The small business owner in Nicosia opens another electricity bill, one of the highest rates in the European Union. The Turkish Cypriot woman in Kyrenia watches inflation devour her savings. The young couple in Limassol abandons hope of buying a home as rents climb beyond reach.
These are not disconnected problems, argues Fiona Mullen, director of Sapienta Economics. Solving the Cyprus problem could address them all.
Mullen’s 2020 research with economists Mustafa Besim and Michalis Florentiades, published in the report “Delivering the Cyprus Peace Dividend,” suggests the price of not solving the Cyprus problem is quantifiable: approximately €20.7 billion in lost economic potential at today’s prices, representing GDP that could be 1.4 times higher with a solution than without one.
Fifty-one years after the Turkish invasion of Cyprus, the question is no longer whether the Cyprus problem carries economic costs, but whether the island can afford to leave it unsolved much longer.
Paying Europe’s highest electricity bills
The most immediate cost, according to Mullen, hits every small business owner opening their monthly electricity bill. Cyprus businesses face the highest electricity costs in the European Union—paying €0.26 per kilowatt-hour in the second half of 2024 according to Eurostat, 36% above the EU average. This burden, she traces directly to the island’s energy isolation.
“We’re burning high-sulfur diesel and heavy fuel oil,” Mullen explains, describing an energy mix that belongs to a bygone era. Currently, about 84% of electricity generation in Cyprus comes from these fossil fuels—despite renewable energy production, what matters is what actually gets consumed. Natural gas is significantly cheaper, both because it produces lower emissions and because it costs less per unit of energy.
The solution—an electricity interconnector linking Cyprus to Greece and the broader European grid—remains blocked despite financial approvals. Turkey’s objections ensure the project cannot proceed, regardless of technical or financial readiness, she notes. The Great Sea Interconnector project has become mired in disputes between Greece and Cyprus, with the European Union even launching a criminal investigation into the project.
The Aphrodite natural gas field presents what Mullen considers an even starker example. Discovered in 2011, Aphrodite remains undeveloped while Israel’s Tamar field—discovered in 2009—has been producing gas since 2013 and currently supplies 70% of Israel’s electricity needs. Fourteen years after its discovery, Chevron finally received approval for a development plan in February 2025, with first gas potentially flowing around 2031.
“When companies find even medium-sized fields in this region, they go ahead and produce them,” Mullen notes. “We haven’t. That raises a big question about whether we’re being held back by the Cyprus problem.”
ENI’s Cronos field has similarly faced delays. While both fields now have approved development plans with gas destined for Egypt, the two-decade gap between Aphrodite’s discovery and expected production stands in stark contrast to regional competitors.
Turkey’s position is unambiguous. At the recent UN General Assembly, President Recep Tayyip Erdoğan stated that Turkey would block any Eastern Mediterranean energy development that excludes Turkish interests. In an era where, as Mullen puts it, “might is right” increasingly defines geopolitics, this is not an idle threat.
The result: Cyprus remains an energy island, unable to access cheaper sources and locked into the most expensive electricity generation in the EU. Cyprus businesses pay 67% more for electricity than Swedish firms and more than twice what Finnish companies pay. A solution would enable faster exploitation of natural gas at a time when the window for such development is closing due to rapidly increasing global competition from renewable energy sources. With obstacles removed, insurance costs would fall, companies would have more markets to choose from, and gas could be exploited more quickly and sold at higher profit margins—boosting government revenues when Cyprus needs them most.
The missing market: Turkey’s 11.4 million tourists
While Cyprus successfully rebuilt its tourism industry after 1974, Mullen argues it operates with one hand tied behind its back. Turkey’s outbound tourism market sent 11.4 million travellers abroad in 2024—more than Greece’s 6.7 million—yet virtually none visit Cyprus, according to data from the Turkish Statistical Institute and Bank of Greece analysed by INSETE.
The proximity makes this missed opportunity particularly striking. Antalya—one of the world’s busiest airports, handling over 38 million passengers in 2024 and ranking among the top 50 globally—lies just 177 miles from Paphos, a 51-minute flight. Yet this massive gateway to Turkey’s Mediterranean coast sends virtually no tourists to Cyprus.
A solution would transform tourism prospects dramatically, according to the 2020 peace dividend report. The elimination of ethnic tensions and barriers across the Green Line would make Cyprus a more attractive regional destination. A united Cyprus could offer upgraded religious tourism to sites like Apostolos Andreas monastery in the occupied north and Hala Sultan Tekke mosque in the south. The old walled city of Famagusta and Salamis would likely become World Heritage sites, boosting their international visibility. Cruise tourism encompassing Israel, Greece, Turkey and Cyprus would attract religious and archaeological tourists from around the world.
The opening of the fenced-off district of Varosha under internationally recognised conditions, combined with the growing number of Turkish citizens traveling abroad, would encourage significant investment in hotels and tourism infrastructure, the report argues. This investment would enlarge the available market for everyone, Mullen argues, rather than simply redistributing existing tourist arrivals.
