Cyprus

Summary: Cyprus is seen is an EU country which has a very close relationship with Russia. The Cypriot government was a firm opponent of sanctions against Russia, fearing the outflow of Russian capital from the island. However, Cyprus had to yield to the dominant position in the EU on Russia. Cyprus is less concerned with the crisis in Ukraine and more focused on solving its own territorial and political issues. Russia has supported integrity of the island since the Soviet era, making Moscow a key foreign partner to Nicosia. Russian intelligence’s activity in Cyprus continues, allegedly with the Cypriot government’s support. However, in terms of energy, Cyprus is less dependent on Russia and reserves its role as an offshore for Russian finance.

I. Relationship Parameters

National issue: Cypriot bilateral relations with Russia are primarily driven by the Cyprus problem. Moscow has been a staunch supporter of Nicosia and used its veto power to block a draft UN Security Council resolution condemning the Cypriot government for rejecting the Annan peace plan in April 2004. However, as Cyprus is inching closer to a final settlement, there are worries over Russia’s role. A peace deal would ease tensions between the European Union and Turkey, give Turkey a new source of natural gas imports, and hand Brussels a diplomatic success story, none of which is in Russia’s interests. The fear on the Greek and Cypriot side is that Moscow is using social and mass media, as well as ties to fringe nationalist political parties and the Greek Orthodox Church, to undermine the settlement talks.[1]

Offshore status: Cyprus is Russia’s primary offshore banking haven, home to 40.000 Russians, and a popular destination for Russian tourists. The relationship is supported by an extremely favourable Double Taxation Treaty between Cyprus and Russia. According to recent data, there are between 30–150 thousand companies of Russian origin registered in Cyprus, with Russia providing up to 10% of Cyprus’ GDP and Cyprus ranked as one of the top investors in Russia.[2] A 2013 Global Financial Integrity report went as far as saying Cyprus became “a major money-laundering machine for Russian criminals.”[3]

Bailouts: Russia offered Cyprus a 2.5 billion bailout loan in 2011. However, it did not prevent Cypriot banking system coming under severe strain in the wake of the Greek crisis and briefly shutting down in March 2013. A bailout package negotiated by the EU Commission and the IMF involved a levy on bank accounts and deposits, including those from Russia, briefly souring the relationship.[4] However, Russian capital returned as soon as Cypriot banking system rebounded.[5]

Energy: Cyprus has a chance to become an important regional energy player after the discovery of the Aphrodite natural gas field off the island’s coast and after the signing of the Energy Triangle agreement with Israel and Greece for joint extraction with the neighbouring Leviathan and Tamar fields. The parties plan to build a pipeline and liquefied natural gas plant by 2019, with implications for European energy independence. Russian companies competed for a stake in exploration and extraction, so far unsuccessfully.

Position on sanctions: The foreign minister of Cyprus, Ioannis Kasoulides, declared in an interview to Die Welt that Russia and Cyprus were so tightly economically intertwined that the sanctions “will destroy” the island’s economy faster than they will affect Russia.[6] The sanctions did affect trade (mainly fruit exports), but the impact was limited (measured at €13 million, compared to billions in financial flows). Cyprus’ economy was more affected by the falling energy prices and currency crisis which left Russians with less money to spend, as well as by the Kremlin’s “de-offshorization” efforts. Nonetheless, in 2016, Cyprus’ parliament adopted a resolution calling for lifting the EU sanctions on Russia.

Military cooperation: Russia and Cyprus signed an agreement on military and technical cooperation in 1996, followed by several arms procurement deals.[7] Cyprus was the only EU member state to maintain military cooperation with Russia after the Ukraine crisis. In 2015, a new agreement gave the Russian Navy regular access to Cyprus’ Mediterranean ports (mainly for international anti-terrorism and piracy efforts) and permitted Russian Air Force to use the Papandreou air base (for humanitarian missions).[8] There was also a rumoured negotiation to set up a permanent Russian military base on the island. This caused tensions with the UK, which has two bases in Cyprus used for NATO operations, and the rumours were eventually dispelled by the government.[9] Cyprus has also been criticized for allowing Russian spies and weapon smugglers escape through its territory.[10]

View of Russia: According to the latest Eurobarometer, 76% of Cypriots had a positive view of Russia. Most political parties and the powerful Orthodox Church openly declare their affinity with Russia.

II. Expert Assessment

Power Audit (2007): Trojan Horse. Within the European Union, Cyprus has opposed proposals for energy unbundling and blocked proposals for increasing European involvement in the post-Soviet space. For example, in February 2006, Cyprus joined up with eight other member states to oppose a possible contribution to a peace support operation in Moldova. Greece and Cyprus often take the lead in defending Russia’s position on issues such as energy or the Eastern neighbourhood (allowing other EU member states to hide behind them), but they are careful not to become isolated inside the EU.

