Oil Exploitation in the Eastern Mediterranean: Cyprus, Turkey and International Law

Remarks by Dr. Achilles Skordas, Reader in Law, University of Bristol, UK

I. The facts

On February 17, 2003, Cyprus and Egypt signed the Agreement on the Delimitation of the Exclusive Economic Zone (EEZ). According to Article 1, paragraph 1, "the delimitation of the EEZ between the two Parties is effected by the median line of which every point is equidistant from the nearest point on the baseline of the two Parties." This method of delimitation is consistent with international case-law, customary law and the UN Convention on the Law of the Sea. A similar Agreement was signed on January 17, 2007 between Cyprus and Lebanon. In 2004, Cyprus enacted legislation for the proclamation of the EEZ extending not beyond 200 miles from the baselines from which the breadth of the territorial sea is measured, and contiguous zone, the outer limit of which should not extend beyond the 24 nautical miles from the same baselines. On February 15, 2007, Cyprus opened a bidding process to license offshore gas and oil exploration. One note to mention is the delimitation agreements and the oil exploration fields are situated in the South, Southeast and Southwest of the Island. Turkey has sharply protested the move by Cyprus with Greece and the United States also taking a standpoint on the ongoing dispute.

In its statement of January 30, 2007, Turkey argued as follows:

"...the TRNC (Turkish Republic of Northern Cyprus) also has rights and authority over the maritime areas around the Island of Cyprus. Moreover, Greek Cypriots do not represent the Island as a whole. Consequently, neither the legislation adopted nor the bilateral agreements concluded by the Greek Cypriot Authorities have any effect. In addition, it must also be kept in mind that Turkey has legitimate and legal rights and interests in the Eastern Mediterranean. Parts of the maritime areas that are subject of bilateral agreements intended to be concluded by the Greek Cypriot Authorities also concern Turkey's stated rights and interests. Turkey is determined to protect its rights and interests in the Eastern Mediterranean and will not allow any attempt to undermine them. – In this context, we would like to remind those countries and companies that might consider conducting research for oil and gas exploration, based on invalid licenses Greek Cypriot Authorities may contemplate to issue for maritime areas around the Island of Cyprus, to take into account the sensitivity of the situation as well as the will of the Turkish Cypriots, the other constituent people of the Island, and expect them to refrain from any endeavour that might negatively affect the settlement process of the Cyprus issue and to act accordingly

In a further statement of February 15, 2007, Turkey refined its position:

"Accordingly, we expect the Greek Cypriot Authorities to end their calls for international tender which are not based on common understanding among the Eastern Mediterranean states, and thereby creating fait-accomplis, violating the joint rights of the two peoples on the Island on issues like oil and natural gas exploration".

The legal arguments of Turkey are not convincing, and there does not seem to be any real legal dispute between Turkey and Cyprus with respect to the latter's EEZ delimitation agreements, apart from potentially overlapping claims on some maritime areas between Turkey and Cyprus. Instead, Turkey attempts to exercise pressure on foreign companies and neighbouring states to indirectly undermine the effective exploration and exploitation of the resources of the EEZ. Through identical letters addressed to the United Nations (UN) Secretary General and to the President of the Security Council dated January 31, 2007 (A/61/726-S/2007/52/2 February 2007), Cyprus responded by invoking its sovereign rights:

"Turkey has no right whatsoever to challenge the delimitation of the EEZ or the continental shelf between the Republic of Cyprus and its neighbouring States, in accordance with relevant provisions of international law and in areas that are neither opposite nor adjacent to Turkish coasts (...). The Government of Cyprus has no doubts about the sovereignty of the Republic of Cyprus over the maritime areas surrounding the island and the natural resources therein and rejects any claim by the Government of the Republic of Turkey to the contrary".

Greece supported the standpoint of Cyprus. The Greek Foreign Ministry spokesman stated that Turkey's positions were "in flagrant violation of the fundamental principles of international law, national sovereignty and the rights of independent nations to proceed with agreements with each other, especially since this cooperation is in accordance with international law, international rules and has a peaceful purpose, which is the economic development of the region".

Finally, the United States took a cautious approach, and avoided taking sides. On February 5, 2007, the spokesman of the State Department gave the following answer:

"U.S. policy has not changed. Any dispute here is between the Republic of Cyprus, those countries that have signed agreements with Cyprus, and Turkey. The United States is not a party to these agreements. The State Department has no recommendations as to whether American companies should participate in the bidding process. The controversy, however, points to the need for all parties to focus on re-starting the UN's good offices mission to forge a comprehensive Cyprus settlement that reunifies the island into a bi-zonal, bi-communal federation. The next step should be to implement the agreement brokered by the Under Secretary-General Gambari, July 8, 2006. A final settlement will enable all Cypriots to benefit from the island's resources".

