Cyprus Offshore Hydrocarbons: Wealth Distribution and Regional Politics

The report analyzes the geopolitical tensions arising from natural gas discoveries in the Cyprus Exclusive Economic Zone (EEZ), particularly the conflict between the Republic of Cyprus (RoC) and Turkey. It explores how these resources could either catalyze a political settlement or exacerbate regional instability. Additionally, it provides a comparative analysis of wealth management, contrasting the 'resource curse' seen in Sudan with the successful 'Norwegian model' to offer guidance for Cyprus on avoiding economic pitfalls like 'Dutch disease'.

• The discovery of natural gas in Cyprus's Block 12, with estimated resources between 3 and 9 trillion cubic feet, has created significant geopolitical tension, as Turkey refuses to recognize the Republic of Cyprus's (RoC) right to drill in its own EEZ.
• Turkey employs a 'tit-for-tat' strategy in response to RoC drilling, which includes signing a continental shelf delimitation agreement with the Turkish Republic of Northern Cyprus (TRNC) and authorizing exploration by the Turkish state oil company (TPAO) in areas that overlap with RoC blocks.
• The Republic of Cyprus has established EEZ delimitation agreements with Egypt, Israel, and Lebanon, treating these coastal states as equal partners based on the median line, which contradicts Turkey's view that islands have limited maritime rights.
• Hydrocarbons are viewed as a potential 'game changer' for the Cyprus dispute; while they could provide the financial means for a settlement, the current exclusion of Turkish Cypriots from the process and the lack of urgency in negotiations may instead cement the island's division.
• The 'resource curse' is characterized by economic stagnation and political instability in resource-rich states, often driven by 'Dutch disease'—where a resource boom causes currency appreciation that harms other tradable sectors like manufacturing and agriculture.
• Norway's successful management of its hydrocarbon wealth is attributed to a high corporate tax rate (78%), the use of a sovereign wealth fund to invest revenues abroad, and a 'budgetary rule' that limits annual state budget injections to 4% of the fund's market value.
• In contrast to Norway, the two Sudans exemplify the resource curse, where oil revenues fueled military patronage, exacerbated civil war, and led to state capture and corruption without benefiting the general population.
• For Cyprus to avoid the resource curse, experts recommend establishing a transparent Sovereign Wealth Fund, adopting a private-sector approach to management, and ensuring that revenues are used for long-term investment rather than current consumption.

APA

Faustmann, H., Gürel, A., & Reichberg, G. M. (2012). Cyprus Offshore Hydrocarbons: Wealth Distribution and Regional Politics. Peace Research Institute Oslo. https://cdn.cloud.prio.org/files/d0208e17-a4fb-4c1c-ab8e-825350e4a691/Report 2012-1 - Cyprus Offshore Hydrocarbons ENG.pdf?inline=true

Chicago

Faustmann, Hubert, Ayla Gürel, and Gregory M. Reichberg. Cyprus Offshore Hydrocarbons: Wealth Distribution and Regional Politics. Peace Research Institute Oslo, 2012. https://cdn.cloud.prio.org/files/d0208e17-a4fb-4c1c-ab8e-825350e4a691/Report 2012-1 - Cyprus Offshore Hydrocarbons ENG.pdf?inline=true.

Wikipedia

{{cite report |last1=Faustmann |first1=Hubert |last2=Gürel |first2=Ayla |last3=Reichberg |first3=Gregory M. |title=Cyprus Offshore Hydrocarbons: Wealth Distribution and Regional Politics |publisher=Peace Research Institute Oslo |date=2012 |url=https://cdn.cloud.prio.org/files/d0208e17-a4fb-4c1c-ab8e-825350e4a691/Report 2012-1 - Cyprus Offshore Hydrocarbons ENG.pdf?inline=true |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{faustmann2012cyprus, author = {Faustmann, Hubert and Gürel, Ayla and Reichberg, Gregory M.}, title = {{Cyprus Offshore Hydrocarbons: Wealth Distribution and Regional Politics}}, institution = {Peace Research Institute Oslo}, year = {2012}, url = {https://cdn.cloud.prio.org/files/d0208e17-a4fb-4c1c-ab8e-825350e4a691/Report 2012-1 - Cyprus Offshore Hydrocarbons ENG.pdf?inline=true}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }