ENTER: Turkey vs Cyprus Geopolitics

Geopolitics at play as Cyprus gets ready to develop offshore natural gas depositsBy Costis Stambolis *

At first it was the Arab Spring and the unrest that followed in the northern coastal strip of Africa, which is a net oil and gas exporter. From a European energy point of view Libya is what really matters, although Egypt’s position is pivotal since a sizable amount of oil and gas, a cumulative 2.0 to 2.5 bbl per day, flows through the Suez Canal and the country itself is a net gas exporter. Next came Syria, a small oil and gas producer by Middle Eastern standards, but long viewed as one of the most stable countries of the region in spite of ongoing regional conflicts. A fully fledged revolt is currently in progress in several parts of the country with thousands dead since its start last March, and the Assad regime desperately trying to cling on to power.

Now we have another crisis brewing in the southernmost tip of our region, in Cyprus, where the government is going ahead with plans to carry out exploratory offshore drilling in order to determine its apparently rich natural gas deposits, estimated as high as 280 BCM’s. The area where these deposits lie, known as Block 12, is bordering with a giant natural gas deposit belonging to Israel known as Leviathan, which, according to recently released data, holds some 450 BCM’s of gas. Turkey is deeply annoyed with Cyprus’s plans since it does not recognize the island’s right to its own Economic Exclusive Zone (EEZ), and hence its right to prospect for hydrocarbons, in view of the as yet unresolved Cyprus question. Cyprus has been divided since 1974 into the Turkish-occupied north and the Greek-dominated south, which is the only internationally recognized government of the island-state and a member of the EU since 2004.

Turkey’s Foreign Minister Ahmet Davutoglu has repeatedly stated that the Republic of Cyprus

 has no right to start gas exploration activities on its southern coast unless the Turkish Cypriot minority also shares in the resources and revenues. As we approached September 21, the date the drilling platform was scheduled to arrive in Block 12, tensions grew as Turkey appeared ready to send naval forces in order to prevent any drilling activity. On September 6, Turkish Prime Minister Recep Tayyip Erdogan adopted a belligerent tone by commenting that “Turkish warships would display themselves more often in the waters of the Eastern Mediterranean.” Israel, with whom Cyprus shares natural gas deposits and with which it has a close economic, political and defense relationship, will come to its assistance as it will seek to protect is own deposits from Turkish interference, quite a probable scenario given the latest severe rift in diplomatic ties between the two countries.

If the above were not enough from a conflict-building point of view, the USA, a close ally of Turkey over the last 60 years or so, has said that it will not dissuade Cyprus from going ahead with its gas exploration activities. According to a latest statement by the State Department, every country has the right to use any means at its disposal to develop its indigenous resources and thus reduce its energy dependency on imported fuels. Furthermore, American diplomats observe that according to the International Maritime Law (Montego Bay 1982), which is an international convention fully ratified by the vast majority of UN member countries though not by Turkey, Cyprus has every right to its own EEZ, which extends south and southwest up to 200 nautical miles off the island’s coast. As market sources point out, the American government’s unequivocal support for Cyprus’s hydrocarbon exploration program is not entirely unconnected to the fact that the company in charge of drilling operations and has signed PSA’s with both Cyprus and Israel for the development of their natural gas deposits is Texas-based Noble Energy.

If US pledges not to interfere sounded a little vague or non-committal to some diplomats, the Russian government quickly cued in by expressing solidarity with Cyprus’s plans and its readiness to partake in the island’s efforts to develop its hydrocarbon resources. Likewise, the European Union has taken a positive stance in commenting on Cyprus’s latest energy policies. Given such unilateral support and approval of Cyprus’s actions it remains to be seen if and when Turkey will make true its so-far veiled threats and actually move in to stop drilling activity in Block 12. If such action is taken by Turkey we shall see a rapid escalation of what has until now been a verbal conflict into a fully blown crisis with Israeli and Greek air and naval intervention. So far, there appears little prospect for reconciliation or abstinence, as both Cyprus and Turkey have stood by their stated positions, which means that a naval incident leading to a broader military conflict involving all four countries can no longer be excluded.

As a new crisis in the Eastern Mediterranean is now waiting to happen, this time over natural gas deposit development, hydrocarbons once more tend to dominate regional developments. Oil geopolitics are clearly in evidence, for different reasons, in both Libya and Syria. The former is now feeling the breath of the oil majors as it is trying to restart its oil industry, while the latter is facing oil export sanctions from the EU as the international community is trying to reason with the Assad regime over human rights. More oil and gas related conflicts could be on the way in Southeast Europe as countries are trying in earnest to strengthen their indigenous energy resource base. As it is clearly shown in IENE’s latest “Southeast Europe Energy Outlook 2011” study (see www.iene.gr) the region is a net oil and gas importer to the tune of 1,6 bbl per day for oil and 60.0 BCM per year for gas. Given the current high oil prices that means that the region’s annual total oil and gas import bill may easily exceed $80 billion. In view of Southeast Europe’s anemic economic development, bar that of Turkey’s, such a high energy bill is draining resources away from much needed infrastructure and social development needs.

Therefore, it is to the interests of all countries in the area, including those of Turkey, that efforts to develop local oil and gas deposits are accelerated as this appears to be the best way for minimizing energy import dependence. Although national differences over land claims and peripheral conflicts may be part of the game, the truth is that any substantial gains from oil and gas production on a sustainable basis can only be achieved through close cooperation and peaceful coexistence between neighboring countries. If such conditions are not met then all countries stand to loose and indeed at a multiple level.

* Costis Stambolis is the executive director and deputy chairman of the Athens-based Institute of Energy for Southeast Europe (IENE).

Source: 

http://www.ekathimerini.com/4dcgi/_w_articles_wsite3_1_25/09/2011_407904

NUTSHELL:

It is always a heart-pounder when one hears that geopolitics is rearing its most-times ugly head. Why do I say this? Geopolitics is usually responsible for the most subjective and uneconomical actions in business history or....are they? A key example is the Keysone pipeline which is planned to run from Canada through to the US. Different interest groups, security of supply connotations from nations come into play. In fact the German defence ministry focuses annually on energy security as it has implications for national security and the ability of Germany to further its national interests. Enter Turkey and Cyprus, extraction of hydrocarbons from the disputed block may or may not see the light day. But this just makes us wonder what happened to good old economics and the argument for exploitation of resources for ''the common good''. How do we transcend international political complexity and achieve maximum resource exploitation?