Cyprus bailout: Russia misses chance for natural gas
Greek Cypriots have shuffled back and forth to Moscow in an attempt to lure Russia into a bailout package that would have given it a stake in the island鈥檚 estimated 60 trillion cubic feet of natural gas offshore, Alic writes, but the Cyprus offer wasn鈥檛 big enough to tempt the Kremlin.
Greek Cypriots have shuffled back and forth to Moscow in an attempt to lure Russia into a bailout package that would have given it a stake in the island鈥檚 estimated 60 trillion cubic feet of natural gas offshore, Alic writes, but the Cyprus offer wasn鈥檛 big enough to tempt the Kremlin.
Negotiations for Cyprus鈥� bailout, which has hinged largely on its hydrocarbons future, have ended with Russia missing the chance to swap aid for offshore exploration licenses and the Greek Cypriots agreeing to an EU bailout package that hits at the Russian oligarchy by shutting down the island鈥檚 second-largest bank.
Over the course of last week, Greek Cypriots were shuffling back and forth to Moscow in an attempt to听lure Russia听into a bailout package that would have given it a stake in the island鈥檚 estimated 60 trillion cubic feet of natural gas offshore鈥攂ut it wasn鈥檛 a big enough stake to tempt the Kremlin.
Earlier in the week, Cypriot officials had rejected an EU bailout package that would have seen anyone with a bank account over 20,000 euros paying a 3-15% levy on deposits in return for future gas shares.听(Related article:听Cypriot Bailout Linked to Gas Potential)
Cyprus then hit up Russia to raise the stakes in this geopolitical game for control of Mediterranean hydrocarbons. The trick was to raise the specter of a Russian grab for Cypriot gas reserves in order to force a kinder bailout offer from the EU.听
Russia held out for more from Cyprus, but the possibility of a deal with Moscow was enough to put steps in motion for a new plan.
To wit, the new EU bailout package accepted by Cyprus shuts down the island鈥檚 second-largest bank, Laiki, which will mean heavy losses for uninsured account-holders, many of whom are Russian oligarchs. In return, Cyprus gets a 鈧�10 billion ($13 billion) bailout and avoids the total collapse of its banking system. Only depositors with over 鈧�100,000 will be hit, while smaller depositors will be protected.
It鈥檚 still not clear what will happen to deposits of over 鈧�100,000. According to the听BBC, once Laiki is closed down, these deposits will be moved into a 鈥渂ad bank鈥�, but it is not clear how much of the deposits will actually be lost. Smaller deposits will be moved to the Bank of Cyprus, which will undergo a significant reconstruction.听(Related article:听EU Caught Playing Dirty and it鈥檚 all about Russian Gas)
The EU has never done this before. It has always sought to protect depositors. This time, however, we鈥檙e talking about Russian oligarchs.
Why the change in strategy? As听we noted last week, Europe now feels emboldened to hit out at Russian oligarchs because of major gas discoveries in the Levant Basin鈥攑articularly Israel鈥檚 Leviathan and Tamar fields, the latter which is to begin production already in April. This is gas that can make its way to Europe and provide an alternative to the Russian monopoly on European gas supplies. Simply put, the EU is no longer afraid of the implications of Russia turning off the gas spigots in retribution.
The markets鈥攐blivious to the geopolitical nuances of the Cyprus bailout鈥攁re relieved. According to听Reuters, Europe鈥檚 top shares rose 0.8% on Monday, while the euro zone banking shares index rallied 2.4% on the bailout news.
The bottom line here is that Russian oligarchs are effectively funding the Cyprus bailout, and this certainly won鈥檛 go down well in Moscow. And it certainly isn鈥檛 the end of this game. There will be a proxy response from Russia.
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Original source:听http://oilprice.com/Finance/the-Economy/Russian-Oligarchs-to-Involuntarily-Fund-Cyprus-Bailout.html