The Effects of the Hydrocarbon Explorations on the Cyprus Negotiations

Transcription

1 The Effects of the Hydrocarbon Explorations on the Cyprus Negotiations DRAFT PAPER DO NOT CITE WITHOUT PERMISSION FROM THE AUTHOR Sinan Akgunay July 3, 2016

2 ABSTRACT The Republic of Cyprus was established in 1960 as a bi-communal state. Article 1 of its Constitution clearly stipulated that, The State of Cyprus is an independent and sovereign Republic with a presidential regime, the President being Greek and the Vice-President being Turk elected by the Greek and the Turkish Communities of Cyprus respectively as hereinafter in this Constitution provided. The Republic however collapsed in 1963 following the demands of Archbishop Makarios to amend the Constitution and to usurp the rights recognized by the Constitution to the Turkish community. This move upset the relative tranquility in the island and caused strife between the two communities until a coup d état by the mainland Greek forces against the Makarios government with the intention of achieving enosis (union with Greece) in July Turkey s intervention based on the Treaty of Alliance and Guarantee of 1960 to prevent this eventuality, led to a new state of affaires, since then. Since 1968 the two communities have on and off talks in search of a negotiated settlement. In many of these talks the two parties have come close to solving their differences. The last one was in 2004 when the representatives of the all concerned parties managed to accept a very detailed agreement known as the Annan Plan, which was eventually accepted by 64.91% of the Turkish Cypriots whereas rejected by the Greek Cypriots by a majority of 75.38% in a referendum and has never been implemented. Following the failure of the Annan Plan, fresh negotiations began in 2008 and has continued till today. The stalemate of 2012 and subsequent suspension of the talks after the election of Nicos Anastasiades as the new President by the Greek Cypriots in February 2013 was broken only in February 2014, when the two sides reached agreement on yet another joint statement. February 2014 joint statement stipulates the settlement will be based on a bi-communal, bi-zonal federation with political equality, as set out in the relevant Security Council Resolutions and the High Level Agreements. Actually the essence of the wording of this framework of a possible is not new. It has been repeated in various previous texts. However, the problem is the parties have been unable to find a way out to solve the difficult issues such as, territory, property, governance, and security. Yet, there energy appears as a new element on the negotiation table. When we address this element it is not only the prospects of natural gas fields in the Eastern Mediterranean but the pipeline to transport the yet to be fully explored gas to the European markets via Turkey, the recently completed water pipeline from Turkey to Northern Cyprus (called as the peace- pipeline by the Turks) and the plans to bring electricity from Turkey to the island should be mentioned. Could these resources be a blessing or a curse for the negotiations? This article primarily intends to study the effects of these energy resources to the negotiations with specific references to the technical points and the positions of the parties on this issue. Key words: Cyprus negotiations, present status of negotiation, resources and Cyprus negotiations natural gas in Cyprus, peace-pipeline, energy power transfer from Turkey to Cyprus.

3 Introduction The Cyprus Issue has been a long lasting conflict between the Turkish Cypriots and Greek Cypriots on the agenda of international relations on and off - since the XIXth Century. Since 1968 the two communities have on and off talks in search of a negotiated settlement. In many of these talks the two parties have come close to solving their differences. Despite all the attempts, non of the negotiation talks actually succeeded. However starting from early 2000 s there have been major hydrocarbon energy discoveries within the region, these discoveries ultimately create opportunities for the region and particularly for Cyprus. This study focuses on whether the newly explored natural resources in Eastern Mediterranean could create a difference on the negotiation table of the ongoing Cyprus Negotiations that have been unsuccessful over a very long period of time. Throughout the years there have been many academic studies trying to explain the conflict and the reasons behind the negotiations not succeeding, however the energy element has recently been added to the table, therefore this study will try to create a new perspective in the literature. Before studying if the energy element that has been added to the negotiation table can actually be a game changer in the ongoing Cyprus negotiation process, we shall answer the questions of whether there are sufficient incentives to motivate the people of either side of the island to abandon the status quo for the an uncertain agreement 1. The Republic of Cyprus (ROC) governed by the Greek Cypriots, is an internationally recognised state which is also a member of the European Union. The state has been in control of all economic and social benefits coming from the European Union and its geopolitical location. Therefore, according to Bahçeli and Noel, the people of ROC would have to be given a strong reason explaining why they should actually trade these benefits for a federal union with the Turkish Cypriots 2. On the other hand the The Turkish Republic of Northern Cyprus (TRNC) has been isolated from the international system, and 3 consequently has had a limited social and economic progress since 1974 vis-a-vis the Greek Cypriots. The high costs of energy in the TRNC due to the isolation remains as a big limitation for the increase in production 4. 1 Bahçeli, Tosun and Noel, Sid. (2015). The Quest for a Political Settlement in Cyprus: Is a Dyadic Federation Viable? King University College 2 Bahçeli, Tosun and Noel, Sid. (2015). The Quest for a Political Settlement in Cyprus: Is a Dyadic Federation Viable? King University College 3 Bahçeli, Tosun and Noel, Sid. (2015). The Quest for a Political Settlement in Cyprus: Is a Dyadic Federation Viable? King University College 4 Görgülü, Mehmet Emre The Effects of Isolation on the Turkish Republic of Northern Cyprus Munich Personal RePEc Archive

