Depositi e Prestiti (CDP) and the Russian subsidiary of the largest Italian banking group, Intesa Sanpaolo, recently agreed to help finance the Novatek project. The loan was guaranteed by the Italian credit insurance company SACE, which has already secured investments and projects related to Russia worth almost five billion euros, according to Agerpres.

Sources say the loan was not granted, and CDP and Intesa are analyzing the situation, joining the tide of companies that have significantly reduced their ties with Russia. Discussions on the fate of the loan are ongoing between Intesa, CDP, SACE and the Treasury. The agreement remains in force for the time being, the sources added.

All interested parties declined to comment.

Prior to the conflict in Ukraine, Arctic LNG 2 was estimated to be launched in 2023, reaching a capacity of almost 20 million tonnes of liquefied natural gas (LNG) per year in 2026.

In November, Novatek announced loan agreements with Russian and foreign banks worth 9.5 billion euros, providing the necessary external financing for the project.

The shareholders of Arctic LNG 2 are Novatek (60%), TotalEnergies (10%), CNPC of China (10%), CNOOC (10%) and Japan Arctic LNG (10%), a consortium of Mitsui & Co., Ltd. and JOGMEC.

A group of MEPs called on German, French and Italian leaders in May not to support the project because of environmental concerns.