Cyprus and security: it’s time to change the toolbox

The term “think outside the box” is such a hackneyed cliché that I never normally use it. But conversations in the past few days have persuaded me at least to allude to it. Why? Because I believe too many people in Cyprus and abroad are looking at the same old toolbox when it comes to ideas on how to handle Cyprus and related regional security issues. Let me explain what I mean.

When you talk to Cypriots or other Cyprus-watchers about regional security issues, they assume you are talking about the Cyprus problem. But the Cyprus problem is really just one small element of a much larger picture.

That larger picture includes new imperatives brought about by the war in Ukraine, most urgently the need for energy diversification and energy security. Before that we already had new friendships in these parts, such as those struck between Israel and the Gulf Arab states. We also had the “thawing” old enmities, such as between Israel and Turkey, maybe between Egypt and Turkey and, perhaps after the devastating earthquakes this month, between Greece and Turkey.

Energy first

Not surprisingly, the first country that has recognized this shift in dynamics is the US. The US Undersecretary of State, Victoria Nuland, paid a visit to Turkey, Greece and then Cyprus on 4-7 April 2022. She made a number of interesting remarks which I covered in my April 2022 issue of Sapienta Country Analysis Cyprus. Crucially, when asked about the Cyprus issue during her visit to Greece, she said, “We always talk about trying to get a peace deal to ensure a bicommunal federation and then exploiting the energy. We’ll have to see whether that is the right order …”

What do her comments on the Cyprus problem mean? It quite likely means that the US thinks it might be better to get a deal going on energy before trying to tackle the intractable Cyprus problem.

This is something I have been saying to anyone who might listen for well over three years now. I therefore thoroughly agree with Ms Nuland, for reasons that I shall explain below.

All political leaders have strong incentives for an energy deal

The biggest reason is that all the political leaders in the region – in Cyprus, Israel, Turkey and Greece – have strong incentives for a deal.

Let’s start with Cyprus. The new Republic of Cyprus president, Nikos Christodoulides, will immediately have to deal with rickety electricity infrastructure and high and rising household emissions penalties that extract a high political cost.

The situation is looking quite serious. For example, the Transmission Service Operator (TSO) was forced to switch off photovoltaic power this January because the system could not cope. Yes, that’s right, the infrastructure is such that it had to switch off the photovoltaics bought at great expense by house-owners, not the fossil fuels produced by state-owned power stations, to prevent a system overload. ?

For reasons I explained in my January 2023 report, this critical situation will not change any time soon. The state-owned dominant provider, Electricity Authority of Cyprus (EAC), will continue for several years to burn diesel and mazut (the filthiest fuel on the planet if I understand correctly) to generate the vast majority of electricity.

This, in turn, implies high and rising EU emissions penalties. Since there is no competition, these penalties will be passed onto households. In short, the situation is politically toxic for the incoming president, Mr Christodoulides.

Interestingly, the leader of the self-declared Turkish Republic of Northern Cyprus, Ersin Tatar, has similar issues. In northern Cyprus, the even worse electricity infrastructure translates into short-term, expensive fixes and frequent power cuts. Higher energy prices combined with rickety infrastructure also extract a high political price from Mr Tatar.

Both men therefore have separate but strong political incentives to fix their electricity problems.

Israel wants to diversify from Egypt

While ramping up renewables is of course the most desirable way of addressing the issue, my understanding is that this takes time. Infrastructure must be built. Storage space must be found. The fastest way to fix the electricity problem on both sides of the island, therefore, is to bring natural gas here.

However, gas import infrastructure is years behind schedule and no one has been able to persuade the consortium led by Chevron (formerly Noble) to send gas from the Aphrodite field, first discovered in 2011, to Cyprus. Chevron seems hell bent on sending it to Egypt. That means we must find the gas from elsewhere.

Next door we have a friendly country with developed natural gas fields, namely Israel. Given that Israel is also a highly security-conscious country, one can assume that it is a bit uncomfortable about depending almost exclusively on one, historically unreliable buyer, namely Egypt, for its natural gas exports. Israel would probably welcome having other markets. Cyprus is too small to make money simply by sending a pipeline for domestic consumption. You need to tack on another big market to make it viable.