4 Considering the above specified circumstances, it is possible to argue that, if economic motivation were indeed to work as such, they could jeopardise the road towards settlement 5. With this perspective the two sides of the island haven't had a common economic motivation for settlement during the period. When answering a question regarding why the negotiations have not succeeded and how they can succeed it is generally argued that for the negotiations to succeed the following condition must be satisfied; outsiders must stop intervening in the Cyprus Conflict, the Cyprus Conflict must be de-politicized and must focus on its roots, each party must understand the other party s narrative and Turkey s EU accession negotiations must be decoupled from the resolution of the Cyprus conflict 6. Clearly, the acceptance of only one side of the conflict to the European Union (EU) has further complicated the situation, making it harder for the Greek side to change their position in the negotiation table. With this background, there is no easy solution to the conflict. Both the Greek and Turkish Cypriots clash in terms of nationalism, deepening the dispute. However the two sides of the island have had many talks over the years, in some of these talks the two parties have come close to solving their differences. The last one was in 2004 when the representatives of all concerned parties managed to accept a very detailed agreement known as the Annan Plan, which was eventually accepted by 64.91% of the Turkish Cypriots whereas rejected by the Greek Cypriots by a majority of 75.38% in a referendum and has never been implemented 7. At the date of the referendum in line with the economic benefits controlled from the EU and the international system, only 24% of the Greek Cypriots viewed the economic situation as their most important 8 problem, whereas 42% of the Turkish Cypriots saw it as their most important problem. Among other changes happening in the region, during the period the island has been going through two important changes that is to further effect their prosperity i) the exploration of the natural gas fields in the Eastern Mediterranean and ii) economic crisis within the Republic of Cyprus. 5 Watson, Max Growing Together? Prospects for Economic Convergence and Reunification in Cyprus Hellenic Observatory Papers on Greece and Southeast Europe 6 Yalıncak, Hakan Understanding the Cyprus problem: a small chess piece on a huge board Munich Personal RePEc Archive 7 Kadritzke, N (2004). Cyprus: saying no to the future Le Monde Diplomatique May 7, Standard Barometer Public Opinion in the European Union European Commission.

5 Together with Greece, The ROC went through one of the most severe financial crisis of the Eurozone. Up to this day, the policy options to deal with a bail in of the European Union has happened, however due to the lack of historical experience, the amount of time needed for a full 9 recovery of the economy still remains uncertain. Resulting from the crisis, as of 2013, 74% of the Greek Cypriots viewed their economic condition, both nationally and as household, as their most important problem (European Commission,2013). According to the GPO poll in 2015, 66% of the Greek Cypriots stated that their country was still going through an economic crisis. Meanwhile, with the current economic conditions, EU does not hold the same magical appeal for the Turkish Cypriots, as it did during the 2004 referendum, and the EU s failure to deliver on promised financial and trade assistance has been disillusioning 10. Furthermore, With the unstable economic conditions, scarcity of natural resources in the island has started to become a more deliberate problem for both sides of the island 11. In this respect an important issue in the Cyprus context is the exploration of the gas fields in the Eastern Mediterranean region. Despite the dispute between the ROC and Turkey regarding the exploration of the hydrocarbon fields, the Cypriot gas that has been discovered so far has an enormous strategic importance, but is barely enough to meet long-term local demand 12. In fact, despite the high initial gas discovery expectations made during the early phase of explorations, the expectations gradually decreased for the island. However, as Israel has an important source of gas which is sufficient for an international export, the more important discussion for the future prosperity of the island stands out to be the transportation of the Israeli off shore gas. Therefore the strategic importance of Cyprus, in terms of the natural gas explorations, may be valid based on a cooperation with the regional actors. In this perspective, it is generally argued that, the natural explorations may become an opportunity for the island, if both TRNC and ROC approach the issue in a constructive manner. If not the issue may also become a curse. This paper will put forward the reflections of the natural gas explorations to the negotiation talks held between the Turkish and Greek Cypriot leaders, and present the approaches of both sides. It is clear that the conditions in the negotiation table have changed during the post 2012 period. Specifically the economic factors have changed, and there seem to be more incentives for the motivation of a successful negotiation. 9 Zenios,S. A., The Cyprus Crisis and a way forward, Cyprus Economic Policy Review, 2013, Vol.7 (1), Bahçeli, Tosun and Noel, Sid The Quest for a Political Settlement in Cyprus: Is a Dyadic Federation Viable? King University College 11 Winpenny, James (1994). Managing Water as an Economic Resource, ODI/Routledge, London 12 De Micco, Pasquale The prospect of Eastern Mediterranean gas production: An alternative energy supplier for the EU? European Parliament

