Cyprus gas dispute: Between profits and politics

Cyprus gas dispute: Between profits and politics

Tolga Demiryol
When natural gas was discovered in Cyprus’ Aphrodite field in 2011, many anticipated the resource would be a catalyst for peace on the island. The reasoning behind the proposition was straightforward:

The prospect of energy prosperity would incentivize the Turkish and Greek Cypriot communities to peacefully resolve any political disputes that stand in the way of profits. Contrary to expectations, however, it has intensified rather than soothed the conflict in Cyprus. Drilling operations in the disputed waters of the Mediterranean have aggravated the disagreements over maritime borders. The question of how gas revenues would be shared between the two communities has also emerged as an impediment to peace.

Tensions in Cyprus reached a critical juncture on Oct. 7 when President Nicos Anastasiades suspended the U.N.-mediated peace talks, citing Turkey’s oil and gas exploration in disputed waters. The Republic of Cyprus (RoC) announced retaliatory measures against Turkey, including blocking Ankara’s bid for EU membership. The RoC also took the matter to the European Council, which urged Turkey to respect the RoC’s sovereignty. Ankara, however, stood firm. In the National Security Council meeting on Oct. 30, Turkey re-affirmed that it would take any measures necessary to defend the Turkish Republic of Northern Cyprus (TRNC). On Nov. 9, Bülent Bostanoğlu, the Commander of the Turkish Naval Forces, announced Turkey continues to monitor the activities of Cypriot and Israeli elements and, if needed, the Turkish Navy will act in accordance with the rules of engagement.

Is there a way out of the current stalemate in Cyprus?

In principle, there are two possible scenarios in which parties with outstanding political disputes can develop shared natural resources. The first scenario essentially requires that all political conflicts be settled before the natural resources can be developed and monetized. This scenario portrays closely the current situation in Cyprus. Greek Cypriots claim that gas revenue will be shared only within a federal framework, whereas Turkey and the TRNC insist that the settlement of maritime borders is a precondition for exploration. This mutual insistence on the resolution of different political issues has produced the current stalemate, where neither side has sufficient incentives to negotiate.

An alternative scenario would involve limited bargains, where disputing parties allow for initial resource development instead of requiring that complicated legal and political disputes be settled first. The prioritization of resource development would not mean that the parties relinquish any of their legal and political demands. Rather, they would temporarily “freeze” any outstanding issues to set up a basic regulatory framework for limited, targeted cooperation. Under this less ambitious scenario, the resolution of political issues remains pending until resource development generates more robust incentives for disputing parties to adopt cooperative strategies. Turkey’s latest proposal on Nov. 24 that a “private company” be founded to conduct drilling until a resolution is found in Cyprus, could be considered a step towards in this direction.

Several factors will shape the feasibility of the limited bargaining scenario in Cyprus. First, bargaining necessitates mutual trust, which currently is a scarce commodity in Cyprus. Second, political players in both camps may be highly risk-averse, disinclined to assume the domestic political costs that freezing conflicts would generate. Third, as long as the EU, the U.S. and Russia continue to support the RoC’s right to unilaterally develop the island’s natural resources, the RoC will have little incentive to depart from the status quo.

One thing, however, is certain. Being left out of the Mediterranean energy game will have crucial geopolitical consequences for Turkey that transcend the Cyprus issue. The emergence of the RoC and Greece as key energy players undermines Turkey’s aspiration to become a regional energy hub. The rapprochement among the RoC, Greece and Israel, where energy provides a strong bonding agent, changes the regional balance of power at Turkey’s expense. The growing military and economic presence of Russia in the eastern Mediterranean is yet another factor that is critical to Turkey’s regional interests.

The balance of power in politics is back in fashion in the Mediterranean, and Turkey will need to recalibrate its posture and priorities, even if it means making short-term compromises for long-term gains.

*Tolga Demiryol, Istanbul Kemerburgaz University