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There's something about Cyprus

Cyprus is a tax haven and has long attracted wealthy Russians, but it could become a European energy hub.

Last updated: 26 Jul 2014 13:05
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Super yachts, restaurants, and designer shops are part of the $450m project aimed at redesigning Limassol into a high-end tourist locale [Sara Khairat/Al Jazeera]

Limassol, Cyprus - "A jewel that will put Cyprus on the map," is how Cypriot President Nicos Anastasiades describes the new marina in Limassol, a town on the southern coast. Super yachts, restaurants, and designer shops are part of the $450m project aimed at redesigning the port city into a high-end tourist locale. Sales for exclusive properties have exceeded $176m in less than a month since the June opening. 

However, walk down the seafront and the scars of the financial crisis remain visible. Shops are closed and covered in graffiti. Slogans of "freedom" and political statements are scrawled along the promenade. Despite this, people still call the place a tourist destination. Locals call their hometown "little Moscow", because of the large number of Russians found here - trading their cold winters for Cyprus' year-round blue skies and Mediterranean weather. 

"Russians form one of our main markets. Investment, business, and leisure opportunities have helped them integrate well. The lifestyle, climate, education, security, and religion make it a very attractive home, away from home," said Sophia Parasceva, the marina's marketing manager.

Almost 50 percent of Russians living in Cyprus live in Limassol. Samer, a restaurant owner, told Al Jazeera, "They're welcome here, they bring in money but it's a mutual interest that goes both ways."

Economic downturn

A non-European who invests in property in Cyprus of a minimum cost [$403,000] can obtain permanent residency.

- Evgenios Evgeniou, PricewaterhouseCoopers Cyprus

And why do Russians heavily invest in this small, struggling island? It's a traditional relationship that goes way back, with around $100bn of investments between them. 

The island is a tax haven and has long attracted wealthy Russian investors. The president of Cyprus-Russian Business Association and CEO of PricewaterhouseCoopers Cyprus, Evgenios Evgeniou said that "post March 2013, Russia has been investing in the tourist and property industries".

While EU and US sanctions against Russia's annexation of Crimea have had limited impact on Cyprus, renewed threats could spell disaster. "Our economy hasn't been affected yet, but more sanctions could have an adverse impact - many EU members, including Cyprus, stand against it," Evgeniou said.

Cyprus also has long served as a gateway to Europe: "A non-European who invests in property in Cyprus of a minimum cost [$403,000] can obtain permanent residency," he added.

Where does the cash come from? 

During bailout talks, European creditors argued that the small nation allows Russians to deposit billions of dollars in banks with no questions asked. A leaked German foreign intelligence report suggested money laundering via Cyprus has been prevalent.

Evgeniou countered that claim. "Independent audit results revealed the accusations were untrue. There is a continuous drive by the authorities to ensure Cyprus has a legal and regulatory framework for the prevention of money laundering," he told Al Jazeera.

Following a recent IMF review on its performance under the current economic programme, Managing Director Christine Lagarde highlighted the need for "the authorities to intensify monitoring of banks' loan restructuring efforts, to strengthen regulation and fully implement the anti-money laundering framework".

Location, location, location

Back in Limassol, Russian sailors browse shops for trinkets. They're working on navy warships docked at the port. The US and other countries also have their toes dipped in these waters since the island is strategically located in the Mediterranean Sea basin. At the crossroads of Europe, Asia, Africa, and the Middle East, it acts as a central depot. 

Executive chairman of the Russian Friendship Society with Arab Countries, Viacheslav Matuzov, offers more reasons for the Russia-Cyprus connection. "Moscow pays great attention to developing its ties with Cyprus, especially because of its role in the Middle East. It is geographically close to Israel, Lebanon, and Turkey" which all have gas and oil, Matuzov said.

Moscow's only military base outside the former USSR countries is in Syria's Tartus city, but it uses Cyprus as a naval pit-stop.  

In January, the Cypriot government agreed to allow the Kremlin naval vessels the use of Limassol's port for humanitarian and emergency situations. In February, Russian Defence Minister Sergei Shoigu said the military was in talks with several governments to use their facilities for naval capabilities. This would extend Russia's reach well beyond its existing bases. 

What is striking is that Russia, the US and other navies, have their ships docked in Limassol at the same time.

- Constantinos Hadjistassou, University of Nicosia

Constantinos Hadjistassou, an engineering science lecturer at the University of Nicosia told Al Jazeera: "What is striking is that Russia, the US and other navies, have their ships docked in Limassol at the same time. They're showing solidarity for the regimes they support, the US for Israel and the Kremlin for the Syrian government."

A future energy hub?

According to the US Geological Survey, the Levant basin near Cyprus holds 122 trillion cubic feet (TCF) of undiscovered natural gas and 1.7 billion barrels of crude oil. Cypriots estimate that the energy source is within striking distance and can meet the country's needs for decades.  

Due to the Ukraine crisis, Europe and the US are urgently exploring new alternative energy routes, instead of relying on Moscow. 

"In the next couple of years, Cyprus could be the only major source of gas on European soil, offering an alternative path to Europe with competitive prices. This could change for Russia which wants to regulate EU gas prices," Hadjistassou told Al Jazeera.

"The US for the first time is trying hard to reconcile talks between Cyprus and Turkey, where the reserves lie on both territories," he added. 

Sunday, July 20, marked the 40-year anniversary of the Turkish invasion of Cyprus. While little has come of the latest re-unification talks in Washington, Cyprus' government spokesman Nikos Christodoulides said: "We're committed to continuing negotiations ... we have entered a new era in relations with the US. ... Cyprus could be the first EU member to become an exporter of liquefied natural gas." 

Hadjistassou said that "even if Cyprus can't find a resolution to build a natural gas pipeline to supply Europe through Turkey, it can still develop resources to become a major exporter".

Amid regional jockeying for gas, political alliances define how exports are being completed. Former Russian diplomat Viacheslav Matuzov told Al Jazeera: "The political map is changing in the Middle East, Turkey understands this danger and wants to maintain good relations with Russia but the US understands its aspirations and is trying to influence Cyprus' energy sector."

Hadjistassou said: "Even if Turkey gains from gas discovered in terms of securing its natural resources and lowering some of the prices, it'll be difficult due to sour relations with Cyprus and Israel. Lebanon is falling behind because of regional instability  - so the major source of gas in the Mediterranean basin for the next three years is Cyprus."

Follow Sara Khairat on Twitter: @sarakhairat

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Al Jazeera
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