Cyprus Banking Crisis Could Hold Strategic Silver Lining for Moscow

By Patrick Goodenough | March 20, 2013 | 4:47 AM EDT

A Noble Energy offshore oil and gas rig south of Cyprus in November 2011. (AP Photo/Cyprus Press and Information Office)

( – As the Cypriot government considers its options after lawmakers Tuesday rejected a controversial bailout plan taxing savers’ bank deposits, Russia’s state-controlled energy giant Gazprom reportedly has offered to come to Cyprus’ aid in return for rights to develop lucrative offshore natural gas reserves.  The Russian Navy also could benefit.

Russian business daily Vedomosti reported on the Gazprom move, citing sources at the energy company and at its banking subsidiary, Gazprombank, Russia’s third-largest bank.

Strategically located south of Turkey and west of the Levant, Cyprus would present an enticing location for a greater Russian presence in the eastern Mediterranean.

Britain’s Daily Mail even reported Tuesday on rumors that Russia was eyeing the island as a prospective naval base. The Russian Navy maintains a Soviet-era support facility at the Syrian port of Tartus – some 200 miles away – but its future could be in jeopardy should the Assad regime fall.

Discoveries of natural gas fields in the eastern Mediterranean already have sparked disputes involving Turkey and Cyprus, as well as Lebanon and Israel, and a Russian presence could further inflame sensitivities there.

The Russian Defense Ministry earlier this month announced plans to establish a permanent rapid-reaction force to defend Russia’s interests in the Mediterranean, an area it has largely been absent from since shutting down its 5th Mediterranean Squadron after the Soviet Union’s collapse.

A senior ministry official told the official RIA Novosti news agency up to 10 ships could be involved, and named Cyprus (along with Greece, Montenegro and Syria) as a possible resupply point.

In recent years Cyprus has offered the prospect of a promising new gas source for energy-hungry Europe.

In 2011, Texas-based Noble Energy began exploratory drilling south of the island, and announced late that year that it had discovered gas fields with estimated gross mean resources of seven trillion cubic feet.

A Gazprom spokesman has denied offering a deal, but the reports persist. A Cypriot television station said officials of the company submitted the offer to Cypriot President Nicos Anastasiades’ office late on Sunday.

Cyprus is grappling with a $12.9 billion (10 billion euro) European Union bailout plan designed to avert the collapse of its two biggest banks, which includes the extraordinary condition of levying a tax of between 6.75 and 9.9 percent on bank deposits to pay part of the bill.

The plan has triggered outrage on the island, and on Tuesday the Cypriot Parliament overwhelmingly rejected it, with some opposition lawmakers suggesting looking to Russia rather than the E.U. to resolve the crisis.

Russia, which in 2011 granted Cyprus a $3.2 billion (2.5 billion euro) loan to help it deal with its financial difficulties, is directly affected by the crunch there, and Cyprus’ finance minister was due to visit Moscow on Wednesday to discuss the issue.

Russian account-holders are also disproportionately affected by the move: Of more than $87 billion deposited in Cypriot banks, an estimated $25.7 billion belongs to Russians – both genuine savers wanting to avoid corruption and instability at home, and criminals stashing away illegally-gained funds, according to Russian media reports.

The Russian ruble and stocks have reacted badly to the news from Cyprus, and some analysts are stoking nationalist sentiment, accusing the E.U. of trying to resolves its financial crises by confiscating Russians’ property. Russian commentators are using expressions such as “state-backed robbery” and “piracy.”

The Kremlin is also turning up the heat. President Vladimir Putin’s spokesman said Tuesday night that in a phone conversation with Anastasiades after the parliamentary vote, Putin had reiterated his concern about “any measures that could harm the interests of Russian businesses or individuals.”

Earlier, the spokesman quoted Putin as describing the plan to tax bank deposits as “unfair, unprofessional and dangerous,” while Prime Minister Dmitry Medvedev warned that Russia may have to adjust its relations with Cyprus, RIA Novosti reported.

Patrick Goodenough
Patrick Goodenough
Spencer Journalism Fellow