Aphrodite’s Gift: Can Cypriot Gas Power a New Dialogue?
Aphrodite’s Gift: Can Cypriot Gas Power a New Dialogue?
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  1. Executive Summary
Fresh Thinking Needed on Cyprus
Fresh Thinking Needed on Cyprus
Report 216 / Europe & Central Asia

Aphrodite’s Gift: Can Cypriot Gas Power a New Dialogue?

Though newly discovered gas reserves off Cyprus are currently driving the Greek and Turkish Cypriot communities further apart, they could offer both newfound wealth if, together with Turkey, they would start a new dialogue.

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Eastern Mediterranean tensions have risen since late 2011, when Greek Cypriots unilaterally began drilling in their rich offshore hydrocarbon reserves and Turkey responded with tough criticism and threatening naval manoeuvres. Contested maritime boundaries and exploration of natural gas deposits off the divided island are the sources of the current dispute, but tensions also result from the slowdown of UN-mediated Cyprus reunification talks. A paradigm shift is needed. The gas can drive the communities further apart and increase discords, or it can provide an opportunity for officials from all sides, including Turkey, to sit down and reach agreements on the exploitation and transportation of this new find.

A year ago, when the Cyprus negotiations were already at an impasse, Crisis Group proposed six steps to build confidence and help establish an environment more conducive to an overall agreement. None of these were implemented; instead the talks dried up and trust between the parties eroded further. As we wrote in February 2011, neither Greek nor Turkish Cypriots can fulfil their potential on an island whose future is divided, uncertain, militarised and facing new economic difficulties. Turkey’s European Union (EU) membership negotiations are at risk, and with Cyprus out of NATO and Turkey in, their disputes continue to hamstring EU-NATO cooperation. The start of offshore drilling in September 2011 has now put these threats into sharper focus.

In September 2011, the Republic of Cyprus, with the help of U.S.-based Noble Energy Inc., started offshore drilling south of the island and discovered significant gas reserves in the Aphrodite field, where drilling started. It is likely to find more and in February 2012, bidding for the remaining blocks was announced. It considers that it has a sovereign right to drill in its exclusive economic zone (EEZ), which it has delineated with Egypt, Lebanon and Israel, but not Turkey, Syria or Greece. Further complicating the situation, Noble Energy’s operating company is 30 per cent owned by Israeli interests and the Aphrodite field is partly in Israel’s EEZ. Turkey also now has frictions with both Cyprus and Israel, which have recently signed defence and cooperation agreements.

Turkey does not recognise the Republic of Cyprus, and contests its right to enter into EEZ agreements or to exploit unilaterally natural resources until there is a comprehensive settlement. It argues that the Greek Cypriot government does not represent the interests of Turkish Cypriots or a united island, refutes Greek Cypriot claims to exclusive sovereignty, saying sovereignty is being negotiated in the current talks, and evokes its status as a guarantor state under the 1960 Treaty of Guarantee to protect Turkish Cypriots’ rights. Greek Cypriot drilling thus provoked a harsh reaction, with Ankara sending ships close to Greek Cypriot installations, signing maritime boundary agreements with the Turkish Cypriots, delineating the continental shelf between the Turkish coast and the north of the island, beginning its own gas prospecting off Cyprus, and announcing it will drill on land in the north on behalf of Turkish Cypriots.

The Republic of Cyprus has a sovereign right to explore and exploit inside its maritime zones, has an acute economic need for new revenues, and can justifiably complain about Turkey’s actions and threats. Nevertheless, its unilateral start of exploration is a violation of the pledge to share natural resources, and undermines the already fragile reunification talks. Vague Greek Cypriot promises of sharing gas revenues in the future do not satisfy the Turkish Cypriot community. But the latter and Turkey, too, are acting provocatively and against the spirit of the talks by signing a continental shelf delimitation agreement, prospecting and drilling. Turkey, with its long coastline, has genuine concerns about losing its fair share of any eastern Mediterranean maritime zones as the Republic of Cyprus, and possibly Greece, establish EEZs; but Ankara needs to stop refusing offers of dialogue and engage with Greek Cypriots to defend its claims.

The Greek Cypriots say they will have to decide quickly on how to transport this new gas. Pumping the Cypriot gas to Turkey and on to the EU would be a much better option politically, and possibly economically. This is highly unlikely in the current circumstances, meaning Greek Cypriots may choose a more expensive liquefied natural gas (LNG) option, bypassing Turkey and Turkish Cypriots. But the extra risks associated with the unresolved conflict will make any LNG development more expensive to finance and difficult to find markets for, Turkish threats will likely keep most major oil companies on the sidelines, there is not yet enough Cypriot gas to make an LNG plant truly profitable, and extra Israeli volumes seem unlikely. Energy executives say such circumstances will result in long delays.

The prospect of this costly tit-for-tat should make all recommit to a comprehensive settlement to reunify the island, divided politically since Greek Cypriots seized control of the Republic of Cyprus in 1963 and militarily since a Turkish invasion in 1974 created a Turkish Cypriot zone on its northern third. Greek and Turkish Cypriots have agreed that natural resources and international agreements, including those delineating maritime boundaries, will be a federal competence in a reunited island. But progress over the next year in the UN-mediated talks seems unlikely. The UN, Turkey and Turkish Cypriots see a natural deadline when the Republic of Cyprus takes over the rotating EU presidency on 1 July 2012. Reaching substantive compromise is even more unlikely now that the Greek Cypriot political scene is indexed to the February 2013 presidential elections.

Even in the absence of an overall Cyprus settlement, the parties should re-examine the benefits of independent confidence-building moves, seek mutual advantage and avert a deepening of the crisis by taking these steps specific to the energy issue:

  • The Greek Cypriot leadership should commit to share 20 per cent of any net revenue or gas from any offshore hydrocarbon resources with Turkish Cypriots, possibly distributed through a UN-supervised arrangement, as long as both parties remain formally committed to reunification. Turkish Cypriots should commit to share with the Greek Cypriots an inverse proportion of their hydrocarbon revenues from their ongoing onshore drilling activities.
     
  • Greek Cypriots should agree with Turkish Cypriots to form a bi-communal, advisory ad hoc committee to discuss energy issues, and to plan potential domestic and industrial use of the gas throughout the island.
     
  • Turkey and Turkish Cypriots should stop using threatening rhetoric and naval manoeuvres inside the island’s EEZ, even if they dispute its limits; and formally commit not to interfere with, or to drill in, offshore hydrocarbon blocks that are in these waters, including the new Aphrodite field and areas west of Cyprus, pending an arrangement.

If the basic environment for dialogue is established:

  • Turkey and the Republic of Cyprus should agree, possibly with third-party mediation, to discuss eastern Mediterranean energy issues, without prejudice to the UN-facilitated talks, or to any official recognition that will follow a settlement. They should study the feasibility of and consider possible cooperation on a gas export pipeline to Turkey, and onwards to Europe, with strong third-party arbitration clauses.
     
  • Turkey, Cyprus and Greece should agree to take their claims for EEZs in the eastern Mediterranean to the International Court of Justice (ICJ) or an arbitral tribunal.

Cooperation on the exploitation of significant gas finds, which Greek and Turkish Cypriot leaders agree are a common heritage, can help build confidence without prejudicing the eventual outcome of comprehensive talks. If the sides continue engaging in unilateral actions, tensions will rise, accidents will become more likely, and Turks and Greek Cypriots will be on course for a head-on collision in the eastern Mediterranean.

Nicosia/Istanbul/Brussels, 2 April 2012

Fresh Thinking Needed on Cyprus

A new round of talks has begun in Cyprus and the key parties seem eager to reach a settlement. However, the official goal — a bizonal, bicommunal federation — has stymied negotiators for decades. It is possible that the time has come to consider a mutually agreed separation, within the European Union, of the Greek and Turkish parts of the island.

The closest the two sides have come to an agreement on federal reunification was a decade ago under the Annan Plan, named after United Nations Secretary General Kofi Annan. It built on decades of work and won the support of the UN, EU, United States, Turkey, and even Greece. Indeed, any federal deal will have to look pretty much like the one hammered out in those years of intense negotiations.