The original idea for a big market was the East Med pipeline, which would run from Israel via Cyprus, Crete, mainland Greece and potentially up to Italy. However, since the start of the war in Ukraine, long pipelines do not tick the energy security and energy diversification boxes. Moreover, even before Ms Nuland killed off the East Med pipeline with her remarks in April 2022, it was an open secret that it would be extremely challenging to build within any reasonable budget.

Greece wants to burnish its LNG hub credentials

A second option being touted most forcefully by Energean, a company of Greek interests that has some small fields in Israel, is to send gas to Cyprus and then potentially convert it into liquefied natural gas (LNG) using a floating LNG (FLNG) platform on the sea. From there it could be sent as LNG by ship to Greece. I understand that other companies are also hovering to see if shipping gas from Israel is feasible. Other versions of this option have been dubbed the “virtual gas pipeline”.

Another option of course, given the recent discoveries by ENI in Block 6 of the Republic of Cyprus Exclusive Economic Zone, is that ENI converts gas to LNG using an onshore FLNG platform and ships LNG to Greece.

The political advantage of both of these LNG options is that it gives Greece an incentive for a regional energy deal. Since the war in Ukraine, Greece has been bolstering its position as the regional hub for receiving LNG by ship and then transporting it up through the Balkans. It already had LNG import infrastructure in Athens. The new Alexandropoulos LNG port under construction is due to come on stream by the end of 2023.

Turkey wants to burnish its pipeline transit credentials

Going back to the beginning of this article, the purpose of all these ideas is to reduce regional security risks. Past experience with the East Med pipeline tells us that if you try to do this without involving Turkey, it raises security risks, rather than reducing them.

We therefore need to think of Turkey’s incentives too.

Supplying Turkish Cypriots with gas piped to Cyprus is a good start. But given Greece’s growing role as an energy hub, it will not be enough to incentivize Turkey to cooperate. The clear incentive is that Turkey also has its own ambitions as a pipeline hub.

The obvious answer, therefore, is to have:

• An FLNG platform offshore Cyprus, supplied perhaps from Cypriot gas fields and serving Alexandropoulos.
• A pipeline to Turkey via Cyprus, supplied perhaps from Israeli gas fields.

Every regional leader gets to boast

There is a big boast in this kind of deal for every political leader in this corner of the world.

Mr Christodoulides can boast that he has achieved what two other presidents could not: exports of natural gas from Cyprus in partnership with lots of other countries, thereby reducing the fear of a deal involving Turkey. Mr Tatar gets to fix his perennial electricity problem. Israel’s prime minister, Benjamin Netanyahu, gets to boast that he has cut security risks by diversifying gas exports. Greece's prime minister, Kyriakos Mitsotakis, or whoever wins the elections in Greece this year, gets to boast that he is supporting EU gas diversification by taking gas from FLNG plants in Cyprus. Turkey's president, Recep Tayyip Erdo?an, or whoever wins the election due in Turkey this year, gets to boast that he is also boosting EU gas diversification with a pipeline from Israel via Cyprus.

How to make it happen?

There are three potential obstacles to these ideas. The first, is money. FLNG platforms are fairly new technology. They might be more expensive than classic, land-based LNG plants. Making it all commercially viable for the many players involved might need some encouragement from big finance institutions, such as the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD) and others.

That won’t happen unless they are badgered by their shareholders (European member states with security concerns) to change their rules on not investing in fossil fuel-related projects. Perhaps these rules can be adjusted to be allowed where they serve important regional security and energy diversification objectives, or where they cut emissions produced by current production, namely the old power stations in Cyprus.

This brings us to the second potential obstacle. For it to work, it requires the EU and the US to coordinate closely at a high political level, and for many people to work on all the parties involved: Greek Cypriots, Turkish Cypriots, Israel, Greece and Turkey. It requires the vision to see why it is important and a high-level political commitment to follow it through.

This might not be as difficult as one would assume. Reading between the lines of some local media reports here, there are some signs that the EU and US have been having exploratory talks on these kinds of ideas.

A third obstacle is scepticism. For me, an energy deal before any attempt at reviving Cyprus problem negotiations is an absolute no-brainer. This is especially the case if you are thinking of using the same old failed Cyprob negotiations process.

But I find that whenever I try to suggest a regional energy deal to “Cyprob old-timers”, I tend to get scoffed at. Maybe it is because they are still rummaging around in that rusty, sixty-year-old toolbox?

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