One Cyprus? - FOREIGN AFFAIRS

October 27, 2016Jonathan Gorvett

A Deal Is Close, But Not Certain

At the end of this month, the island of Cyprus is scheduled to undergo another division, adding to its long history of intercommunal splits. At 4 AM on October 31, the southern, Greek side of the island will set its clocks back by one hour in accordance with European winter time. Yet for the first time ever, on the other side of the UN-patrolled buffer zone dividing the south from the [illegally occupied by Turkey] Turkish-majority north, time will stay the same. There, in the [so-called] Turkish Republic of Northern Cyprus (TRNC), the breakaway state recognized only by Turkey, clocks will align with those in Ankara instead, following the Turkish government’s recent decision to abolish daylight saving time.

Cyprus in the Middle | Foreign Affairs

SAM PEPPLE & MATT BAKER / SAMPLE CARTOGRAPHY

January 12, 2016, By Jonathan Gorvett

Nicosia Holds the Keys to Syria, the Migrant Crisis, and Gas in the Eastern Mediterranean

On a recent December day, people strolling the seaside boardwalk in the Cypriot city of Limassol had their peaceful afternoon suddenly interrupted. Overhead, a brace of British warplanes roared from their base at nearby RAF Akrotiri, flew low over the eastern Mediterranean, and headed for Syria, just 100 miles away.

This was the second time the boardwalk was shaken by warplanes that day. Earlier, onlookers had also witnessed Israeli warplanes flying overhead during exercises. In the harbor beneath them, Russian warships lay at anchor, refueling on their way east. Later, too, a Limassol-based seismic research vessel, chartered by a U.S. company, sent frantic radio messages to say it had been intercepted and then shadowed by a Turkish frigate.

All the (now apparently routine) military activity is a visible reminder that Cyprus, the European Union’s far-flung Levantine outpost, is once again at the heart of a Gordian knot of regional conflicts and conundrums. These range from the Syrian refugee crisis to Israeli oil and gas development; from Turkey’s accession to the European Union to Russia’s growing role in the Middle East. Lebanon and Egypt feature in the mix, too, as do maritime boundary disputes between Greece and Turkey.

All these issues run through Nicosia, Cyprus’ divided capital, where UN-sponsored talks aimed at reuniting Greek and Turkish Cypriots are now entering year 52. It is, perhaps surprisingly, the success or failure of these seemingly endless talks that is increasingly vital for the resolution of the host of other overlapping and interlinked regional dilemmas.

GAS TROUBLE

The interconnection between the dispute over Cyprus and the region’s other dilemmas was most recently highlighted in late December by reports of a new rapprochement between Turkey and Israel. Under the reported terms of renewed relations (on hold since 2010), the two countries may start looking again at running a natural gas pipeline between them, which would link newly discovered Israeli offshore gas fields to Turkey, a country with a growing demand for energy but without much in the way of hydrocarbons itself.

A quick look at the map, however, demonstrates the problem with such an idea—and why Cyprus may be key to its solution. South of the island, at the extremity of its 200-mile maritime exclusive economic zone (EEZ), lies Cyprus’ undeveloped Aphrodite natural gas field. Just adjacent to this lies the undeveloped Israeli Leviathan field, and farther to the southwest, Egyptian gas fields stretch along that country’s North African coast.

Any undersea link between Israel and Turkey would have to either pass through Lebanese and Syrian waters or cross the Cypriot EEZ. The first alternative is obviously fraught with difficulties. Aside from the ongoing conflict in Syria, Israel and Lebanon have still not agreed to final maritime boundaries. A delimitation treaty between Cyprus, Israel, and Lebanon remains unratified by the Lebanese parliament.

Yet the alternative has major problems, too. Specifically, the Republic of Cyprus and Turkey remain hostile, and the development of a pipeline through the region would also touch on Cyprus’ own plans for exploiting the Aphrodite field.

