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Abu Dhabi, UAESunday 18 November 2018

Tensions flare over development of Cyprus gas fields

Egypt, Greece and Cyprus stand by goal despite opposition from Turkey

Egyptian President Abdel Fattah El Sisi, left, Greek Prime Minister Alexis Tsipras, centre, and Cypriot President Nicos Anastasiades shake hands at a summit in Crete on October 10, 2018. Reuters
Egyptian President Abdel Fattah El Sisi, left, Greek Prime Minister Alexis Tsipras, centre, and Cypriot President Nicos Anastasiades shake hands at a summit in Crete on October 10, 2018. Reuters

The leaders of Egypt, Greece and Cyprus met last week for their sixth summit since 2014, reinforcing a burgeoning east Mediterranean alliance fuelled by the three nations’ resolve to realise their ambition of becoming major natural gas suppliers to markets at home and in Europe.

Standing belligerently in their way is Nato member Turkey.

Ankara has repeatedly threatened to block Nicosia's exploration of natural gas reserves off its coast, arguing that this infringed on its continental shelf and ignored the rights of Turkish Cypriots to the divided island nation's natural resources. Turkey’s relations with Egypt and Greece are not much better. Cairo accuses Ankara of supporting militant groups in the region; Athens says its relations with its larger neighbour are fraught with tension, mostly over Cyprus and maritime boundaries in the Aegean Sea.

By reiterating their commitment to developing Cypriot gas reserves, the leaders of Egypt, Greece and Cyprus — President Abdel Fattah El Sisi, Prime Minister Alexis Tsipras and President Nicos Anastasiades, respectively — are directly challenging Ankara.

At their summit on the Greek island of Crete on October 10, Mr El Sisi and Mr Tsipras both pledged to support Cyprus in its effort to exploit its offshore deposits. In February, Egypt warned Turkey against infringing upon its economic rights in the eastern Mediterranean under a 2013 maritime border agreement with Cyprus that allows for gas exploration. Cypriot officials have said the island will not give in to Turkey's threats.

Adding to this test of wills with Turkey is Israel, whose relations with Ankara are also tense. Once strained, Israel’s relations with Greece and Cyprus are now close. Egypt, meanwhile, is bound to Israel by a 1979 peace treaty that has ended decades of wars between the two Middle Eastern neighbours.

In February, Egypt and Israel signed a $15 billion (Dh55bn) deal to send Israeli natural gas for processing to Egypt's massive gas processing installations, boosting Cairo's ambitions of becoming a regional energy hub. Three months later, Cyprus, Israel and Greece agreed to go ahead with building a pipeline to supply east Mediterranean gas to Europe.

Egypt has had rocky relations with Turkey since Mr El Sisi, as defence minister, led the military’s 2013 removal of Mohamed Morsi, an Islamist president backed by Ankara whose year in office proved divisive. Egypt also accuses Ankara of destabilising the region through its support for militant Islamist groups.

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Egypt’s massive, multibillion-dollar arms build-up in recent years appears to be, at least in part, designed to protect its offshore energy sources, something that Mr El Sisi once hinted at when listing the dangers his country must guard against.

The purchases include two French troop carrier ships that also carry Russian-supplied assault helicopters, German submarines, French frigates, and French-made Rafale fighter jets.

These and other purchases are in addition to weapons acquired under a US military aid programme that began in the 1970s and now runs at $1.3bn (Dh4.8bn) a year.

Egypt’s hopes of a recovery from its economic woes ride on its natural gas reserves, giving the country added incentive to press ahead with plans to become a regional natural gas hub.

Its Zohr field off its Mediterranean coast was discovered in 2015 and is thought to hold 30 trillion cubic feet of gas. ENI, the Italian energy giant that made the find, began production in December last year. Production has reached 2 billion cubic feet per day and is expected to hit 2.7 billion next year. Underlining how much it values the find, the Egyptian military said in February that naval forces have been deployed around the field to “counter any potential threats”.

However, Zohr, at least for now, may not provide the cash bonanza that Egyptians hoped for, thanks to a rapidly rising oil import bill reflecting higher international market prices. That, in turn, could force the government to bring forward another reduction of state subsidies for domestic fuel, which at present cost the treasury 115bn Egyptian pounds (about Dh24bn) a year.

“As long as we are saddled by [state] subsidies for anything, the country will not rise,” Mr El Sisi warned in a televised address on Thursday. The Egyptian leader, who has been spearheading a high-octane drive to revive the economy, ruled out raising fuel prices, at least for now.

His government has already raised fuel prices three times since 2015, when it signed an agreement with the International Monetary Fund to overhaul the country’s finances in return for a $12bn loan over three years. Under the agreement, Egypt floated its currency, introduced a wide range of new taxes and hiked charges for utilities — all politically sensitive moves that Mr El Sisi’s predecessors never had the courage to take for fear of a violent backlash.