Norway’s $890 billion sovereign wealth fund, the world’s biggest, is reassessing its holdings in Russia as the European Union considers expanding sanctions against the country.

Since the July 17 downing of Malaysia Airlines flight MH17 by a missile that the U.S. says was probably supplied by the Russian military, sentiment toward assets based in Russia has soured further. The government of Norway, which isn’t an EU member, said it’s ready to adjust the fund’s holdings to reflect the changing geopolitical climate. The European Commission will present proposals for more “targeted measures” to national officials tomorrow.

“If the oil fund’s investments become affected by economic sanctions against Russia that Norway supports,” the fund “will need to make the necessary adjustments to accommodate the new situation,” Runar Malkenes, a Finance Ministry spokesman, said in an e-mailed response to questions.

The fund is monitoring the situation in Russia, spokeswoman Marthe Skaar said. The investor has “significant” holdings there, Chief Executive Officer Yngve Slyngstad said in April. It held about $3.6 billion in stocks and $4 billion in corporate and government bonds in Russia at the end of 2013, its annual report shows. Skaar declined to say whether the fund has already started to scale back that stake.

Russian ‘Threat’

“Russia seems to be a threat to foreign investment,” said Hans Olav Syversen, the head of Norway’s parliament finance committee, which oversees the fund.

While it’s a member of the EU-affiliated European Economic Area, Norway isn’t obliged to comply with EU sanctions, according to the government in Oslo.

“It’s important that the restrictive measures we support have the broadest possible base,” Frode Andersen, a spokesman at the Foreign Ministry, said by phone. “We therefore will carefully consider new restrictive measures from the EU and consult the parliament as necessary.”

The EU said July 22 it will consider restricting Russia’s access to capital markets and sensitive technologies unless President Vladimir Putin expedites the investigation of the downing of the Malaysia Air flight over eastern Ukraine.

Europe’s biggest equity investor, into which Norway channels its oil and gas wealth, already saw first quarter results suffer as the escalating conflict between Russia and Ukraine eroded returns.

The fund lost 9.7 percent on its investments in Russian government bonds in the first three months. Its total return for the quarter was 1.7 percent, or 78 billion kroner ($13 billion), it said in April.

Tougher Stance

The U.S. is pushing Europe to toughen its stance on Putin. Any European move on capital markets would follow a U.S. decision last week to prevent some Russian companies from accessing U.S. equity or debt markets for new financing with a maturity beyond 90 days.

The U.S. last week imposed sanctions on selected Russian banks, military, and energy companies, including OAO Rosneft, the country’s largest oil company. Norway’s wealth fund owned a 0.6 percent share of Rosneft at the end of last year, according to its annual report.

“We observe that there’s a different risk profile,” Slyngstad said in April after Standard & Poor’s cut Russia’s credit rating to BBB-, one step above junk. “We are at any given time also considering conditions that have dimensions of geopolitics and geopolitical risk.”

‘Great Risk’

Syversen of the parliament finance committee said he’s not planning to pressure the government to take action regarding its interests in Russia. “I take for granted that the oil fund will continuously assess the risk of investments,” he said.

The benchmark Russian Micex index has lost about 6.5 percent this year, while the ruble has depreciated some 5.6 percent against the dollar over the same period. The wealth fund is due to report second-quarter results on Aug. 20.

There may be a case for the fund to cling on to its Russian investments if it’s legally able to do so.

“There’s obviously a great risk connected to any investment in Russia at the moment,” said Erik Bruce, senior economist at Nordea Bank AB, Scandinavia’s largest lender. “With as diverse investments as the oil fund has, you have to take into account that sometimes you have political risk and the thing to do is to keep the investment.”