Ankara does not recognize the government of the Republic of Cyprus, which has been composed almost entirely of Greek Cypriots since intercommunal violence between Greek and Turkish Cypriots broke out on the island in 1964. Instead, Turkey, which invaded Cyprus in 1974, is the only country in the world that recognizes a breakaway state in the northern third of the island—the so-called Turkish Republic of Northern Cyprus (TRNC)—which is composed almost entirely of Turkish Cypriots and covers the territory conquered by the invading Turkish troops. Turkey still maintains some 30,000 soldiers in the north, which is separated from the territory controlled by the Republic of Cyprus by a UN-patrolled buffer zone. Likewise, the Republic of Cyprus refuses to recognize either the TRNC or open relations with Turkey.

One outcome of the dispute has been the lack of any agreement between Cyprus and Turkey on maritime boundaries, with the TRNC also recently claiming offshore rights and a share of Aphrodite and of any other future discoveries. The bickering has hampered oil and gas exploration in much of the eastern Mediterranean, instantly heightening tensions whenever a survey ship leaves port.

In other words, it is highly unlikely that Cyprus, which enjoys international recognition and EU membership, will allow a pipeline to Turkey across its EEZ. At the same time, the country faces a problem in developing its gas resources without Turkey’s apparent partner, Israel.

Cyprus is just too small a market, and too far away from the modest-sized Aphrodite field, to warrant an expensive pipeline. Experts have suggested that a more economically viable alternative would be to combine Aphrodite with the nearby Leviathan field and then send gas from both down a shorter pipeline to Egypt, where it could be converted into liquefied natural gas at two currently unused terminals and then exported.

Cyprus has thus been keen on closer ties with Israel—especially after Israel’s relations with Turkey took a nosedive back in 2010—hence the Israeli jets flying over Limassol.

Despite the apparent alignment of interests, however, the two countries have made little progress sealing a gas deal. Long-running negotiations on an all-important deal that would pool the two gas fields’ resources have dragged on without result. The endless talks had long puzzled Cypriots, yet perhaps the recent announcement of an Israeli-Turkish rapprochement offers a clue to Israeli reluctance to sign on to anything: Tel Aviv has been all too conscious of the effect that dealing with the Greek Cypriots might have on its future relations with Turkey, which has historically been a far more important strategic partner.

EUROPEAN DISUNION

The lack of diplomatic relations between Cyprus and Turkey is also a major spanner in the works when it comes to Turkish-EU relations, which were recently revitalized by the EU’s panicky reaction to the Syrian refugee crisis.

Since Turkey began EU accession negotiations back in 2005, it has gotten almost nowhere. Croatia, which began the process at the same time, joined in 2013. Although there are many factors, one of the principal holdups is that Cyprus has blocked the process.

And so, when EU officials declared that under a new arrangement with Turkey, Ankara would undertake to halt Syrian refugees entering the EU in return for financial aid, a liberalized visa regime, and a reinvigoration of the accession process, it raised Greek Cypriot eyebrows. There have been no indications so far, either, that the Republic of Cyprus, which can still effectively block various parts of the accession process, will allow a new opening to happen. Meanwhile, Ankara has declared that whatever new arrangements are made with Brussels, none of them will apply to its relations with Cyprus, despite its EU membership.

It could be argued that the Turkish accession process is, in any case, something of a pantomime, given fundamental French and German objections to Turkish membership. At any rate, it remains to be seen how the continued Cypriot block will impact the implementation of the Syrian refugee deal.

Hostile nonrecognition between Turkey and Cyprus also figures into a further dispute—that between Greece and Turkey over maritime boundaries in the Aegean and eastern Mediterranean. The borders have never been formalized, which causes considerable tensions as well as mock dogfights between the two countries’ fighter jets and, more recently, complications for Greek and Turkish coast guards seeking to control the flow of refugees and migrants.

Settlement of the boundary between Greece and Turkey involves determining the western limits of Cyprus’ maritime area, as this intersects with those of the other two countries. Currently, whereas Greece recognizes Cyprus’ boundaries, Turkey does not—a reason behind the recent shadowing of the Limassol-based research ship.

NO PROBLEM

Many of the region’s problems, however, could go away if the current UN-sponsored talks on reunifying Cyprus succeed. A settlement, which would have to be agreed upon via an islandwide referendum, would see Turkey recognizing the new, bicommunal Cypriot government, and vice versa—a key to unlocking the closed doors. And so, U.S. Secretary of State John Kerry, French President François Hollande, British Foreign Secretary Philip Hammond, and Chinese Foreign Minister Wang Yi all visited the island in December to give their official support to a deal.

