by Zheng Nie

While Cyprus is experiencing economic woes and Turkey is finding its way out of a huge European debt crisis, the energy relationship between Cyprus and Turkey regarding gas and oil is causing stress for both countries. On Wednesday, Turkey announced the suspension of energy projects with Italian giant ENI because the company expanded the exploration for oil and gas to Cyprus. ENI’s decision on the project expansion in Cyprus has created hope of economic recovery Cyprus but it infuriated Turkey since the project would cut down the energy plan in Turkey.

Expected natural-gas discoveries in Cyprus could be a source of economic growth after the harsh bailout deal.  Cypriot Finance Minister Michael Sarris said Tuesday that an energy boom could help the island recover from the €10 billion ($12.86 billion) bailout agreed upon over the weekend. The energy exploration would increase gas and oil exports and bring more money into the country to compensate for its increased debts. Moreover, the project would be a great layout for Cyprus as it tries to establish itself as the energy hub of Europe. It would help Cyprus recover some of the reputation it has lost in the banking crisis. However, things do not always go as simple as we expect.

Turkey has long warned Cyprus against exploiting the natural resources reserves off the eastern Mediterranean, accusing it of neglecting the equal right of Turkish Cypriot in Northern Cyprus. Since Cyprus divided in 1974, political disputes between the north and south has impeded Cyprus’s economic growth and has stressed the relationship between Turkey and Cyprus as Turkey only recognizes Northern Cyprus. We could assume that this tension has reduced the business relations between the two countries and therefore brings an added challenge to Cyprus as it strives for economic recovery.

As Turkish demand more gas and oil, the cut-down energy plan with ENI in Turkey would create an obstacle for finding more energy resources. Russia seems like a likely rescuer for Turkey in this energy game. In 2011, Turkey gave Russia a green light for the South Stream project to run through Black Sea waters, paving the way for a pipeline designed to transport 63 billion cubic meters of natural gas to Turkey per year. To Turkey, the partnership with Russia seems like an easier way to maintain a strong energy industry compared with its ENI relationship. I think this is the reason why Turkey could be confident in suspending the project with ENI because Turkey could rely on its business with Russia.

It is really interesting to see how Turkey and Cyprus is playing this energy game. I think the biggest challenge for both countries is finding a way to claim huge profits in terms of energy without hurting other countries economically. I believe that the best way to address this business issue is cooperation between Turkey and Cyprus, but this seems highly unlikely under such a stressful political relationship.