Legal and political issues relating to the exploration and exploitation of oil and gas are closely linked. Here, three different sets of issues need to be considered:
a. Questions arising from the relationship between the Government of Cyprus and the Turkish-Cypriot community;
b. Questions relating to the rights of companies participating in the bidding process;
c. Questions relating to the delimitation of the EEZ between Cyprus on the one hand, Egypt and Lebanon on the other.


II. The people of Cyprus and the legal status of the North

The resources of the sea appertain to a coastal state on the basis of its sovereignty and jurisdiction, which extends to the outer limits of the respective maritime zones, as provided for by the law of the sea. Since Cyprus is an independent state, the resources of the EEZ appertain to the whole of the state and not to one of its communities. Therefore, the fact that the delimitation of the EEZ of Cyprus coincides roughly with the area controlled by the Government of Nicosia does not affect the principle, that the resources are indivisible and the South does not have exclusive rights.

However, it could be argued that, as long as there is no settlement of the Cyprus question and the Turkish occupation continues, the Island's resources can only benefit the population within the area effectively controlled by the Government of Cyprus. Though this argument seems to be in line with the fact that there is only one internationally recognized government on the Island, it is too formalist, to capture the complexity of the situation. Indeed, under international law, a state has four elements, namely territory, people, government and the capacity to enter into relations with other states. Moreover, the people have the right of self-determination, and, on that basis, permanent sovereignty over their natural resources. The UN General Assembly Resolution 1803(XVII) of 1962 on Permanent Sovereignty over Natural Resources declared, that "the right of peoples and nations to permanent sovereignty over their natural wealth and resources must be exercised in the interest of their national development and of the well-being of the people of the State concerned."

In the case of Cyprus, the question of "who are the people" remains open, due to the existence of two communities. Beyond the formal legal reality of the people as the citizens of the Republic under the jurisdiction of the Government of Cyprus and the sovereign rights of the state, there exists a socio-legal background of the two communities constituting the "people of Cyprus as a whole" as holders of the right of self-determination with respect to the common statehood. The legal status of the North under international law cannot be answered with exclusive reference to the fact and law of occupation. The coexistence of two constituent communities as co-founders of the Republic needs also to be taken into account.

The history of the problem of Cyprus revolves around the existence of two communities, which constitute the people of Cyprus. At least for the UN system, the issue of illegal use of force is less central than generally assumed. The Security Council determined that the events of July 1974 constituted "foreign military intervention" or "unilateral military actions" – avoiding the terms "aggression" or "invasion," which were used in Res. 660 and 667/1990 with respect to the invasion of Iraq in Kuwait; moreover, the legal basis for the Council's action was not Chapter VII, but Article 24 of the Charter. The Council also requested the withdrawal of foreign military personnel, including both Greek and Turkish forces. Thus, it can be inferred that the "foreign military intervention" related to the parallel use of force by Greece and Turkey (UN Security Council Resolution 353/1974). The United Nations has always referred to negotiations between the two communities "on an equal footing" (see UN General Assembly Resolution 3212/XXIX, oper. para. 4, UN Security Council Res. 365/1974, UN Security Council Resolution 367/1975, oper. para. 2).

Although the UN Security Council disapproved of what it called "purported secession" of the North and called upon all states "not to recognize any Cypriot State other than the Republic of Cyprus," the legal reason was not the illegal use of force per se, but the inconsistency of the declaration of independence of the North with the 1960 Agreements (SC/Res. 541/1983). The UN Security Council disapproved of the "purported secession," because under international law secession, though not prohibited, is discouraged, as it threatens the stability of international relations. If, however, secession is disapproved, there should be some entity that attempts to secede from the common state, and this entity is the TRNC, not Turkey. Though the Security Council considered the TRNC as "legally invalid," it also admitted that it was a distinct entity with respect to Turkey (UN SC Resolution 550/1984). There is no doubt that the Turkish military intervention was inconsistent with international law; however, the strategy of the international community has been to reach a solution, not by restoring the territorial and constitutional status-quo ante, but by activating the right of self-determination of the people of Cyprus through an agreement of the two communities. Moreover, the international practice has clearly recognized the right of the Turkish Cypriot community to a homeland in the North, as a consequence of the 1974 armed conflict; this is, after all, the essence of the overall project of a bi-zonal and bi-communal federation.

The Annan plan of 2004 was based on the existence of two equal constituent states. Moreover, the positive attitude of the Turkish-Cypriot community towards the plan and the European Union, and the rejectionist stance of the Greek Cypriots in the 2004 referenda, enhanced the political status of the North. In his concluding report, the UN Secretary-General called upon all states "to cooperate both bilaterally and in international bodies to eliminate unnecessary restrictions and barriers that have the effect of isolating the Turkish Cypriots and impeding their development, deeming such a move as consistent with Security Council resolutions 541/1983 and 550/1984" (Report of the Secretary-General on his mission of good offices in Cyprus, S/2004/437, May 28, 2004, para. 93).

