The unsettled dispute between Russia and France over the delivery of two Mistral ships for the Russian navy has reached an impasse after French President François Hollande said that France will reimburse Russia if it fails to deliver two Mistral warships in a deal frozen over the Ukraine conflict. However, the final outcome of the deal is still up in the air. If Hollande terminates the Mistral deal with Russia, it might be subject to a heavy fine and would face a huge bill that would hurt its already-damaged economy.

"If you do not deliver, you must refund. So far, the delivery of the Mistral is not possible," Hollande said at a press conference on Wednesday with Ukrainian counterpart Petro Poroshenko.

The 1.12-billion-euro contract for building two Mistral-type ships was signed by the Russian defense exporting company Rosoboronexport and DCNS, a French industrial group specializing in naval defense and energy, in June 2014. The 21,300-ton Mistral-class ship can carry up to 16 helicopters, four landing crafts, 13 tanks and over 400 soldiers. One of the two Mistral-class ships, named the Vladivostok, was to be handed over in mid-November to Russia. However, France decided to delay the delivery of the first warship due to concerns over Moscow's role in the crisis in eastern Ukraine. The second ship, the Sevastopol, is due for delivery late this year. No progress has been made so far over the Mistral dispute between France and Russia.

Russian President Vladimir Putin warned France that Russia expects its advance payments to be refunded if the ship is not delivered. With the Russian ruble suffering from a currency crisis, the Russian Deputy Minister of Defense Antanoly Antonov said that Russia would "gladly take back the money" it paid to France, as reported by Russian state-run Itar-Tass news agency.

Military cooperation with Russia would have inevitably had a huge impact on the French economy. It would appear that the deteriorating bilateral relations with Russia could be costly for France, which suffers from a stagnant economy and EU-led austerity measures of Hollande's socialist government.

France's cooperation with Russia has been badly damaged amid tough Western sanctions on Russia. Russia's military involvement in the war in eastern Ukraine resulted in increasing tension between Russia and Western countries. The EU has imposed a package of significant restrictive measures on Russia, including freezing assets, travel bans, arms embargo and hard-hitting sanctions aimed at hitting Russian gas and oil. Despite the West's joint decision on Russian sanctions, many Western countries would likely be divided over tightened sanctions due to the fear of damaging their own economies, as many European countries are reliant on Russian gas.