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
Report / Europe & Central Asia 5 minutes

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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Executive Summary

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

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