Cyprus: Drawing Russia's Interest

Official sources within the Central Bank of Russia said June 18 that Moscow was preparing a multibillion-dollar interstate loan to Cyprus. The announcement comes as Cyprus' banking sector is struggling to meet its June 30 recapitalization deadline. Official estimates place the country's bailout requirements at 5 billion euros ($6.2 billion) over the next two years. Unlike other blighted countries on the eurozone's periphery, Cyprus can look beyond the European Union for financial assistance. The country's position as one of Russia's prime offshore banking havens has, in the past, brought Nicosia extensive help — albeit conditional — from Moscow.

But Cyprus' strategic importance has grown in the past year as unrest in Syria threatens Russia's regional military foothold at the Syrian port of Tartus, Russia's only Black Sea Fleet base in the Mediterranean Sea. The Kremlin hopes to use its large liquidity reserves as leverage to develop a substitute base in Cyprus. Should Nicosia choose Russia's offer over a formal EU bailout, which would likely involve strict austerity measures, it would highlight Cyprus' increasing strategic value and indicate that the island is reconsidering its relationship with the European Union.