Turkish tourists, increasingly wealthy and travel-hungry, fly over Cyprus to reach European destinations, she observes. Meanwhile, the island’s northern coastal towns remain off-limits to the south’s tourism infrastructure, and the south remains inaccessible to most Turkish visitors.
Beyond tourism, Mullen contends Cyprus misses out on trade with an economy on its doorstep that reached €1.25 trillion in 2024, according to the Turkish Statistical Institute. “Most countries in the world have their biggest trading partner as the biggest country next door,” she observes. “Turkey’s economy is 1 trillion euros. We’re not benefiting from that trade.”
The absence of this natural trading relationship has another effect: it increases Greek Cypriot dependence on Greece, whose economy reached €238 billion in 2024 according to World Bank and European Commission data. Greek companies have become increasingly visible in retail, banking, coffee chains and other sectors. Without competition from Turkey, the nearest major economy, this lack of alternatives puts upward pressure on prices, Mullen suggests.
The shipping sector, already a significant contributor to Cyprus’s economy, could expand substantially, she believes. Cyprus ranks as the tenth largest merchant fleet globally and third largest in the EU, with the overall maritime industry contributing 7% to GDP, according to government figures. Yet Turkey currently blocks not only ships flying the Republic of Cyprus flag but also vessels managed from Cyprus from docking in Turkish ports. The industry estimates Turkey’s embargo costs Cyprus approximately 1% of GDP annually—around €250 million across all affected sectors, with shipping losses alone reaching €75 million according to 2023 studies.
Professional services—lawyers and accountants—face similar restrictions. Cyprus offers an ideal EU platform for companies wanting to do business in Europe, yet Turkish businesses cannot easily use Cypriot services despite the island’s proximity and expertise. The big four accounting firms have already hired Turkish-speaking staff in anticipation of a potential settlement. “If there were a solution, we would open in Turkey tomorrow,” one major law firm reportedly said years ago.
The potential is not theoretical. Mullen’s research estimated that opening these markets could create up to 100,000 additional jobs over the long term through new tourism, expanded professional services, and economies of scale in a reunited economy.
Property prices: The myth of the crash
One argument against a settlement persists in some Greek Cypriot circles: that property prices would crash if the occupied north opened up. Mullen disputes this claim, pointing to evidence from previous settlement attempts.
“In the run-up to the Annan Plan, prices in the north started going up in anticipation of solving the Cyprus problem,” she explains. The market understood that removing legal impediments increases property values rather than decreasing them.
A settlement would eliminate these legal impediments, she argues. Properties would gain clear title and recognition within an EU framework. Far from flooding the market, many properties in the north already circulate informally despite their ambiguous legal status.
“This property is already in circulation,” Mullen argues. “Whether or not that’s legal or not, but it is de facto in the market.”
The fear of market flooding, she suggests, overlooks how property would actually be released. Banks in the Republic of Cyprus, Mullen says, acquired massive amounts of property through foreclosures following the 2013 financial crisis, but released them back in the market gradually, rather than dumping them all simultaneously.
A property commission established after a settlement would likely follow similar logic, she argues. The only scenario where property prices would crash would be if authorities made the amateur mistake of releasing everything at once rather than managing supply responsibly.
Cyprus actually needs more housing supply, she observes. “We have quite a lot of demand for property and young people can’t buy houses,” Mullen notes. Rents have climbed beyond reach for many. Unlocking property in the north for legitimate development could ease pressure on the south’s constrained market rather than collapsing it.
Corruption costs
The question of governance and corruption is also addressed by Mullen, who highlights that the constitutional provision for a Turkish Cypriot vice-president and the system of checks and balances have not functioned since 1963. According to her, this failure has led to a level of concentrated executive power that would appear extraordinary even to observers in the United States.
The government’s track record on major projects bears scrutiny. Investigations into the golden passport scheme revealed systemic corruption. The liquefied natural gas import terminal—which could have reduced electricity prices—is under criminal investigation by the EU. The Great Sea Interconnector faces similar scrutiny.
“A skeptic might say that if you put Greek and Turkish Cypriots governing together, you’d actually double the amount of corruption,” Mullen acknowledges. “But there’s an argument the other way: at least they might be keeping an eye on each other.”
She is careful not to claim a solution would eliminate corruption overnight. Both communities have governance challenges. But the structural element of a divided Cyprus—the absence of constitutional checks and balances—makes corruption far more likely, she argues. Forcing two communities to work together, with built-in oversight mechanisms, could create more accountability than either side currently maintains alone.
The long game: Isolation in the renewable age
The immediate costs are measurable. The long-term risks, according to Mullen, are more ominous.
As Europe is racing toward an era of cheap renewable energy, Cyprus’s best option is rooftop solar panels—an inefficient solution that will leave the island paying premium prices while competitors slash their energy costs, she warns.
“We’re going to have higher and higher energy costs,” Mullen says. “That’s going to damage our competitiveness in an era when everyone else has cheap energy.”
