Geopolitical Stakes Are Huge On This Tiny Island

by on 9 Δεκέμβριος 2018

The specter of a rumored U.S. military buildup in Cyprus that would draw a major Russian response now adds to the ongoing Greek Cypriot-Turkish conflict over the island and the oil and gas riches it promises.

Ever since the massive hydrocarbon discovery in Cyprus’ exclusive economic zone (EEZ) in 2011 by American company Noble Energy the island has been the center of a geopolitical game that doesn’t stop with rife tensions between Turkey and the Greek Cypriots.

And now this game is drawing nearer to its climax, with much at stake.   

Cyprusan island in the eastern part of the Mediterranean Sea—is divided into the Greek-dominated Republic of Cyprus in the south and the Turkish-controlled north. Since 2004, the Republic of Cyprus has been a member of the European Union, and the northern ‘entity’ remains recognized solely by Turkey.

But it is the EEZ—the exclusive economic zone—where this geopolitical game of chess is being played out.

Generally, Turkey doesnt accept the jurisdiction of Cyprus over the EEZ, and particularly the process of bidding on and awarding concession for offshore oil and gas drilling. Every attempt by Nicosia to invite international companies to explore offshore has been met with a strong reaction from Turkey, which is constantly looking for geopolitical leverage in this battle.

From the Turkish perspective, the Greek Cypriots persist “in ignoring the equal and inalienable rights and interests of the Turkish Cypriot side on natural resources of the island”.

Indeed, everything in correlation with oil and gas on Cyprus has a specific political weight and is highly sensitive.

Fiona Mullen, Director of Sapienta Economics in Nicosia, told Oilprice.com that even though Turkey and the Turkish Cypriots “argue that a Greek Cypriot-only government should not be recognized because the Republic of Cyprus constitution provides for power-sharing, over time UN resolutions and other case law have favored the Greek Cypriots,” which form the internationally recognized government.

“More generally, you hear countries like the U.S. supporting the Republic of Cyprus’ right to explore and exploit its hydrocarbonsbut they always add that it should be equitably shared in the context of a solution to the Cyprus problem,” Mullen said.

Enter Exxon …

Amid the verbal war between Cyprus and Turkey, and maritime maneuverings that suggests it could go beyond verbal at any time—U.S. oil major ExxonMobil has started drilling an exploration well offshore Cyprus in the EEZ.

Launched two weeks ago, tensions are at a new high. And everyone from Israel, Qatar, Egypt, Turkey, Greece, the United States and all of Europe—and beyond—have a keen interest in what happens next.

At question most immediately is Block 10, of which Exxon is the operator with partner Qatar Petroleum. The partners were awarded the exploration license in December 2016, as a part of the country’s third licensing round. As expected, Turkey has sharply protested against the move, accusing foreign companies of contributing to the destabilization of the region.  

“This is a breaking point. Everyone should know that we will not yield even an inch of our rights and interests at sea,” Turkish media quoted Binali Yildirim, the speaker of Turkey’s Grand National Assembly, as saying.

Turkish accusations were met with a response from Washington that was less than desirable, even if it did mention sharing.

When Exxon started drilling two weeks ago, U.S. Assistant Secretary of State for Energy Resources Francis Fannon said “we certainly were happy to see U.S. company involvement and continued opportunities here… we reiterated the U.S. long-standing position of recognizing Cyprus’ rights to develop its resource wealth in its EEZ… we believe that resource wealth should be shared with all communities on the island equitably in the context of a comprehensive settlement.

Despite some recent showdowns on the sea, with Cypriots carefully watching Turkish seismic vessels that Ankara claims the Greeks have been “harassing”, Mullen doesn’t believe that Turkey will try to halt Exxon’s drilling—for now.

But exploration is different than production …

It looks as though Turkey will not try to disrupt Exxon’s, partly because it’s Exxon and partly because Block 10 is not in the area claimed by Turkey as its continental shelf and not in the areas that the Turkish Cypriots have licensed. However, Turkey has said several times that it will not allow production of hydrocarbons. So, if the Cyprus problem remains unresolved, and we reach production stage, this is the point of maximum risk of an offshore conflict… Mullen told Oilprice.com.

Earlier in November, Ankara announced its own oil and gas plans in areas licensed by the Turkish Cypriots to Turkish Petroleum. It’s in Ankara interest to allow Exxon’s exploration to find what it will find because any luck here will assist Turkey in its own exploration efforts.

Nor is Exxon the only player in this intricate game. Two other oil majors—French Total SA and Italy Eni—have announced a joint bid to explore offshore Cyprus in Block 7—despite warnings from Turkey over claims to this area.

Block 7 activities—if the November 26 exploration permit is approved by the Cypriot Energy Ministry—will be a much bigger bone of contention with Turkey.

From the Turkish standpoint, Block 7 “remains within the outer limits of Turkey’s continental shelf in the Eastern Mediterranean”.

The reckless behavior of Greece supported by European states acting together with the Greek Cypriot administration is a danger and above all a threat to themselves. We will use our rights under international law and conventions to the end. And we are determined to put in their place anyone who wants to stop us. Profiteering is wrong. Profiteering in international relations is much worse,” Turkish President Recep Tayyip Erdogan warned.

These, according to the Greek Foreign Ministry, are “Turkish provocations” that will “undermine regional stability at a critical juncture […]”.

From an economic point of view, the stakes are enormous in Cyprus’ EEZ. There are studies and research that confirm impressive hydrocarbon potential here, but everyone’s still waiting for the “vein of gold” to be revealed. So a lot is riding on Exxon.

According to Mullen, the jury is still out, but “back in 2016, the government mentioned that it could earn $500-$600m per year from Aphrodite, which is around 4-4.5 tcf. This would be equivalent to around 10% of annual government revenue”.

“Aphrodite gas is still stuck in the ground because the price is not right for the companies, so at the moment this is all hypothetical. There are high hopes in Cyprus that Block 10 will yield a big find,” Mullen added.

Still stuck in the ground or not, what makes Aphrodite so mouth-watering is its location—very close to Israel’s Leviathan gas field, the discovery of which was a game-changer for Israel. According to the US Geological Survey, an estimated 122 trillion cubic feet of recoverable natural gas lie, along with 1.7 billion barrels of recoverable oil under the Levant Basin seabed. 

If Exxon’s exploration hits that “vein of gold”, the oil giant has said it is prepared to build and LNG plant to sweeten the deal. That would mean multiple revenues streams for Cyprus, and a nice lineup of jobs, too.

The stakes become even higher, according to Mullen, when you consider that Cyprus would “also get the related boost of becoming a regional energy hub”—something she equates with a much higher level of geopolitical risk.

Rumblings from Russia won’t help, either.

On December 5, Moscow warned Cyprus not to allow the U.S. military to deploy on the island in a move the Russian Foreign Ministry described as “anti-Russian plans”. Moscow claims that Washington is considering setting up forward operating bases for its troops in Cyprus, citing “various sources”, Reuters reported.

While Washington has responded to the Russian statement, Cyprus—a bastion of Russian businessmen—would be a key location for countering Russia. And massive oil and gas exploration operations would be the ticket in.

By Damir Kaletovic for Oilprice.com

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