High stakes in gas standoff between Cyprus and Turkey

Longtime adversaries Cyprus and Turkey are locked in a tense "game of chicken" over the prospect of a multi-billion-dollar Mediterranean gas bonanza with neither side willing to capitulate, analysts say.

Turkey vowed to escalate its activities in waters around the island after the European Union on Monday agreed measures to punish Ankara for pursuing "illegal" drilling in Cyprus’s exclusive economic zone.

"This is a tit-for-tat game where nobody is ready to back down, with Turkey willing to go one step further," Hubert Faustmann, professor of history and political science at the University of Nicosia, told AFP.

Turkey "will continue to drill, they may even decide to drill in blocks licensed by the Cypriot government... it’s a game of chicken," he added.

The discovery of huge gas reserves in the eastern Mediterranean has stoked long-standing tensions between EU member Cyprus and Turkey.

The island is divided between the internationally recognised Republic of Cyprus and a breakaway state set up after a Turkish invasion launched on July 20, 1974 in response to a coup sponsored by the military junta then ruling Greece.

Turkey, the only country to recognise the Turkish Republic of Northern Cyprus, has sent three ships to carry out drilling off the Cypriot coast despite EU condemnation and strong words from Washington.

In response EU foreign ministers agreed measures including cutting 145.8 million euros ($164 million) in pre-accession funds to Turkey allocated for 2020.

Turkey, which does not recognise Cyprus as a sovereign or EU member state, says its actions abide by international law and that it is drilling inside its continental shelf.

While negotiations to reunify the island remain on hold, Cyprus has moved to start gas and oil exploration by issuing licences to international companies. That has angered Ankara which argues that such exploration deprives the Turkish Cypriot minority of benefiting from the island’s natural wealth.

"Turkey won’t step down and EU sanctions are mild, the sanctions are not painful, and Turkey knows there is no determination for a confrontation," said Faustmann.

He argued that Cyprus needs to find more gas to make it commercially viable to extract.

"Unless there’s a big find, it might be a lot of noise over nothing, there isn’t enough extractable gas at the moment."

Experts also argue that if the escalation continues it will be difficult for energy companies to explore off Cyprus due to the risk.

"Interest in operations is there, however tensions with Turkey are not helping. If tensions subside then there will be a lot of interest because there is support from the markets and the EU too," said energy analyst Cyril Widdershoven, founder of the consultancy firm Verocy.