Yet the reality of public sentiment bit back. 76 percent of Greek Cypriots said no to this plan at referendum. As Annan wrote to the Security Council afterwards, “what was rejected was the [federal] solution itself rather than a mere blueprint.”

Today the two sides — whose infrastructure and administrative systems are almost completely separate — are, if anything, further apart. The numbers of people crossing the border have fallen, while polls show weakening support for a federal outcome. In 2004, the Turkish Cypriot side supported the Annan Plan with 65 percent of the vote. But in 2010, they firmly voted back to power a leader whose whole career has been dedicated to a two-state settlement. 

Miracles may happen — and there are many on the island who remain desperate for a settlement — but my judgment is that any federal deal will have an even tougher time succeeding now.

Fresh thinking is needed.The two sides should broaden the agenda alongside the well-worn process of UN-hosted talks between Greek Cypriot and Turkish Cypriot negotiators.

One idea that should be fully explored is what the terms might be if Greek Cypriots — the majority of the island’s population — were to offer Turkish Cypriots citizens full independence and fully support them to become members of the European Union. 

Such a deal would have to be agreed to by Greek Cypriots, voluntarily and through a referendum. This will be hard. Greek Cypriot public opinion still, in theory, absolutely rejects any partition. But even senior Greek Cypriot officials agree in private — especially around the dinner tables of business leaders seeking a way out of Cyprus’s crushing banking crisis of 2013 — that there is an increasingly urgent need for a new way forward for the economy and for society.

There is also a growing drumbeat of expert opinion urging Greek Cypriots to consider outcomes beyond the traditional federal goal, which has become so discredited that few on Cyprus are paying much attention to the new talks. International Crisis Group has just published Divided Cyprus: Coming to Terms on an Imperfect Reality, while the U .S. Congressional Research Service concluded last year that “a ‘two-state’ solution seems to have become a more prominent part of the Turkish Cypriot/Turkey rhetoric and unless a dramatic breakthrough occurs early in the negotiations… that reality may gain more momentum.”

Polls show that key parts of what Greek Cypriots and Turkish Cypriots really want can look surprisingly similar. The Greek Cypriots have long wanted a solution securely embedded in European values and structures. That is what Turkish Cypriots say they want too: to become part of the European Union, not part of Turkey, even if they do wish that, in extremis, Turkey would protect their small community. The European part is crucial.

This can only happen with voluntary Greek Cypriot agreement, something that will have to be persuasively won by Turkey and the Turkish Cypriots. They will need to offer convincing terms: withdraw all or almost all of Turkey’s 30,000 troops on the island; end the demand to continue the 1960s “guarantorship” so hated by Greek Cypriots; guarantee compensation of Greek Cypriots for the two-thirds of private property in the north that is owned by them; return the ghost resort of Varosha to its original owners; and pull back to hold 29 percent or less of the island. 

After what will necessarily be a multi-year transition, this will also produce the European solution that Greek Cypriots so often say they want. The two sides will share the same basic legal norms and regulations, the same currency, and the same visa regime. Secure and confident in their new sovereign rights, the Turkish Cypriot side will likely waive the un-European demand for “derogations,” or limits on property purchases by Greek Cypriots in the new entity. 

Nobody is completely right on Cyprus: all parties share responsibility for the frozen conflict on the island. At the end of the day, an independent Turkish Cypriot state within the EU is not rewarding one side or another. Europe will doubtless flinch at accepting a small new Turkish, Muslim state in its midst. 

But Europe helped create this situation, since Brussels breaking its own rules contributed to the clumsy 2004 accession of the disunited island to the EU. 

Moreover, at least 100,000 of the 170,000 Turkish Cypriots are already EU citizens through their Republic of Cyprus passports.

Europe will also be among those who gain from resolving a dispute that has for four decades burdened so many local and regional processes, not least the long-hamstrung relationship between the EU and NATO, and the new question of how the countries of the East Mediterranean can most quickly, profitably and safely exploit new offshore natural gas reserves. This is not partition: it is reunifying Cyprus within the EU.

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