In one of the latest legal developments, the European Court of Human Rights recognized the progressive development of the rule of law in the northern part of Cyprus. In its recent judgment in the case Xenides-Arestis v. Turkey of December 7, 2006, the Court seemed to recognize that a domestic remedy in the legal order of the TRNC dealing with the property claims of the Greek Cypriots corresponds in principle to the European rule of law standard; however it stressed that it did not have the possibility to address all the relevant issues of the effectiveness of this remedy in detail (see ECtHR, Xenides-Arestis, Just Satisfaction, para. 37). The Court has not changed its case-law with respect to Turkey's "overall effective control" over the North of Cyprus and continues to attribute responsibility to this state, but its judgement reflects at least the fact that the rule of law begins to take root in this area. However, caution is necessary, due to the lack of clarity of the judgment, which has not become final yet, and has been referred to the Grand Chamber of the Court.

The two communities of Cyprus have not yet exercised their right to self-determination either by reforming the 1960 constitutional system, or by creating two independent states. The government of Nicosia is the only internationally recognized government on the Island, but, parallel to it, the two Cypriot communities constitute the people of Cyprus in the exercise of the pouvoir constituant, as evidence by the two separate referenda of 2004. The Turkish-Cypriot community has exercised its right to internal self-determination and administration by establishing the TRNC, but the international community has not recognized its status as having an international character.

The legal status of the Northern part of Cyprus has a hybrid nature, because parallel to the Turkish occupation, the TRNC has assumed the features of a non-recognized de facto regime supported by the Turkish Cypriot community. However, the current state of affairs is unsatisfactory, and this has implications on how to deal with the exploitation of the resources in the EEZ of Cyprus.

III. The Trust Fund

The continuation of the anomalous situation relating to the existence of two communities, but of one state and a non-recognized de facto regime, creates a degree of legal uncertainty with respect to the exploitation of the resources of the sea.

The government of Cyprus should use the resources for the benefit of the people of Cyprus as a whole. The Turkish Cypriot community has legitimate expectations to receive a fair share of the oil revenue, but there is no forum to assert its claim under international law. Due to the lack of internationally recognized statehood, the claim is addressed to the Greek-Cypriot community, in their inter-communal bond and relationship. Thus, any future negotiation for the resolution of the Cyprus issue will have to deal with these claims, too. As the principle of self-determination is implemented within a long-term legal-political process, there is nothing unusual in that respect.

Nicosia should not await the final settlement of the Cyprus problem, but should already design a policy compatible with the principle of fair distribution of the resources between the two communities. This can be realized by creating a Trust Fund, which would use any potential oil revenues for the development and economic integration of the Island. Such a strategy would facilitate the resolution of the Cyprus issue by creating a climate of trust between the two communities. A meeting of Presidents Papadopoulos and Talat discussing these policies would constitute a major step towards reconciliation. Turkish Cypriots should reciprocate by accelerating the process of returning the properties of Greek Cypriots.

A unilateral approach by the Government of Cyprus on the exploration and exploitation of oil could drive the two communities even further apart and exacerbate tensions between Cyprus and Turkey. In a long-term perspective, the South would become richer and the North poorer; the Government of Cyprus should think and act proactively in view of the risks inherent in an excluded and impoverished Muslim community in that part of the world.


IV. Rights and risks of companies

Companies acquiring licenses for the exploration and exploitation of oil resources in the EEZ of Cyprus should be aware of a degree of uncertainty with respect to their prospective rights. To note, under the 2004 UN settlement plan, for instance, the management of natural resources, and questions relating to the UN Convention on the Law of the Sea, including the continental shelf and the EEZ, were considered as matters within the competence of the federal government and of the federal parliament (Art. 14, para. 1f, Art. 25, para. 2b of the proposed Constitution of the United Cyprus Republic). As states are entitled to expropriate property rights, the "oil landscape" might be redistributed in a future agreement for the final settlement of the Cyprus problem. Though thoughts on that issue are not only premature, but purely speculative, it may be useful to recall the fundamental principles governing these situations.

International practice on the protection of foreign investment indicates that in cases of expropriation the legal standard of full compensation receives nowadays more acceptance than in the past. Other than in the period of the so-called "New International Economic Order" of the 1970s and 1980s, contemporary international practice provides for a more comprehensive protection of the investor.

The resolution of investment disputes is burdened with uncertainties relating, inter alia, to the applicable law. The Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, in which Cyprus is a Contracting Party, reads as follows:

"The Tribunal (i.e. the arbitration tribunal of the ICSID) shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable" (Art. 42, para. 1 of the Convention).