6 Historical Background of the Cyprus Issue The Cyprus Conflict has been, on the agenda of international relations on and off - since the XIXth Century. It had passed through several stages especially since 1878 when the Ottoman Empire rented the island to the British Empire, which subsequently annexed it during the First World War. The Greek Orthodox Church, which had developed considerable authority under the Ottoman rule, 13 had been a staunch supporter of the union of Cyprus with Greece known as Enosis. As a result, this policy has been at the center of the Greek Cypriot policy especially during the British rule and after the Republic of Cyprus was established until 1974 or the Turkish intervention, based on the 1960 Treaty of Guarantee. Since the subject of this paper is about the ongoing talks between the Greek Cypriot and the Turkish Cypriot conflicting parties, our intention is not to study the history of Cyprus since But, in order to put the record straight it will be right to stress that, in Heinze s words, The Cyprus conflict consists, on the one hand, in the demand of the Greek conflicting party to dominate Cyprus as a Greek island, in which ethnic Turkish inhabitants are restricted to hardly more than what is usually held to be minority rights, and, on the other hand, in the demand of the Turkish Cypriots for self-determination and self-government and political equality. 14 The 1960 order established by the proclamation of the Republic intended to find a balance between these demands. Alas, this system collapsed in 1963 as a result of the Greek demands to change the constitution to achieve their ultimate goals and to deprive the Turkish side from their equal political, economic and social rights. The Turkish Cypriots resisted to the proposals that would have reduced themselves to minority status 15 Between the years 1963 and 1974 the Greek Cypriots sought to achieve their expectations through armed assaults, which, were met with the Turkish Cypriots resistance. During this time, the Turks found themselves ousted from the government and forced to live in enclaves. From the collapse of the system at the end of the 1963 to 1968, the United Nations was the major player to find a settlement to the problem basically along the satisfying the Greek Cypriot calls for Enosis and/or changing the system. Armed Greek Cypriot assaults on the Turkish Cypriots led to the diplomatic and military reactions of Turkey acting under the 1960 Guarantee Agreement. In November 1967, the Greek Cypriot militia and the mainland Greek forces, unlawfully stationed on the island, attacked the Turkish Cypriot villages of Boğaziçi (Atoroto Theodoros) and Geçitköy (Kofunye). These attacks brought Turkey and Greece to the brink of war and thus constituted a turning point in the conflict. Provisional Turkish Cypriot Administration was formed to govern the community affairs "until such time as the provisions of the Constitution of 1960 have been fully implemented." Following this move the two sides on the island entered into direct talks for the first time since Heinze, Dr. Christian p.7 Heinze, p.6 Heinze p. 11

7 The coup d état carried out primarily by the mainland forces against the Greek Cypriot President Archbishop Makarios and subsequent developments leading the eventual military intervention of the Turkey and division of the island in 1974 is yet another milestone in the talks between the two communities. The common denominator of all these talks since 1968 is that all of them are carried out under the auspices of the United Nations Secretary Generals. Although there are some different classifications based on different aspects of the talks, they may generally be divided into five main stages 16 Accordingly, the first stage of inter-communal talks held from 1968 to the Turkey s intervention in 1974 following the coup d état in the island. The second stage is the period of search of a settlement under the new parameters of It started in 1975 and continued until the declaration of the Turkish Republic of Northern Cyprus (TRNC) in This was followed by another stage until the Greek Cypriot application for membership to the European Union in The fourth stage of the talks continued until 2002 when the Greek Cypriots were admitted to the European Union as the Republic of Cyprus (ROC) and submission of the Annan Plan which was the most comprehensive plan to finally solve the issue, to separate referenda in Greek and Turkish parts of Cyprus. Whereas the Turkish Cypriots accepted the plan by a 65% majority, 76% of the Greek voters casted no vote and thus it never got to be implemented. From 2004 to 2008, the talks came to a standstill. It was only after 2008, that the leaders of the two sides started new rounds of talks, which and continues on and off until today. When these separate stages are closely analysed, certain new elements or leverages can be found. It is obvious that none of these elements or leverages worked. In the recent years, though, there is a new element and that is natural resources. Natural gas found in the surrounding areas of the Island and water being delivered through pipelines from Turkey may change the overall picture. However, would these new elements constitute as a leverage or opportunity or would they be a curse that is yet to be seen. 16 Asst. Prof. Soyalp Tamçelik s approach as outlined in his article, Kıbrıs ta BM tarafından gerçekleştirilen Toplumlararası Görüşmelerin Safhaları ve Analitik Özellikleri (The Stages and Analytical Characteristics of the Inter-Communal Talks Held Through the United Nations in Cyprus) published in the Turkish Studies - International Periodical For The Languages, Literature and History of Turkish or Turkic Volume 8/5 Spring 2013, p , Ankara-Turkey is generally accepted by the authors of this article.