The practical implications are stark. Cyprus cannot attract data centers without cheap, abundant electricity. The government’s mission to America seeking data center investment founders on this basic reality. Energy-intensive desalination, crucial for a water-scarce island facing climate change, remains prohibitively expensive.
Economic isolation translates to strategic vulnerability, Mullen argues. The United Nations force in Cyprus is shrinking. International attention wanders. In an era of global disorder—unpredictable US commitments, regional tensions, shifting alliances—Cyprus’s unresolved status becomes a security liability.
“Even I, after 23 years in Cyprus, whenever I hear fireworks or firecrackers, in the back of my head I think of something else,” Mullen admits. “If I’m thinking that, it’s going to affect people’s investment decisions.”
Inflation and demographic changes in the occupied north
While the Republic of Cyprus grapples with high energy costs and missed opportunities, the occupied north faces a more existential crisis. The economic data, according to Mullen, tells a story of steady decline in Turkish Cypriot living standards and independence.
Inflation devastates purchasing power in the occupied north. While reliable historical data from 2002 is difficult to verify, recent years paint a stark picture. The ten-year period from 2015 to 2024 saw average inflation in the north reach 30-40%—driven by rates of 83% in 2022-2023 and sustained levels above 60% through 2024. This compares to just 1.3% average inflation in the Republic of Cyprus over the same period. The culprit: dependence on Turkey’s perpetually weakening lira, which inflates import costs and erodes savings.
High inflation constrains growth. Despite strong population growth—which normally boosts economic expansion—the occupied north averaged only 3.1% real GDP growth from 2015 to 2024. The Republic of Cyprus, despite weathering COVID-19 and the tail end of the 2013 financial crisis, managed 4.9% average growth in the same period.
The result is lower incomes per capita. While the occupied north’s minimum wage now exceeds the Republic of Cyprus’s, a far larger proportion of the northern workforce earns only minimum wage. On average, Turkish Cypriots are considerably less well-off than their southern counterparts.
Economic dependence on Turkey intensifies with each passing year. Turkey now accounts for 80% of tourists and about half of all foreign students in the occupied north, according to Mullen’s research.
The quality of that economic activity also suffers. Tourists in the occupied north stay an average of three days compared to nine days in the Republic of Cyprus, according to the peace dividend report. The difference: casino tourism. Visitors gamble in hotels over weekends without spending money in outside restaurants or exploring the broader economy.
As the occupied north grows more dependent on Turkey, Mullen observes, the mathematics of reunification grow harder. Turkish Cypriots shrink as a proportion of the population in the north. Settlers from Turkey increasingly outnumber the indigenous community. The window for a federal solution narrows with each passing year.
Environmental risks cross the buffer zone regardless of politics. Underground water tables connect north and south. Pollution in one area affects the other. Without EU environmental standards in the north, the Republic of Cyprus cannot fully protect its own resources.
Full annexation, once unthinkable, becomes more plausible as demographics shift. “If Turkey actually fully annexes the north, it will be much more difficult to hide a hard border,” Mullen notes. The message to investors would be unmistakable: Cyprus failed to resolve its fundamental challenge.
Resilience is not the same as thriving
Cyprus has proven remarkably resilient. The island recovered from the 2013 financial crisis. It weathered the COVID-19 pandemic. Greek Cypriots built a functioning democracy and a relatively prosperous economy for decades, despite the circumstances.
But resilience is not the same as thriving. Crisis management does not equal strategic planning, Mullen suggests. Short-term survival skills may actually hinder long-term thinking. The constant background threat—fireworks that might be gunfire, a crisis that might be invasion—discourages the kind of patient, decades-long investment that builds enduring prosperity.
The costs of the Cyprus problem are not hypothetical, she argues. They appear in electricity bills and missing tourists, in shipping restrictions and unused gas fields, in young people who cannot afford homes and businesses that cannot afford power. They manifest in Turkish Cypriots watching their savings erode through inflation and their community shrinking as a proportion of the population in the north.
The 2020 peace dividend report by Mullen, Besim and Florentiades, updated to today’s prices, quantifies what Cyprus loses annually: approximately €20.7 billion in economic potential. With a solution, GDP could be 1.4 times higher than without one. Growth rates could be 1.8 percentage points higher—a figure that compounds dramatically over years. Perhaps most importantly for Turkish Cypriots, their incomes would shift far closer to Greek Cypriot levels.
The report’s research suggests a solution could create around 100,000 additional jobs in the first 10 years. Around 30,000 of these new jobs would be created in the tourism sector, 18,000 in wholesale and retail trade, 10,000 in construction and around 6,000 in the airline and shipping sectors.
Most importantly, these costs compound. Energy isolation matters little in isolation but becomes critical as the world transitions to renewables. Missing the Turkish market stings, but becomes a strategic failure as that market grows. Inflation at 16% versus 1.4% seems manageable for a few years, but devastates wealth accumulation over decades.
The question facing Cyprus, according to those who study its economics, is not whether to solve its problem but whether it can afford to wait any longer before trying.
(Picture by Flickr. Creator: Marco Fieber)
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