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Cyprus, the Mediterranean Pivot

The declared objective of the government of Nicosia is to use the geo-strategic position of Cyprus, between Europe and the Middle East, to make the country a true energy hub, with a central role in commercial transit and in the provision of European energy.

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[dropcap]I[/dropcap]n recent years the Eastern Mediterranean has increased its own strategic importance at an international level following significant discoveries of hydrocarbons. In this region the recent offshore findings of natural gas are radically changing its geostrategic and economic status. Before achieving the ambitious objective of becoming a net exporter of energy the countries of the Eastern Mediterranean, and Cyprus in particular, must confront regional challenges and interests-be they of an economic, politico-strategic or, inevitably energy-infrastructure nature-of the major powers in the area.

Two years on from the great discoveries of the Leviathan and Tamar fields on the Israeli coast, December 2011 was the turn of Cyprus: the USA company Noble Energy reported an initial discovery of offshore gas in block 12 of Aphrodite, with an energy potential estimated at between 5-8 trillion cubic feet (140-230 billion cubic metres). Evidence suggests that this area is an extension of the Levante basin: it is still the subject of an initial exploratory phase and, therefore, these initial estimates are considered conservative, with the prospect of their rising in the coming years. There is therefore a potential wealth for the island of enormous proportions. According to some experts, in fact, Cyprus could potentially be sitting on a goldmine of at least 60 trillion cubic feet (1.7 trillion cubic meters) of gas, not considering the potential of the petroleum: it could generate revenue of up to $ 400 billion once commercially exploited.

The declared objective of the government of Nicosia is to use the geo-strategic position of Cyprus, between Europe and the Middle East, to make the country a true energy hub, with a central role in commercial transit and in the provision of European energy. A perspective, however, which does not consider the tensions and several unresolved questions that could hinder the energy development of the island, itself essential in reviving an economy in deep crisis.

Firstly, the strong political destabilisation resulting from the 1974 Turkish military invasion which produced a de facto division of the island, between the Turkish-Cypriot north and the Greek-Cypriot south. The discovery of energy resources in the southern part of Cyprus, as well as an absence of results from research conducted thus far into the offshore areas of the north, have added a new and relevant source of friction in relations between Nicosia and Ankara. The island’s peculiar political situation could therefore constitute a brake on the development of the country’s economy, capable of affecting decisions regarding investment by foreign companies, especially those who have strong interests in Turkey. The latter, in fact, threatened repercussions for those companies which intend to enter into agreements for the exploitation of resources with the Cypriot government. Such is the case for Eni S.p.A. which has seen the suspension of all projects undertaken with Turkey, due to its agreement to exploration signed with Nicosia in January. Ankara, in fact, maintains that such energy resources are located in international waters and that they should benefit all of the island’s inhabitants, and not only Greek-Cypriots. Turkish interests, profoundly connected to energy, therefore emerge. Furthermore, relations between Cyprus and Israel, in particular those relating to a possible project for the liquefaction of gas for export, feed the prospect of an energy partnership. Excluding Ankara, this could provide an alternative route for the transport of gas to Europe and Asia, obstructing the great Turkish mission to become a regional energy hub. According to several analysts, this prospect was one of the reasons behind the rapprochement between Turkey and Israel which, enabling the former to maintain its centrality as the country of transit, and the latter to have optimal conditions available for the export of its gas. Whilst in the long term, the economic advantages of cooperation between Nicosia, Tel Aviv, Athens and Ankara could be more convincing, in the short term, energy pressures feed tensions in an already established hotspot.

It is probable that Turkey’s firm stance on the Cyprus question is one of the reasons behind the Russian decision not to accept the bailout plan hastily proposed by Nicosia, in exchange for licenses for the exploitation of gas fields. To this must be added, among others, the European position and the special relationship between Berlin and Moscow, sealed by the agreement on the Nord Stream gas line, which might have suffered setbacks if Putin had decided to approve a bailout plan for a member country within the EU. Moscow’s position, then, is understandable when considering the multiplicity of interests that the country shares with other regional players, such as Germany, Greece and Turkey: these can be safeguarded only by a strategy of ambiguous realpolitik. Although the issue of the Cypriot bailout has put pressure on the relationship between Nicosia and Moscow, it is difficult to imagine a rupture of relations between the two countries, but rather a redefinition in the interests that still bind them. Moscow, in fact, has long-standing ties with the island of Aphrodite, ranging from banking and finance, to real estate and military strategy. There are strong suspicions, for example, regarding the role played by Cyprus in the trafficking of weapons from Russia to Damascus.

Brussels, for its part, seems determined to impose comprehensive change on the Cypriot business model and on its banking system, thus affecting its status as a tax haven for the offshore investments of Russian magnates. Discoveries of gas in the Cypriot Sea represent a great opportunity for Europe to diversify energy supplies, with respect to Russia’s dominant role. Cyprus’s economic problems, however, which have led to the forced levy on bank deposits, also herald strong domestic discontent:  the EU should not exacerbate the economic situation because, as the multiple demonstrations on the island show, anti-European sentiment is particularly widespread amongst the population and could become a source of political instability. This could obstruct a possible solution to the conflict with Turkey, a central obstacle in Ankara’s access to Brussels.

The framework outlined above seems far from optimistic given that, at least in the short to medium term, the European iron fist on bank accounts, the withdrawal of Russian support and Turkish pressure clamp the island in a vice which will only increase internal malaise and aggravate the downturn in the national economy. A situation which seems as if it will be unable to improve until exploitation of the energy resources of the Aphrodite gas field is at full capacity, something which may require several years.

On the contrary, within an extended timescale the need for cooperation between the main players involved can only increase, due to pressures deriving from the stabilisation of the Cypriot economy and the gradual exploitation of the rich intra-European gas fields. Turkey has already signalled to this effect: conscious of its role as transit towards international markets, Ankara has proposed to Nicosia its help in the development of gas, noting on the other hand that the benefits of such discoveries should be shared by all the inhabitants of the island. In conclusion, one aspect is more certain than others: without a resolution of the dispute over sovereignty of the island, an issue that has dragged on for 40 years now, eventual regional cooperation seems difficult to envisage.

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Original Article: Cipro, il pivot del Mediterraneo

Translated by Lois Bond

Photo Credit: magisstra

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