Election blow to Cyprus gas prospects
The emergence of a new Turkish Cypriot leader with close ties to Ankara is likely to worsen offshore tensions
A mid-October election in the tiny self-declared state of Northern Cyprus—recognised only by Turkey—is not, in global terms, a major event. But the outcome could have a significant impact on the future of the island and the exploitation of hydrocarbons in Cypriot waters.
The successful candidate and new president of the breakaway Turkish Republic of Northern Cyprus (TRNC), Ersin Tatar, is a nationalist with strong support from Turkey’s president Recep Tayyip Erdogan. Unlike Tatar’s predecessor, who backed the idea of Cyprus being reunified on a federal basis, the new incumbent favours a two-state solution. “We deserve our sovereignty and our independence,” he says.
Overnight, one side in the Cyprus dispute appears to now reject the internationally backed model for resolving the dispute over the divided island. This all but erases the chances of coordination on hydrocarbons development around the island, and of Cyprus and Turkey establishing diplomatic relations. The latter move could open up the huge Turkish market to Cypriot gas exports.
“In the current oil and gas sector crisis, I am not confident the IOCs will go back to exploration in the East Med that quickly” Ellinas
Instead, Turkey will likely continue asserting its offshore maritime claims and those of Turkish Cypriots, as has been the case over recent months—even when they overlap the internationally recognised Republic of Cyprus’ exclusive economic zone. Erdogan himself said as much in a call to Tatar on the night of his victory, promising close cooperation with the TRNC, “starting with the hydrocarbon activities in the eastern Mediterranean waters”.
With the election of Tatar, “the atmosphere will become more confrontational as he is openly following a Turkish agenda”, says Cypriot energy analyst Charles Ellinas. “He will encourage [Turkey’s NOC] TPAO to drill in areas claimed by the Turkish Cypriots”.
For the government of Cyprus and IOCs holding offshore licences, the latest developments in the north of the island add to the existing gloom because they promise yet more uncertainty. The Covid-19 pandemic and resulting oil and gas price slides have forced firms to suspend drilling operations until spring next year at the earliest. The prospect of growing, rather than receding, geopolitical tension will sow further doubt in the minds of IOC executives about the wisdom of further Cypriot offshore investment.
And the window for commercial exploitation of East Med gas fields is narrowing—given the challenges that the energy transition will inevitably pose for greenfield hydrocarbon projects. “Higher-cost development projects…look increasingly difficult to justify” in regions such as the East Mediterranean, the IEA warned in its recent World Energy Outlook.
“In the current oil and gas sector crisis, I am not confident the IOCs will go back to exploration in the East Med that quickly,” warns Ellinas. “But, if global market and commercial conditions improve, they might reconsider development of discovered gas fields, such as Aphrodite. As these lie in undisputed areas, [so] any meddling by Turkey is not likely to deter IOCs.”
“We deserve our sovereignty and our independence” Tatar, TRNC president
But the diplomatic path is not closed despite the election outcome in North Cyprus. UN secretary general Antonio Guterres still intends to hold an informal meeting with the leaders of the two Cypriot communities, along with Greek, Turkish and UK representatives, to see if he can find a way forward.
The UN should take a more realistic approach, according to Doga Ulas Eralp, a Turkish expert on conflict resolution. Given that decades of talks seeking a federal solution have failed, the UN should, in his view, provide a platform where the two sides could settle their differences over natural gas resources “on a realistic understanding that the two sides of the island will most likely never unite”.
But the Cypriot government would never agree to such a proposition. And, even if it were minded even to open discussions on such a basis, it is difficult to imagine executives of cash-strapped IOCs betting on a swift diplomatic win calming Cyprus’ increasingly choppy waters.