Three levels of obligations are of significance: contract between Cyprus and the company, bilateral agreement on the protection of investment between Cyprus and the state of the seat of the company, and the domestic law of Cyprus as the state which hosts the investment.

Companies entering into a contractual relationship with respect to the resources of the EEZ of Cyprus assume some legal and political risk. However, they can factor this risk into the contract and into the value of the concessions they acquire. The opposition of Turkey to the prospects of exploration has the effect of increasing the political risk, and of limiting the value of the concession.


V. The stability of the delimitation of the EEZ

A last issue concerns the stability and viability of the delimitation agreements of Cyprus with Egypt and Lebanon, in view of a future new "state of affairs" on the Island. There is no doubt that the two agreements have been concluded under international law; they become binding upon the parties by the completion of the ratification process. It is necessary that delimitation agreements should not infringe upon the rights and jurisdiction of third states, including Turkey. A further issue is whether a final settlement of the Cyprus problem could put these agreements into question.

If a future state of affairs in Cyprus takes shape in any form of state succession, it might be asked, whether the successor entity could claim a fundamental revision of the treaties. Though the law of state succession is burdened with uncertainties, the principle of the stability of borders, including maritime zones, is generally recognized in international law and practice. Changes in the constitutional order of states, or changes with respect to the responsibility of a state over a territory, or even secession or dissolution of states have in practice no consequences over the existing external borders of states. The delimitation agreements concluded by Cyprus followed the median line, which corresponds to the principle of equidistance, as recognized by the law of the sea. This is an additional reason that practically precludes any future controversies on the agreed line.

The Cyprus-Egypt Agreement provides that adjustment of the existing lines is possible in two cases: a) if more accurate data are available, either of the two parties may request improvement of the median line; b) the geographical coordinates may be reviewed or extended as necessary "in the light of future delimitation of the exclusive economic zone with other concerned neighbouring states" (Art. 1, paras. d and e of the Agreement). Evidently, if the current lines are infringing upon the continental shelf of third states, the contracting parties are obliged to make the necessary adjustments.


VI. Prospects of a final settlement

The dispute over the exploration and exploitation of the EEZ adds to the complexity of the overall situation in Cyprus. For the time being, it seems that the prospects for further negotiations are bleak. There are three possible paths to go forward: revival of the Annan Plan, establishment of the Greek-Cypriot hegemony on the Island, or loose confederation of two independent states.

The 2004 UN Plan was rejected by the Greek Cypriots against the will of the international community; however, the plan, if implemented, would have created a sectarian state dominated by the current political establishment. Moreover, the political system provided for by the plan would favour clan and group loyalties over merit and performance. Independent societal actors would suffocate under the pressure of "consent" dictated by the political elites, and economic governance would be diluted into political and ethnic disputes. "Closing the ranks" in each community would end up in establishing an illiberal corporatist democracy.

Establishment of the Greek-Cypriot hegemony, under the cover of a "European solution," is a dangerous illusion. Cyprus and Turkey are on a collision course in the European institutions and their dispute incapacitates European and transatlantic defence policies ("Berlin Minus," The Economist, February 10, 2007, 44). EU member states opposing Turkey's membership exploit this situation to block Turkey's accession process. If Europe loses Turkey, the status quo in Cyprus will freeze for the indefinite future and the Union's foreign policy in the Eastern Mediterranean will have lost its credibility for good.

A third alternative, summarized in the formula "land for statehood," should be put on the agenda of policy-makers. In exchange for substantial territorial concessions that would permit the great majority of the Greek-Cypriot refugees to return to their homes and reside under the jurisdiction of the Greek Cypriot state, the Government of Cyprus should give up its claim to represent the whole of the Island and should recognize the legitimacy of the TRNC. Within the framework of EU law, and following the jurisprudence of the European Court of Human Rights, the Turkish Cypriot authorities should swiftly return, or compensate, all Greek Cypriot properties remaining under their jurisdiction and deal with all other human rights issues. The two Cypriot states would establish a "special relationship" in the form of a confederation with competence on the area of European integration, and they will have to speak in the European Union with one voice. Bilateral cooperation, supported by a set of agreements aiming at establishing a common economic and development space on the Island, and immediate application of the acquis communautaire throughout Cyprus, including the freedom of movement and residence, would contribute enormously to the normalization of the situation. Though questions of defence and security should in principle remain within the jurisdiction of each state, Turkish troops should be substantially reduced and finally withdrawn as a confidence-building measure. NATO should play a major role in guaranteeing the new "state of affairs."

The chain of events could be triggered by various factors, including a US initiative. Greece and Turkey should take the lead in supporting this strategy, and exercise their influence to secure the transition. The two countries need to show leadership, look after their own stability interests in Eastern Mediterranean, and safeguard European and transatlantic interests. As the situation in the Middle East, North Africa and Somalia becomes even more complex, the North of Cyprus should not remain a "black hole" in the international system.