Prospects for an agreement are widely seen as being better now than at any time in the last ten years. This is largely because this time, both the Greek and Turkish Cypriot leaders—Nicos Anastasiades and Mustafa Akinci—are known to be committed to finding a solution, a rarity in Cypriot negotiations. There is even some talk of a referendum in the spring of 2016, although this is likely overly optimistic.

Key to such a referendum succeeding, though, may be Russia, whose foreign minister, Sergey Lavrov, also visited the area in December, back-to-back with Kerry. Russia enjoys both a Christian Orthodox connection to the Greek Cypriots and a historic link to the large, pro-Moscow Greek Cypriot former communist party, AKEL, whose approval of any settlement would be vital.

Further, although Greek Cypriots are in myriad ways anchored to the West and are themselves EU citizens, many also have a highly favorable view of Moscow. Scores of Russians have invested in or settled in the republic, remaining there despite losing out in the 2013 financial crisis. Indeed, a recent poll showed that a majority of Greek Cypriots favor granting Russia some military facilities on the island, with around a third supporting granting Moscow similar bases to those the British warplanes have been using to bomb Syria.

At the same time, of course, Russia’s relations with Turkey have seldom been worse. And the back-to-back visits from Kerry and Lavrov raised another aspect of the current knot of problems: the continuing rivalry between Moscow and the West for regional influence, heightened by recent Russian intervention in Syria.

For its part, the United States has given greater priority to the current talks than on many previous occasions (Vice President Joe Biden has also been a recent visitor to the island). Yet for all the heavy diplomatic guns being lined up behind an agreement, ultimately, it will come down to a referendum of the Turkish and Greek Cypriots.

And there, considerable obstacles remain, with key issues over security and property still to be resolved. Meanwhile, the issue of reunification remains extremely emotional in both communities. The last time the UN held a similar referendum, in 2004, Turkish Cypriots voted for the deal and Greek Cypriots against—by a large margin. This time around, the stakes are even higher, with the future of gas wells to refugees hanging on which box the Cypriots end up ticking

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Egypt's Gift From God | Foreign Affairs

Egypt's Gift From God | What the Discovery of Offshore Gas Means for Cairo
By Yuri M. Zhukov

On August 30, the Italian state-controlled energy company Eni announced the discovery of a “supergiant” gas field off the coast of Egypt. According to initial assessments, the Zohr field contains 30 trillion cubic feet (Tcf) of natural gas (equivalent to 5.5 billion barrels of oil), making it the largest ever discovery of gas in the Mediterranean. This is welcome news for Egypt's struggling economy and fragile political situation. It also creates new challenges and opportunities for the country's neighbors and for outside powers such as Vladimir Putin's Russia. Additionally, it provides powerful economic incentives for Cypriot reunification. As the United States takes stock of what Egypt's good fortune means for the region, it should find much cause for celebration.


The Zohr field is the latest in a series of large offshore gas discoveries in the eastern Mediterranean. In 2009 and 2010, Israel celebrated the discovery of the Tamar and Leviathan fields, which together hold up to 26 Tcf of natural gas. Adjacent to Leviathan, in Cyprus' exclusive economic zone, lies the 7 Tcf Aphrodite field, discovered in 2011. Once developed, these deposits could satisfy both countries' domestic electricity needs for decades and open new opportunities for exports.

While its neighbors were experiencing a gas bonanza, Egypt fell on hard times. Historically the second-largest gas producer in Africa, with 77 Tcf of proven reserves, in recent years Egypt has become a net importer. With falling production unable to keep up with rapidly growing domestic demand, and political turmoil slowing exploration and investment, the country experienced regular power outages. Because the Hosni Mubarak and Mohamed Morsi regimes both fell during periods of regular power cuts, the government of President Abdel Fattah el-Sisi views these outages as a national security threat. To keep the lights on and quell potential unrest, Cairo has shifted energy from industry to residential areas, signed deals to import expensive liquefied natural gas (LNG), and accumulated a growing debt to foreign oil and gas companies.

