• Reunification of Cyprus could boost energy deals in region
  • Turkish President Erdogan will remain ‘wildcard’ for agreement

It looks like an ordinary summer’s evening on Ledra Street, the pedestrianized thoroughfare of stores and cafes that bisects Nicosia’s old town: Elderly Greek Cypriot men sip coffee as Turkish Cypriot teenagers rush through a border crossing at the end of the road to catch a local band.

This is the opposite side of the European map from the rift caused by the U.K.’s Brexit referendum, and the mood couldn’t be more different in the continent’s last divided capital city. The reunification of Cyprus -- split between north and south since Turkey’s invasion in 1974, a little more than a dozen years after independence from Britain -- is a tale of false dawns, but the feeling in Nicosia is that the stars in the eastern Mediterranean just might be aligning.

Nicos Anastasiades, right, and Mustafa Akinci.
Nicos Anastasiades, right, and Mustafa Akinci.
Photographer: Iakovos Hatzistavrou/AFP/Getty Images

What’s changed is that the leaders of both parts of the island are pursuing talks on their own power-sharing arrangement rather than one imposed by the United Nations. While they have the traditional backing of the U.S. and European Union, Turkey now supports hammering out a deal in coming months.

"This time I feel we have a real chance as both leaders seem determined,” said Maria Sophocleous, a 60-year-old Greek-Cypriot pensioner whose home village now lies on the Turkish-speaking side. “They know that it’s the last opportunity for reunification."

Widening Support

In the background is the prospect of turning Cyprus into a lucrative energy conduit that would give Turkey and Europe access to gas deposits discovered in the region off the coast of Israel, Egypt and Cyprus itself. Political risk consultants Eurasia Group puts the chance of reunification at 60 percent and makes it its base-case scenario for 2016.

“Both leaders are favorably disposed towards a deal and public opinion seems more supportive of an agreement than has previously been the case,” Eurasia analyst Mujtaba Rahman said.

President Nicos Anastasiades, who leads the Greek-speaking south, and Mustafa Akinci, who runs the Turkish north, are meeting twice weekly to intensify their unity efforts. The plan is for a federal state like Belgium, with a national government and also administrations for each part. The talks include the division of power, and government spokesman Nikos Christodoulides said the International Monetary Fund and World Bank are providing technical support on fiscal policy and the economic consequences.

“We share the same approach and vision as regards presenting to the people a viable, lasting and functional settlement," Anastasiades said at an event last month in Nicosia to promote the idea of a federal state. Akinci said that the next six months are crucial: “If we enter into a new year without a solution, we risk missing this opportunity once again.”

Tight Timetable

Cyprus came close to a settlement in 2004 prior to joining the EU, but the UN-brokered blueprint for a bi-communal federation was accepted by Turkish Cypriots and rejected by Greek Cypriots in a vote. The international bailout of the island three years ago led to more hope that economic necessity would lead to unity, only for talks to stall again.

Hurdles remain given the tight time-frame. While the leaders of the divided island have the political will to reach an agreement, six months aren’t enough to conclude negotiations, said former Cyprus Foreign Minister Erato Kozakou-Markoulli. Any pact will need to be voted on in a referendum, while a new federal constitution and legal system must be drawn up.

There’s also opposition. It’s naive to believe Turkey will allow Turkish Cypriots to make their own choice, said George Lillikas, leader of the Citizens Alliance party and chairman of the Cypriot Parliament’s committee on foreign and European affairs. The occupied part of Cyprus is dependent on Turkey for financial support.

"The politics of a solution look good, but there’s still a lot of work to be done on the economics of a solution,” said John Hourican, chief executive officer of Bank of Cyprus, the island’s biggest financial institution. “We have to be innovative about how we arrange the financing of reunification and how we contemplate the transition to federalism."

‘Wildcard’ Erdogan

World leaders are keen for a deal with key supporters of Cypriot reunification such as U.S. President Barack Obama and UN Secretary General Ban Ki-Moon set to leave office by year end. German Chancellor Angela Merkel, who has made five trips to Turkey in 10 months as she relies on President Recep Tayyip Erdogan to hold to his side of a deal to take back refugees, is also among those pressing the issue.

The difference now is Turkey appears on board in stitching the island of just over 1 million people back together, for economic as well as political reasons. While Erdogan remains the “wildcard,” he’s keen for a foreign-policy success, according to Rahman at Eurasia Group.

With Cypriot reunification, key obstacles for the accession process of Turkey to the EU would be removed. Turkey supports the talks and the end-2016 target for an accord, under certain conditions, Prime Minister Binali Yildirim said June 14.

Energy Politics

Turkey also wants to import Israeli natural gas and the Israelis want to export it to Europe via Turkey. The easiest way to do that is via a pipeline from Cyprus, said Fiona Mullen, director of Nicosia-based Sapienta Economics. 

Cypriot President Anastasiades pulled out of peace talks in 2014 after Turkey sent a warship into the area where exploration was taking place led by Italian energy company Eni SpA. Cyprus is due to receive bids on July 22 for more exploration and Russian and U.S. energy companies may line up to participate. France’s Total SA is also due to start exploratory drilling in another disputed block in early 2017.

"It’s clear they’ve gone down a road where there’s no return so they must press ahead until they reach an agreement," former Cyprus President George Vassiliou said in an interview in his office on the 11th floor of Nicosia’s Kema tower that overlooks both sides of the city. "If the current talks don’t conclude by the end of 2016, the international community will ask if the talks can continue at all."

Just up from Ledra Street in the buffer zone that divides Nicosia and the island’s two sides, Kyriaki Yiakoupi, 27, a Greek-Cypriot project manager, feels like history might be in the making: "I’m not sure we can achieve reunification by the end of the year,” she said. “But a solution will revive our economy and change Cyprus’s role in the region.”

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