Cyprus’s economic ties with Russia, which include about $100 billion in investments between the two countries, could be severed if the European Union applies a third round of sanctions over Russia’s role in the Ukrainian unrest, Cypriot Foreign Minister Ioannis Kasoulides said.
While EU and U.S. sanctions in response to Russia’s annexation of Crimea have so far had limited impact on Cyprus, a new set of measures “introduced in a blanket way, would have a catastrophic effect on Cyprus’s economy and many other EU states,” Kasoulides said in a June 2 interview in Nicosia.
Cyprus is the biggest foreign investor in Russia, with $69 billion accumulated through the end of last year, while the island is the second-biggest destination for Russian investment at $33 billion, according to the Moscow-based Federal Statistics Service. Low tax rates and a treaty to prevent double taxation have made Cyprus the conduit of choice for Russians moving money in and out of their country.
EU leaders last week put off further sanctions on Russia after President Vladimir Putin showed a willingness to work with Ukrainian President-elect Petro Poroshenko. The EU will continue preparing measures if events require further steps, they said.
While Cyprus’s Ukraine policy doesn’t diverge from the EU line, communication between the EU and Russia “must be kept open and the solution must be diplomatic,” Kasoulides said.
US President Barack Obama will attend a meeting of the G-7 countries in Brussels starting today, originally scheduled as a G-8 summit in Sochi, Russia, prior to the annexation of Crimea. Putin will meet French President Francois Hollande on June 5 before joining other world leaders, including Obama, on June 6 for the 70th anniversary of the Normandy D-Day invasion.
Cyprus’s economy, the third smallest in the euro area, shrank 5.4 percent last year under the weight of austerity measures and restructuring of the financial industry required by international creditors in return for a 10 billion-euro ($13.6 billion) rescue. The Cypriot government has prioritized energy as a growth industry to help restart the economy.
The discovery of natural gas in the eastern Mediterranean is at the heart of Cyprus’s foreign and economic policy, Kasoulides said, and there is “great scope” for Cyprus, Lebanon, Israel, Palestine and Egypt to cooperate in energy.
“Cyprus is the only country which is part of the region, but not party to the problems of the region and can therefore play a useful role,” Kasoulides said.
The first priority in energy is to build a liquefied natural gas terminal on Cyprus’s southern coast after Noble Energy Inc. last year discovered as much as 5 trillion cubic feet of natural gas off the coast, Kasoulides said. While the finding isn’t enough to make a project viable on a standalone basis, the plant could be used for exporting gas from elsewhere in the region, including from Israel.
Total SA and Eni SpA are also due to begin exploring for additional deposits in Cypriot waters this summer, Kasoulides said.
As European nations look for ways to cut reliance on Russian energy, “this enhances the opportunities for Cyprus, but we still need to wait to see about Europe’s plan for sourcing alternative supplies of energy so that we can adapt ourselves accordingly,” Kasoulides said.