Women carry gas cylinders to fill them at a distribution point in Cairo January, 2015.

Given this bleak backdrop, it is not surprising that one Egyptian politician described the Zohr discovery as a “gift from God.” The offshore field increases Egypt's existing gas reserves by almost 40 percent. Eni plans to fast-track the field's development, with drilling set to start in 2016 and production in 2017, putting Egypt on course to become energy independent by 2020. Because of relatively low development costs and abundant existing infrastructure, production can move ahead at a time of historically low energy prices.
Egypt faces a choice as to whether it should try to use Zohr's resources to reassert its place on the export market or simply keep the gas for domestic use. Unsurprisingly, on this point, Egypt and Eni disagree. Petroleum Ministry spokesman Hamdi Abdelaziz has emphasized that “all the production will go to internal consumption.” But Eni chief executive Claudio Descalzi has suggested that the field may also provide new supply options for Europe.

Even if it manages to overcome these challenges, Egypt will find itself entering an already overcrowded international market The domestic option has several advantages. Other than the need to build a new pipeline from the field to the Egyptian coast, the infrastructure requirements for domestic consumption are minimal, allowing Egypt to move the gas to market sooner. Output from Zohr would save Egypt at least $2 billion per year in fuel imports and help pay down the country's debts. Enhanced energy security should help increase political stability at home. That said, the temptation to export will be difficult for Egypt to ignore, with production at Zohr projected to exceed domestic demand by 2020. At that point, Eni will also begin to see the export market as potentially more lucrative.

An Israeli gas platform in the Mediterranean sea, some 15 miles (24 km) west of Ashdod, February, 2013.

Still, in contrast with the cheap-and-quick domestic option, bringing the gas to European markets would require a significant investment in infrastructure. There currently exist no pipeline routes connecting Egypt with mainland Europe, and new ones, presumably through Turkey, will need to pass through partially contested waters. The alternative is to reopen Egypt's dormant LNG shipping facilities. Exporting the gas by boat would give Egypt more flexibility in export routes and destinations, but the added costs of liquefaction, storage, transportation, and regasification could make Egyptian gas prices less competitive, particularly against cheap Russian gas in Europe. Even if it manages to overcome these challenges, Egypt will find itself entering an already overcrowded international market, on the heels of new discoveries in the United States, the lifting of sanctions on Iran, and stiff competition from major regional players such as Qatar. 

ISRAEL'S PLAN B

If the find is good news for Egypt, it will be less well received in Israel. Before Zohr's discovery, Israel had signed letters of intent to export about a quarter of Tamar's production and a significant proportion of Leviathan's to two LNG plants in Egypt and another deal to provide gas to Egyptian industrial companies. These exports were supposed to help pay for Leviathan's development, which has remained on hold since 2010 because of regulatory and political gridlock in Israel. Zohr has rendered such plans mostly moot, leaving Israel with one less market for exports and, potentially, a new regional competitor.

Jerusalem has thus started scrambling for a plan B. To export LNG by ship to European and Asian markets, Israel would need access to liquefaction facilities, such as those in Egypt. But if Egypt decides to export its own gas after meeting domestic demand in 2020, its two LNG plants will already be operating at full capacity, removing that option for Israel. The high price tag of building new LNG facilities from scratch in Israel would likely deter their construction at current oil prices. The alternative is to build a gas pipeline to Europe through Turkey. This route would need to pass through Cypriot waters, but Cyprus has so far opposed this option because of ongoing tensions with Ankara.

DIVIDED ISLE

Cyprus, too, has had a hard time bringing its offshore gas to market. The 2013 banking crisis slowed investment, and Nicosia's strategy for developing the Aphrodite field until recently centered on Egyptian exports. In February 2015, Cyprus signed a preliminary accord to deliver offshore gas to Egypt through a new undersea pipeline, with exports projected to begin in 2022. The Zohr discovery has effectively removed this option from further consideration.