8 Hydrocarbon Energy Sources in the Eastern Mediterranean In order to understand the political economy of the region, in terms of natural gas dynamics, one must focus on the natural gas discoveries and the changing supply allocations within the region. During the last decade, the Eastern Mediterranean region, specifically, The Levant Basin, Tamar Field, Dalit Field, ZOHR Field and Aphrodite Field have become an important spot for natural gas explorations. The area covering the specified fields, is located in a region overlapping the territorial coasts of Egypt, Israel, Palestine, Cyprus (both TRNC and ROC), Lebanon, Turkey and Syria. Which accordingly creates a ground for both cooperation, in terms of common economic 17 goals, and conflict, in terms of territorial disputes, among countries. It shall also be mentioned that the historical disputes within the region also coincide with the ongoing explorations, and create a ground for further conflict 18. With the explorations, the region holds recoverable natural gas reserves estimated to be a relatively significant source in comparison with the global resources. According to the statistics of U.S Geological Survey and British Petrol (BP), the estimated recoverable sources in the region is trillion cubic feet of recoverable gas. Taking into consideration the fact that the global gas usage in 2013 was 121 trillion cubic feet 20, the EU countries hold a natural gas reserve of 131 trillion cubic feet 21, it can strongly be argued that the Eastern Mediterranean resources have become an important global source of natural resources, which can indeed change the energy supply dynamics in the region. Accordingly, the region is transforming from a realm of bilateral to a 22 more regional context. With this respect, there are two interrelated opportunities for the regional actors; i) the economic benefits arising from the gas explorations and ii) the geopolitical and economic benefits arising from the international trade flows of the resources. 17 Vogler, S and Thompson, E (2015) Gas Discovies in the Eastern Mediterranean: Implications Maritime Security March Offshore Energy Today (2015) Turkish Cypriots: Barbaros Hayreddin Paşa here to stay Offshore Energy Today January 7, U.S. Geological Survey. (2010). Assessment of Undiscovered Oil and Gas Resources of the Levant Basin Province, Eastern Mediterranean. Retrieved July 10, 2014 from pubs.usgs.gov/fs/2010/3014/pdf/fs pdf 20 U.S Energy Information Administation. International Energy Statistics 2014 retrieved 21 U.S Energy Information Administation. International Energy Statistics 2015 retrieved tid=3&pid=3&aid=6&cid=r3,&syid=2011&eyid=2015&unit=tcf 22 Sulun, E (2016). Understanding the notion of Security in eastern Mediterranean in the light of rising energy politics in the region from Oral Presentation at Middle East Technical University NCC International Conference on Energy Security and Geopolitics in the Eastern Mediterranean May 5-6, 2016

9 As mentioned earlier, Egypt, Israel, Palestine, Cyprus (both TRNC and ROC), Lebanon and Syria are the countries located in the region and have territorial access to the natural resources. In this respect, the natural resources allocation, in terms of discovery fields in the region is as follows; The Levant Basin : 510 bcm Tamar Field : 283 bcm, Dalit Field 14 bcm, Zohr : 850 and Aphrodite Field : 129 bcm 23. The Levant Basin Tamar Field, and Dalit Field are located within the coastal territory of Israel, ZOHR Field is located within the the coastal territory of Egypt and Aphrodite Field is located within the coastal territory of Cyprus. 24 Figure 1. Reference Ekinci, B, Karan,M and Özden, A and Ulucan, A. Gas Discoveries in the Eastern Mediterranean and Comparison of Potential Supply Routes from Oral Presentation at Middle East Technical University NCC International Conference on Energy Security and Geopolitics in the Eastern Mediterranean May 5-6, Ekinci, B. Energy Prospects in the Eastern Mediterranean: A Turkish Perspective from Oral Presentation at Middle East Technical University NCC International Conference on Energy Security and Geopolitics in the Eastern Mediterranean May 5-6, 2016

10 It shall also be mentioned that, although disrupted due to ongoing regional conflicts, Lebanon and Syria also have an important prospect regarding natural gas reserves within their offshore territories. According to government estimations, Lebanon holds a 25 trillion cubic feet natural gas 25 reserve potential. On the other hand, Syria has a much more developed gas production facility, which has radically dropped due to internal conflicts and the imposition of sanctions by the EU and USA. According to the Oil and Gas Journal estimations Syria has an estimated natural gas reserves amounting to 8,5 trillion cubic feet 26 and holds a significant amount of hydrocarbon recourses. According to Nobel Energy, within the Aphrodite Field, the estimated natural gas discovery is 4 trillion cubic feet 27, which was initially expected to be 5 trillion cubic feet, and the expected natural gas reserves are to be 31 trillion cubic feet 28. Considering that the world reserves of gas are quadrillion cubic feet, Cyprus is estimated to hold 0.4% of the world reserves of gas and approximately 0.15% of the world reserves of oil. With this respect, Cyprus is estimated to have a 30 total net value of USD 350 billion, USD 150 billion of which is for gas and USD 200 billion is for 31 oil. Since 40% of the total revenue is estimated to cover the exploration and drilling costs, Cyprus will have an additional natural resource revenue with a net value of USD 210 billion. 32 Although the current level of discoveries within the coast of Cyprus is currently not economically sufficient in pursing any further investments related to the transmission of the gas supplies, the expected discoveries and the strategic location of the island creates an opportunity for Cyprus in terms of a energy cooperation within the region. An important matter to be concluded is how the newly discovered gas supplies of the Eastern Mediterranean countries is to be integrated into the European distribution network. Currently there are two active pipelines; the Arab Gas Pipeline (through Egypt-Jordan-Syria-Lebanon) and the Ain Zalah Pipeline (through Iraq-Syria). 25 U.S Energy Information Adinistration (2015) Lebanon Energy Data and Analysis Report March, U.S Energy Information Adinistration (2015) Syria Energy Data and Analysis Report June 24, Noble Energy. Investor Handout for J.P. Morgan Inaugural Energy Equity Conference.Retrieved June 27, 2016 from Rolandis, Nicos (2014), Barbaros, rights, resolutions and sheer reality, 2014, op.cit U.S Energy Information Administation. International Energy Statistics 2014 retrieved Rolandis, Nicos (2014), Barbaros, rights, resolutions and sheer reality, 2014, op.cit Rolandis, Nicos (2014), Barbaros, rights, resolutions and sheer reality, 2014, op.cit Rolandis, Nicos (2014), Barbaros, rights, resolutions and sheer reality, 2014, op.cit

11 The el-arish-ashkelon Pipeline (through Egypt-Isreal), SCOTLINE Pipeline (through Iraq-Syria), Trans Arabian Pipeline (through Saudi Arabia-Jordan) and Gasyle 1 (through Syria-Lebanon) are currently inactive. However all current alternatives come with an economic or geopolitical risk due to the unstable political environment. On the other hand there are certain proposals which are economically more beneficial for the actors. Accordingly, there are ongoing proposals for new routes for the inclusion to the European distribution network, specifically for Israel and Cyprus, which are not supported only by the regional but also by the international actors such as the European Union (EU), with the intention of 33 minimising the energy dependency of the EU to Russia. Although most proposals are technically feasible, the costs involved in addition to the complexity of negotiating the deals in order to over come the political barriers create important threats against not only the export options but also to the development of discovered resources 34. Therefore, although many alternatives are negotiated among countries, most of them are practically unfeasible under the current circumstances. There are certain proposals still under consideration for Israel and Cyprus to enable the access of their gas to the European distribution network through liquified natural gas (LNG) terminals and natural gas pipelines.another proposal under consideration for Israel is exporting the gas through either Egypt's or Cyprus's floating or stable port terminals which is estimated to have an initial cost of approximately 4 billion USD and 10 billion USD respectively 35. The proposals may enable every LNG demanding country to be a potential importer of Israeli gas, however due to the high costs, the expected economic benefits associated with the investment are estimated to be relatively limited. The usage of Egypt s LNG export terminals will exclude Turkey from any energy cooperation within the region and will not require any settlement of the Cyprus Problem. Furthermore, as explained earlier, despite the future expected discoveries, Cyprus currently has a limited amount of recoverable natural gas that has already been explored, therefore, unless further natural gas discoveries are made, any investment of LNG terminals will be economically unfeasible. On the other hand, an LNG terminal in Cyprus would also be extremely beneficial for Israel, creating the opportunity in entering East Asian markets, however it is unlikely that Israel will fund such an investment in a foreign country 36. With the current amount of discoveries, the Republic of Cyprus may also consider exporting through Egypt s LNG export terminals, bearing the economic burdens associated with the high expenses. 33 Interview with Ergün Olgun, 2016, op.cit. 34 Karbuz, S (2014). EU-Turkey Energy Cooperation: Challenges and Opportunities IAI Working papers 14/12 November Karan,M and Özden, A and Ulucan, A. Gas Discoveries in the Eastern Mediterranean and Comparison of Potential Supply Routes from Oral Presentation at Middle East Technical University NCC International Conference on Energy Security and Geopolitics in the Eastern Mediterranean May 5-6, Bryza, M. Israel-Turkey Pipeline Can Fix Eastern Mediterranean ICDS January 21, 2014

12 On the other hand, in terms of exporting through pipelines, Israel and Cyprus may choose to enter the European distribution network with the Eastern Mediterranean Sub Sea route, through a pipeline from Cyprus to Greece.This route is planned to be established with a 2,000 km pipeline construction, with a capacity of 8,5 bcm and an estimated cost of 20 billion USD Figure 2. Reference Ekinci, B, 2016 The route is considered as the most expensive route among all alternatives and despite being discussed by officials, it is genuinely considered as unrealistic 39, due to the economic ability of competing with the other regional routes Karan,M and Özden, A and Ulucan, A. Gas Discoveries in the Eastern Mediterranean and Comparison of Potential Supply Routes from Oral Presentation at Middle East Technical University NCC International Conference on Energy Security and Geopolitics in the Eastern Mediterranean May 5-6, Ekinci, B. Energy Prospects in the Eastern Mediterranean: A Turkish Perspective from Oral Presentation at Middle East Technical University NCC International Conference on Energy Security and Geopolitics in the Eastern Mediterranean May 5-6, Cyprus Mail (2016) Our View: Turkey-Israel Deal of Wake-up Call for Cyprus June 28, Özersay,K(2014) Yunanistan ın Doğu Akdeniz Boru Hattı projesine uzmanlar hayal diyor AB Haber Brüksek June 2, 2014.

