Risks relating to the Cyprus problem have been on a rising trend since mid-2017, according to the new Sapienta Cyprus Problem Risk Index launched today.
On a scale of 0 to 5, where 5 is the most risky, the index for the third quarter of 2024 is now in the upper half of the “Medium risk” status, with a score of 2.64. In early 2017, the model’s historical series puts Cyprus in the upper half of the “Moderate risk” status, with a score of 1.63.
“Cyprus is one of the most heavily militarised islands in the world and this generates a number of conflict risks related to the decades-old Cyprus problem,” said Sapienta Economics Director, Fiona Mullen. “Sometimes things get better and sometimes they get worse. But given the rapidly evolving world order and conflicts in this region, I felt it was time to try to put a number on that risk. It’s mainly for diplomats, oil and gas companies, insurers and other foreign investors.”
The Sapienta Cyprus Problem Risk Index is compiled from 10 overarching factors that influence the intensity of the Cyprus problem. Each of the 10 factors has a factual state-of-play that can change over time. States-of-play include but are not limited to military activity in the UN-monitored buffer zone, in maritime areas offshore, Turkey’s external relations and the status of the UN and negotiations to solve the Cyprus problem.
Mullen says that there have been a number of flashpoints in recent years. Turkish naval vessels blocked the Italian oil and gas company, ENI, from drilling in the Republic of Cyprus Exclusive Economic Zone (EEZ) in February 2018. Greek Cypriot protests spilt into the UN-monitored buffer zone in October 2020. Turkish Cypriot forces attacked UN peacekeepers in the buffer zone in August 2023. And in June 2024 Lebanese Hezbollah issued a veiled threat against the Republic of Cyprus.
“Back in early 2017 negotiations to solve the Cyprus problem were in full swing and everyone was more or less on their best behaviour. Then the negotiations collapsed and things started to deteriorate. It isn’t a straight line. Some things have improved. But overall the situation is worse,” Mullen said.
“Typically it takes a lot of diplomatic legwork to ensure that these episodes don’t turn into open conflict. So this index is not about economic resilience or other more common measures. It is about how much of a headache the situation is for diplomats, oil and gas companies, their insurers and other foreign investors,” said Mullen.
More details
Sapienta Economics Ltd is a consultancy based in the Republic of Cyprus. The company produces economic and political analysis, primarily on Cyprus, for prestigious international and local clients. We are committed to independent analysis and have no ties to any government or political party, either in Cyprus or abroad. Clients of our monthly flagship Sapienta Country Analysis Cyprus include more than a dozen embassies, big four accounting firms, oil and gas majors, banks, fund managers, large foreign direct investors and others.
The Sapienta Cyprus Problem Risk Index model is built by Fiona Mullen, who has spent much of the past 20+ years both professionally and voluntarily closely engaged on the Cyprus problem, including as a staff member and consultant with the Good Offices Mission, and as co-author of multiple reports with the Peace Research Institute Oslo (PRIO) on the economic opportunities of a united Cyprus. Lately she has been producing proposals for updating the design of the negotiations process and producing ideas for international strategic support for a settlement. Close acquaintance with how local and geopolitical developments affect the fragility of the Cyprus problem have informed the selection of categories and the weights for each category. Mullen is also the author of the flagship Sapienta Country Analysis Cyprus, which analyzes each month in-depth: political trends including the Cyprus problem; fiscal performance; debt sustainability; banking sector stability; sectoral policies including natural gas; the latest macroeconomic trends; a medium-term fiscal and GDP forecast; and economic developments in northern Cyprus.
Contact
Contact us here