By way of a plan B, Cyprus has two possibilities. First, it could develop LNG facilities jointly with Israel, but the economic viability of such a project is doubtful under present market conditions. Alternatively, Cyprus could sell gas to Europe via a pipeline through Turkey. Yet here, too, there are problems. Northern Cyprus, occupied by Turkey since 1974, claims co-ownership of the island's natural resources. Officially, Turkey does not recognize Cyprus' maritime boundaries and has challenged Nicosia's claim to the Aphrodite field. The prospects of a northern route—and any trade with Turkey—depend on whether ongoing talks between Greek and Turkish Cypriots result in the island's reunification.

MOSCOW'S MARKET

The Zohr discovery has raised hopes in some Western circles that the new supply options can help Europe reduce its energy dependence on Russia, which in 2013 accounted for 71 percent of gas imports to central and eastern Europe. Such an outcome is unlikely. Under the most optimistic scenario, Egyptian gas will not reach the European market for another seven to ten years. Even then, Egypt will not be able to shake Russia's market dominance. With total proven gas reserves of 1,680 Tcf, Russia exported about 5 Tcf to Europe in 2014 alone. Egypt cannot compete on that scale unless significantly more gas is found.

Although Russia does not see the Egyptian discovery as a major challenge to its energy strategy in Europe, Zohr does affect Russia in other, more localized ways. Along with Israel and Cyprus, Russia also stands to lose a gas export market, having recently signed an agreement to transfer 3.5 million tons of LNG to Egypt over two years. Yet Russia's interest in Egypt's domestic energy market reaches well beyond LNG. In late August, Putin announced Russia's participation in the construction of a nuclear power plant in Egypt, and Russian energy firms have been eyeing undersea pipeline construction contracts to help bring the Egyptian gas to shore. Since Western powers imposed sanctions on Russia over the conflict in Ukraine, Moscow has been actively courting Egypt as a potential economic and military partner. The new discoveries are more likely to reinforce than impede this approach. 

WELCOME NEWS

The United States has been a relatively minor player in current eastern Mediterranean affairs. After Sisi removed Morsi in a military coup in 2013, Washington kept Egypt's government at arm's length and has spent the last few years preoccupied with other challenges, such as the self-proclaimed Islamic State (also known as ISIS) in Iraq and Syria and Russian actions in Ukraine. Despite this relative disengagement, recent events have important ramifications for U.S. interests in the region, most of them quite positive.

New domestic energy supplies can help Egypt confront a growing Islamist insurgency in the Sinai peninsula more effectively First, the discovery of the Zohr field greatly enhances Egypt's energy security and Cairo's ability to provide public goods to a restive population. By reducing the potential for social unrest from power cuts and resulting economic shocks, new domestic energy supplies can help Egypt confront a growing Islamist insurgency in the Sinai peninsula more effectively and ultimately become a net exporter of security in the region.

Second, although Zohr presents a setback for Israel's energy strategy, the U.S. ally's long-term energy prospects remain bright. Exporting Israeli gas to Egyptian LNG installations was a controversial proposition from the start, and even if Leviathan's gas will serve only the domestic Israeli market, it will still ensure Israel's energy independence for several decades to come.

A fire on a gas pipeline west of the Mediterranean coastal town of al-Arish, North of Sinai, February, 2012.

Third, the Zohr discovery creates powerful economic incentives for Cypriot reunification. With exports to Egypt off the table, Nicosia's ability to develop the Aphrodite field will depend more than ever on rapprochement with Turkey and Northern Cyprus. If reunification talks succeed, Cyprus will also likely lift its opposition to an undersea pipeline route to Turkey from either Israel or Egypt. Even if eastern Mediterranean gas is insufficient to offset Russia's market dominance, the prospect of it reaching European markets through Turkey would be a boon for all parties involved, creating additional stakeholders for a unified Cyprus.

Finally, the scale of the new Egyptian gas deposits is a highly promising development for future gas exploration in the eastern Mediterranean. The possibility of new oil and gas discoveries in the region will enable littoral states to meet their domestic consumption needs more easily, while putting further downward pressure on global energy prices. An energy-abundant future may pose challenges of its own, but it is good news for the region’s economic and political stability. Washington should welcome the discovery of the Zohr field.

Source: https://www.foreignaffairs.com/articles/cyprus/2015-09-23/egypts-gift-god