National Perspectives (2013): Cyprus, with its new-found political weight and status within the EU, has sought to establish bilateral relations with powerful states such as China and Russia in order to intensify their involvement and ensure their continuing and unequivocal support for a solution of the Cyprus problem. Indeed, whilst Russia has always been a strong supporter of Cypriot efforts through the UN to resolve the conflict on the island, it has also in the past sought to manipulate Cypriot non-membership of NATO in order to pursue policies that divided and fostered conflict between NATO members.

EU-28 Watch (2015): Russia is one of the closest political and economic partners for Cyprus and there is no evidence or inclination for that to change in the near future. During the tensions following the Ukrainian crisis, Cyprus had to maintain a balanced position between its support of the EU’s course of action and its desire to perpetuate its good bilateral relations with Russia. According to the Ministry of Foreign Affairs, Cyprus had to concede to the sanctions imposed by the EU on Russia following the Ukrainian crisis even at its own financial and potentially political cost. The administration’s position is that the sanctions should not be used and aimed as ends in themselves, and that, in fact, the political and economic repercussions may have been disproportionally costly to EU member states rather than Russia as the primary target of the sanctions.

III. Policy Documents

Foreign policy objectives[11]

Cyprus maintains very good relations with a considerable number of countries and the objective of its foreign policy is to have an active involvement in processes that aim to promote international co-operation, peace, stability, and sustainable development. Cyprus has always been a dedicated supporter of human rights, the sovereignty and territorial integrity of States, and a strong advocate of international peace and security. Its geographic position enables it to play a role both in the Eastern Mediterranean region and within the European family. Its accession to the European Union initiated new era in its relations with third countries, thus becoming a bridge of communication between the European Union and these countries.

Bilateral relations with Russia[12] 

The friendly character of the bilateral relations is reflected in the same or similar position of the two states in important international issues, as well as in the consistent and valuable support of Russia in the efforts to find a just, viable and comprehensive solution of the Cyprus Question on the basis of the relevant resolutions of the UN Security Council. With Cyprus’ entry into the European Union on May 1st 2004, another dimension was added to Cyprus-Russia relations since the EU is a strategic partner of Russia. The trade and economic ties between Cyprus and Russia are on a satisfactory level. A large number of Russian entrepreneurs use Cyprus as their base for their business and investment activities. Cyprus imports from Russia mainly oil as well as iron, other metals, timber, etc. Cypriot exports to Russia include mainly agricultural products, foodstuff and pharmaceuticals. A significant number of Russian tourists also visit Cyprus every year.

Foreign Minister’s statements after meeting with Russian counterpart Sergey Lavrov (2016)[13]

The high level meetings between the members of Governments of Cyprus and Russia attest to the excellent level of the bilateral relations, which, in my view, are considered to be historic and traditional and have survived over 55 years. Cyprus has its own existential problem with the invasion and the occupation of 37% of the island by Turkey, and we have never ceased to express our gratitude to a consistent and principled policy played by Russia, as a Permanent Member of the UN Security Council. We discussed our upcoming Presidency of the Council of Europe. Our theme is democratic security in Europe, particularly related to application of human rights in democracy and the rule of law, protection of minorities, and other matters of interest. We approach the presidency in a neutral and professional way, but we believe that all members of the CoE should work in order for this organization to maintain a certain standard. We are amongst those who believe that peace and stability in the European continent are possible if the EU and Russia maintain strategic relations, and that the dialogue should be always open, so that any problems that may arise can be resolved by diplomatic and political means. On Ukraine, for us, the only game in town is the Minsk Agreement, which has to be respected by all signatories and those who have undertaken to be guarantors of the Minsk Agreement. We want this to be implemented as soon as possible for the sake of peace and cooperation between Russia and the EU.


 

 

[1] https://www.politico.eu/article/cyprus-fears-russia-could-wreck-reunification/

[2] https://gazeta.zn.ua/international/kipr-sredizemnomorskiy-federalnyy-okrug-_.html

[3] https://www.gfintegrity.org/report/country-case-study-russia/

[4] https://www.globalresearch.ca/meltdown-of-russias-offshore-banking-haven-in-cyprus/5328063

[5] https://qz.com/178114/what-russian-money-sloshing-back-to-cyprus-teaches-us-about-tax-havens/

[6] Servettaz, Elena. “A Sanctions Primer: What Happens to the Targeted?” World Affairs, vol. 177, no. 2, 2014.

[7] https://mdb.cast.ru/mdb/2-2001/at/raegct/

[8] https://www.reuters.com/article/us-russia-cyprus-military-idUSKBN0LU1EW20150226

[9] https://www.bbc.com/news/world-europe-31293330

[10] https://www.theguardian.com/world/2012/jan/26/cyprus-russian-invasion

[11] https://www.mfa.gov.cy/mfa/mfa2016.nsf/mfa29_en/mfa29_en?OpenDocument

[12]https://www.mfa.gov.cy/mfa/embassies/embassy_moscow.nsf/moscow_embassy06_en/moscow_embassy06_en?OpenDocument

[13] https://www.mfa.gov.cy/mfa/mfa2016.nsf/All/EDB5E75CEFC401BFC225805E00366BF8?OpenDocument