Analysis

Cyprus - buoyed by gas hopes

06.07.12 @ 16:58

  1. By Honor Mahony
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NICOSIA - Seen through a Brussels-based prism, it is easy to forget just how far to the east Cyprus is.

  • Gas - how will the south-east Mediterranean deal with it? (Photo: Naftogaz of Ukraine)

Lebanon, Syria and Israel are all within a couple of hundred kilometres. To its north is Turkey, to its south Egypt. To fit on euro coins, Cyprus had to be moved several degrees further west.

There is a price to pay for being such a strategically well-placed island.

Down through the years the island has had many masters. In ancient times it knew Assyrian, Egyptian, Persian, Greek and Roman domination. It was part of the Byzantine empire before coming to the attention of the Crusaders, the Knights Templar, the Franks and the Venetians. From being under the Ottoman Empire it was then passed to the British in 1878. Turkey invaded in 1974.

Since then the island has been partitioned. The intractable division between the internationally-recognised south and the Turkish-Cypriot north has poisoned the EU's relations with Nato and frozen Ankara's membership talks. EU officials regret letting the island into the Union in 2004 as a divided entity.

"As long as Cyprus is divided, Europe is divided," EU Council president Herman Van Rompuy remarked recently.

For long associated in the EU public's mind with the little understood 'Cyprus question.' It now has found bailout notoriety too. The country became the fifth eurozone state to request aid, largely due to heavy exposure of its banks to Greece.

But despite this unwanted attention, Cyprus has a spring in its step. And the reason is gas. There are large reserves of it off its shores. It started exploratory drilling last year.

The crude-oil dependent island hopes it will supply its own needs by 2017.

It expects to start making money in 2019. Energy minister Neoklis Sylikiotis speaks of Cyprus "becoming a regional energy hub" and of creating a "third energy corridor."

Multinational oil companies from the Netherlands, France, Italy the US and Korea are circling.

But technical negotiations with firms staffed with wily experts will be one thing. Managing the potential geopolitical fall-out will be quite another.

Israel has even bigger gas reserves off its shore. It has shown interest in a joint venture to pipe gas to Cyprus and then further on to Europe.

This has irritated Turkey which has resorted to sabre rattling – both by exploring gas off Cyprus' Turkish Cypriot coast, and by threatening not to do business with companies that work with Cyprus.

"The pressure on the Republic of Cyprus will be continuous and huge," says Costas Melakopides, a former professor of political science at the university of Cyprus.

He suggests a new triangle of influence - Cyprus, Israel and Greece - could come about if the gas is commercially exploited.

It is hard to see how Russia - a close ally of Cyprus - will not be involved.

Cyprus has already received one loan from Moscow and is currently seeking another, leaving it open to Russian pressure.

For Europe as a whole, a Cypriot energy route would be a "plus," says Stephen Tindale from the Centre for European Reform. Particularly as it is "questionable" whether Europe's other planned pipeline, Nabucco, will get off the ground.

"But given the inevitable involvement of Turkey and Israel, this will be even more complicated," says the analyst.

Nevertheless, Cypriots are thinking big.

Neoklis Sylikiotis believes the gas will serve as a "catalyst" for reunification between the two sides of the island. It wants to set up a hydrocarbon fund - on Norway's model - for all of the island's people.

Meanwhile, the rest of Europe is waiting to see if the gas will prove to be a boon for the region or throw it into further instability.