13 Another potential route under consideration by the Israeli government, which is seen as the economically most feasible proposal, is the construction of the Turkish Offshore pipeline from Leviathan to Turkey (approximately 500km), with an estimated cost of approximately 2,5 billion USD and a capacity of 17 bcm 41. On top of the relatively low cost, this route will also enable access to the European and Turkish distribution networks through the TANAP and TAP gas corridors, planned to stretch from the Caspian Sea to Italy 42. However, as the proposed pipeline, between Leviathan to Turkey, is planned to cross Cyprus, it requires a peaceful settlement of the Cyprus Problem, which is considered as its limitation. On the other hand, considering that an LNG terminal in Cyprus might give Israel the opportunity to access the East Asian markets, such a route may also enable the actors to generate additional funds for finance the terminal in Cyprus 43. Similar to Israel, in terms of the Republic of Cyprus, it must be mentioned that, among other proposals, having access to the Turkish Offshore pipeline is the least costly and economically most feasible proposal on the table. Other routes for exporting gas include a variety of on shore alternatives passing through the Arab Pipe Line and entering into Turkey, however due to the political preferences and regional instabilities, neither of these alternatives are practically feasible at this point of time. Furthermore, according to sector experts another possibility for Israel may be to bypass Cyprus through a compressed Natural Gas transportation by tankers, or invoking and international charter establishing a multilateral framework for cross boarder cooperation in the 44 energy industry. Which comes together with the idea that when the two, economically, biggest 45 countries of the region are ready to move ahead, they will not let any issue get in their way. 41 Karan,M and Özden, A and Ulucan, A. Gas Discoveries in the Eastern Mediterranean and Comparison of Potential Supply Routes from Oral Presentation at Middle East Technical University NCC International Conference on Energy Security and Geopolitics in the Eastern Mediterranean May 5-6, Pala, C. Turkey as a Future Gas Hub in the Mediterranean Region from Oral Presentation at Middle East Technical University NCC International Conference on Energy Security and Geopolitics in the Eastern Mediterranean May 5-6, Bryza, M. Israel-Turkey Pipeline Can Fix Eastern Mediterranean ICDS January 21, Cyprus Mail (2016) Our View: Turkey-Israel Deal of Wake-up Call for Cyprus June 28, Cyprus Mail (2016) Our View: Turkey-Israel Deal of Wake-up Call for Cyprus June 28,2016

14 Accordingly, it shall be mentioned that upon the agreement reached between Turkey and Israel in June 2016, regarding the strategic importance of the gas export Netanyahu, Israeli Prime Minister, stated that this matter could not been advanced without this agreement, and now we will take 46 action to advance it A case, excluding Cyprus from the energy cooperation will likely be considered as a worse case scenario for Cyprus. Any other case in which the nations of Cyprus do not act proactively towards a resolution, will increase the international pressure on the island. All in all, as could be seen from the above discussion, in consideration of the expected recoverable natural gas resources within the Eastern Mediterranean region, the security oriented instabilities within the region and the economic costs associated with the alternative routes of entering the European distribution network; the safest, most feasible and economically most profitable gateway for the Eastern Mediterranean natural gas to the markets is observed to be the Turkish offshore route. Implications of the natural gas resources on the negotiations As presented in the previous chapters of this paper; the Cyprus Issue is a genuinely nationalist issue, built up on a series of historical events that have been taking place since the XIXth Century up to the present. With this respect from a theoretically realist perspective, a long lasting peaceful solution to the problem, based on diplomatic negotiations, is considered as an unlikely task by many scholars and politicians 47. On the other hand, it is a fact that, with the discovery of the hydrocarbon energy resources, the economic circumstances have changed within the region and Cyprus. Accordingly, this new situation has created an opportunity for both nations of the island and the other regional actors to economically benefit from, with the prerequisite that the conflict in the island is to be resolved. With a more economic and theoretically liberal perspective it can be argued that this new situation may create an incentive for the actors to cooperate and act in favour of an established resolution. Regardless of the ultimate result of the ongoing negotiation process of the Cyprus Issue, this section of the paper will present the reflections, if any, of the opportunities associated with the natural gas explorations in the Eastern Mediterranean on the ongoing negotiation process. The negotiation talks between NCTR and ROC have been proceeding -on and off- since May As explained, the difference of these talks in comparison with the previous unsuccessful talks, is the natural gas discoveries within the region. The previous talks took place until October 2014, ending after a dispute on the hydrocarbon natural gas exploration activities. According to the Turkish perspective the natural resources of the island are a common good of the people regardless of the dispute. 46 Gurses, E and Heller (2016). J Israel, Turkey restore ties in deal spurred by energy prospects Reuters June 27, Interview with Osman Ertuğ, March 5, 2016, op.cit.

15 In this respect, the Turkish Side has attempted to integrate the hydrocarbon issue within the formal negotiations by proposing an establishment of a mutually administered fund. The Greek Cypriot side, on the other hand, has approached the issue as a matter of sovereignty of the ROC. Therefore the ROC has considered the issue of wealth sharing as contingent on a political settlement and not as a part of the negotiations 48. Accordingly, the hydrocarbon energy issue is not considered as a topic of negotiation, therefore is not open to discussion. With this respect there is a common approach arguing that the hydrocarbon energy sources can turn into a potential for the island and the region only after a peaceful solution is reached in the island, therefore the 49 energy issue will not be on the table until there is a major improvement towards a solution, as a result, the energy resources actually don't have any significant effects on the negotiations. Espen Barth Eide, the United Nations special advisor to Cyprus, also argues that a peace settlement will make it easier to deal with the whole hydrocarbon issue 50. Despite regularly emphasising the strict position associated with exclusive economic zone 51 position and sovereignty, according to Greek Cypriot Leader President Nicos Anastasiades, the benefits of wealth from energy exploration should be for all people of Cyprus whether they are Greek or Turkish Cypriots, and therefore, the gas fields can indeed help unite the island 52, which is also brought forward occasionally by Turkish Cypriot Leader President Mustafa Akıncı, explaining that, this common wealth should not be turned into an issue of tension, both sides of the island should benefit from the resources and the, wisely usage, of the resources may ease the solution 53. So, the questions arise if not discussed in the negotiations, how can the hydrocarbon energy resources help unite the island? or do the resources really play a role in the solution or are these statements examples of political maneuvres? According to Özdil Nami, TRNC Presidents Special Representative at the Cyprus Negotiations, the ongoing negotiations are strictly different from the previous talks, in terms of the constructive approach put forward by both sides. 48 Kaymak, E Kaymak, E. (2012, January). Wealth Sharing and Geopolitical Strategies: Excluding Hydrocarbons from the Cyprus Negotiations. In Faustmann, H., Gürel, A., & Reichberg, Gregory M. (Ed.). Cyprus Offshore Hydrocarbons, Regional Politics and Wealth Distribution, Friedrich Ebert Stiftung and PRIO Cyprus Centre, PCC Report 49 Kahveci, H. Eastern Mediterranean Hydrocarbons: A Trigger for the Cyprus Solution from Oral Presentation at Middle East Technical University NCC International Conference on Energy Security and Geopolitics in the Eastern Mediterranean May 5-6, Ellis, T(2016) Eide optimistic a solution for Cyprus is near Ekathimerini January 12, Aljazeera Turk (2015), Akdeniz'deki kavganın kronolojisi January 20, Defterios, J and Macguire, E (2014), Cypriot president: Underwater gas fields can help unite island CNN August 25, Atilgan, A (2016) Akinci: Cyprus hydrocarbons should benefit both sides Anadolu Agency March 28, 2016

16 All economic changes, including the economic crisis in the Republic of Cyprus and the Hydrocarbon gas explorations, have a direct or indirect effect on this change. According to Nami, the Hydrocarbon energy resources may either have a positive or negative effect on the talks. As the importance of the gas fields is known by both sides, the resources currently act as an accelerator to proceed with the talks and achieve a result. However, if the talks do not proceed within a timely manner, the resources may become a curse and a topic of dispute 54. From the Turkish perspective it can clearly be said that, although not being discussed as a topic of negotiation, the Turkish side considers the hydrocarbon issue as an element that is actually indirectly effecting the talks. The arguments brought by Nami are also supported by Armagan Candan, an MP of CTP who is focusing on the negotiations. According to Candan, the talks are proceeding in a constructive manner with sound steps and the hydrocarbon explorations have had a positive effect on the proceeding of the talks. 55 Both Nami and Candan emphasise the importance of Turkey s constructive foreign policy towards the Cyprus Issue. Considering that the uncertainty surrounding the hydrocarbon gas developments offshore Cyprus were viewed as a 56 reason for less dynamic negotiations or even a reason for the failure of the talks, the new approach can genuinely be considered as a different approach for both sides. It is also important to understand the effects of the regional developments to the issue. As a sign proceeding the talks in a timely manner, the President Akıncı and President Anastasiades jointly agreed on intensifying their talks, meeting twice a week starting from mid June Ergun Olgun, the former TRNC Presidents Special Representative at the Cyprus Negotiations, also states that the exploration of the hydrocarbon gas fields may either become an opportunity or a curse for the future of the island. According to Olgun, the preemptive approach towards the energy fields by the ROC during the 2014 negotiations was a disruptive decision towards the negotiation table and Turkey s intervention to the issue was inevitable. However, with the moderate conditions reached since 2015 and the international influence, the ROC had no choice but to return to the negotiation table. With the ongoing talks Olgun states that, once again the process can become an opportunity or a curse depending on the approach of the actors. It must also be mentioned that, according to Olgun, the important task is to reach a sustainable outcome Interview with Özdil Nami, TRNC Presidents Special Representative at the Cyprus Negotiations, TRNC Presidency, March 6, 2016 op.cit 55 Interview with Armağan Candan, MP of Cumhuriyetçi Türk Party, March 7, 2016 op.cit 56 The Greek Cypriot side left the negotiation table because of the NAVTEX announcements of Turkey in October UN Cyprus Talks Joint Statement by the Greek Cypriot leader Mr. Nicos Anastasiades and the Turkish Cypriot leader Mr. Mustafa Akıncı" 58 Interview with Ergün Olgun (2016), Former TRNC Presidents Special Representative at the Cyprus Negotiations, March 5, 2016 op.cit

17 Any other outcome, that may set the ground for future conflicts, would be a disaster for both nations of the island. President Akıncı also states that the gas fields may either lead to conflict or cooperation, and the choice of the TRNC community is cooperation. On the other hand, despite the reflections on the Turkish side and the public statement regarding the wealth distribution among two nations, the officials of the ROC have been approaching the hydrocarbon issue as an internal issue and arguing that only if a resolution is reached, the wealth will be distributed. However it must be mentioned that, in line with the Turkish officials, President Anastasiades occasionally declares his interest in reaching a comprehensive settlement agreement by the end of Regarding the future of the hydrocarbon resources, the ROC officials have been conducting many meetings with their counterparts in Egypt, Israel and Greece in order to either initiate the Eastern Mediterranean pipeline 60 or proceed with an LNG terminal 61. Furthermore, as explained above, any LNG construction within the onshore of Cyprus strictly depends on future discoveries or an external funding of the terminal. Therefore many meetings with the Israeli government have taken place. The ROC has repeatedly opposed against a hypothetical Israel-Turkey pipeline running through its exclusive economic zone, unless the Cyprus Issue is resolved. However, factually, as both Turkey and Cyprus are members of the Energy Charters Treaty 62, the exclusive economic zones are not considered sovereign territory. Therefore Israel may prefer to get Cyprus s consent but it doesn't need it 63. Accordingly, an agreement between Turkey and Israel may push the actors towards a resolution, or Cyprus may possibly be bypassed. With this respect, following the normalisation agreement reached between Turkey and Israel, a call was held between President Anastasiadis and Prime Minister Netanyahu regarding the details of the agreement. Accordingly, Israel, having the largest export capacity of the region, is in search for the most feasible economic route towards the European market. As mentioned earlier, a subsea pipeline from Leviathan to Turkey, crossing Cyprus, is the economically most beneficial act for all actors. 59 UN Cyprus Talks (2016) - Joint Statement on the first anniversary of the talks between the Turkish Cypriot leader Mr. Mustafa Akıncı and the Greek Cypriot leader Mr. Nicos Anastasiades May 15, Kambas, M (2016) Israel, Greece and Cyprus to explore gas pipeline to Europe Reuters January 28, InCyprus (2014), LNG deal on the horizon for Cyprus and Egypt November 26, The Energy Charter Treaty provides a multilateral framework for energy cooperation that is unique under international law. It is designed to promote energy security through the operation of more open and competitive energy markets, while respecting the principles of sustainable development and sovereignty over energy resources. 63 Elinas, C (2016) Concerns over impact of Turkish-Israeli deal on Cyprus Cyprus Mail Jun 28, 2016

18 Although not publicly spoken, Cypriot leaders increasingly recognise the economic advantages of the project 64 as well. Conclusion The hydrocarbon energy resource exploration within the Eastern Mediterranean has created a major shift in the political economy dynamics of the region. Among the countries within the region, the discoveries of Israel are politically and economically sufficient for a major international export. In this respect,israel is in search of the economically most beneficial route for entering the international distribution networks. Under the current circumstances, among other alternative routes, the most feasible alternatives for Israel are though an LNG terminal in Cyprus exporting in the East Asian markets, which may not be practically feasible, or through a Leviathan-Turkey pipeline exporting in the European market. On the other hand, although there have been discoveries in Cyprus, currently these discoveries are not enough for an LNG or pipeline investment. Cyprus has an expected discovery amount which is considered as an important income in terms of its size. Therefore, Cyprus has been in search for a cooperation with the governments of Israel and Egypt. Furthermore, the negotiations on the Cyprus Issue are also undergoing and the hydrocarbon energy discoveries have reflections on the negotiations as well. It is clearly understood that the Cypriot leaders of both nations recognise the economic opportunities associated with the hydrocarbon energy fields and set their political stands accordingly. In this respect the hydrocarbon energy resources have some, although not genuinely positive, effects on the negotiations. The TRNC approaches the issue as a matter of common wealth and believes that in order to enjoy the socioeconomic benefits of the explorations a resolution must be reached in a timely manner. The access to the European market through Turkey is considered as an important economic opportunity and a path towards resolution. On the other hand, the ROC approaches the issue from a more bilateral perspective, and argues that, although the resources are stated to be a common asset of the people of the island, the resources can only be used as a common asset if the resolution is reached. With this approach the ROC has politically tried exercising every other alternative to the Turkey-Israel pipeline. However despite diplomatic attempts, due to the Energy Charter Treaty agreement, if Turkey and Israel undergoes with the Leviathan-Turkey pipeline project, there is no legal way the ROC can prevent the process. All in all, based on the above explanations, it is clear that the hydrocarbon explorations are having direct or indirect reflections on the negotiations. Furthermore, an Israel-Turkey natural gas deal could either jeopardise the possible economic benefits of Cyprus arising from the hydrocarbon discoveries or create an important opportunity for the island. Both scenarios are doomed to create pressure on the negotiation talks, and eventually is effecting the strategies of both sides. 64 Bryza, M. Israel-Turkey Pipeline Can Fix Eastern Mediterranean ICDS January 21, 2014

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