Cyprus counts cost of weaker Russia ties after Kremlin’s invasion of Ukraine

Isaiah switches effortlessly between Greek and Russian as he welcomes visitors to his church in Tamassos, deep among orange groves in the Cyprus countryside.

With its five shiny gold domes — brought from St Petersburg — it is the first Russian Orthodox church in Cyprus, funded by the owner of a Russian construction company and a sign of the huge Russian influence on the Mediterranean island.

Weeks into Russia’s invasion of Ukraine, Isaiah — a Greek Cypriot who is the Metropolitan of Tamassos, south of Nicosia — insisted Russians should “not be demonised” for the Kremlin’s assault on Kyiv.

He is also trying to provide a welcome for some of the thousands of Ukrainians who have arrived in Cyprus since the invasion — giving shelter to some and organising common prayer groups with the island’s large Russian population.

“This attack [on Ukraine] should not have happened,” he said.

The priest’s efforts to accommodate the consequences of the war echo what is going on across Cyprus, long known as “Moscow on the Med” for its popularity with Russians. The country has had some of the closest political ties to Russia of any EU member state but is trying to preserve EU unity towards Moscow.

And while parts of the economy feel the consequences of western sanctions on Moscow, the crisis is also showing the island’s continuing ability to draw in Russians.

Since Cyprus became independent in the 1960s, “Russia has penetrated the entire spectrum of political life, economic activity, the country’s media and its church”, said Makarios Drousiotis, a writer and investigative journalist on the island.

The island’s low tax rates, flexible regulation and EU membership proved a draw for Russian investors following the collapse of the Soviet Union. In 2012, the year before the financial crisis forced the island to seek an international bailout, bank deposits held by non-eurozone residents amounted to €21.9bn, according to data from the Central Bank of Cyprus.

They have shrunk considerably but still amounted to €6.4bn at the end of February. “Based on what the banks have reported 80 per cent of that is Russian money,” said Fiona Mullen, director of Sapienta Economics, a consultancy based in Nicosia.

Politically, Cyprus has long viewed Russia as a potentially useful ally over its longstanding dispute with Turkey, which invaded the north of Cyprus in 1974. The island remains divided, with northern Cyprus recognised only by Ankara.

However, following Moscow’s invasion of Ukraine, Cyprus toed the EU line in sanctions against Moscow. “We had no choice,” said Ioannis Kasoulidis, foreign minister of Cyprus. “Our decision was to support the EU and the solidarity of the union.”

And for some Cypriots, the Ukraine war has parallels with their own experience. In a recent poll in Politis, one of the leading newspapers on the island, more than 80 per cent of Cypriots said there were similarities between events in Ukraine and Turkey’s invasion.

“From the moment Russia did to Ukraine what Turkey had done to us, we had no other choice than to stand up and speak up as we have done in our case,” said Kasoulidis.

Cyprus stands to be among the EU nations hardest hit by the sanctions. Russians account for more than 20 per cent of visitors, and tourism this year had been expected to benefit from direct flights from Russian cities. Much of that will disappear.

“We were expecting 800,000 visitors, mainly from Russia and some from Ukraine and Belarus,” said Savvas Perdios, deputy minister of tourism.

In Limassol, historically the centre of the Russian community in Cyprus, Michalis Constantinou, who owns a high-end jewellery business, is feeling the impact. “We are a small island; if Russians and Ukrainians don’t visit, we are done,” he said.

Such is the importance of the Russian market that Stanislav Osadchiy, Moscow’s ambassador to Cyprus, baited the government for its decision to back the sanctions. “You shot yourselves in the foot,” he said on TV a few days after the invasion of Ukraine began, suggesting Russian tourists would instead go to Turkey. “Is that what you want? For them to go spend their money over there?”

Russians make up about 6 per cent of Cyprus’s 800,000 population. In Limassol, Alexey Voloboev, who owns the Russia Radio music station, said his advertising revenue had shrunk 70 per cent as Cypriot clients became wary of being associated with a Russian broadcaster.

“They tell me to either change the station’s name or make a statement against the war,” he said.

Cyprus’s banking system has also felt the fallout from the war. Three weeks ago, the European Central Bank appointed a temporary administrator to oversee the wind-down of RCB Bank, a lender created as a subsidiary of Russia’s VTB Bank.

On the day of the invasion, RCB had announced the transfer of VTB’s controlling stake to its management before it was hit with sanctions. Now RCB’s €2.8bn of customer deposits will be repaid or transferred to another bank.

In Limassol, many Russians have invested in multimillion-euro beachside apartments. Cyprus awarded passports in return for investing more than €2mn in the country but the contentious scheme was abolished in 2020 after the Mediterranean island had acquired thousands of new nationals.

Cypriot authorities have confirmed they are investigating four Russians, hit with sanctions since the invasion of Ukraine, who are among those to have been granted passports.

Nikolay Ivchikov, a former executive at Russian oil company Lukoil, who has lived in Cyprus since 2017, had built a flourishing business developing apartments for incoming Russians. Since the invasion, he said he would have to change his business model.

“We are affected by the crisis. It will be hard for people coming from Russia to buy homes,” he said.

But in a possible sign of Cyprus’s ability to adapt, Ivchikov said his business could benefit from a different influx. Since the war started Russia-based technology companies have flown employees into Cyprus to escape sanctions and Moscow’s curbs on the internet. Highly skilled professionals were also coming from Ukraine and Belarus, he said.

Pavlos Loizou, the chief executive of WIRE FS, a company that collects real estate data, said there had been a huge increase in rentals.

“These days it’s very hard to find an apartment in Limassol,” he said. “Even if the war stops in the next months, we will see an increase of people coming to Cyprus and people will not return soon. No one expects anyone going back in the next three to five years.”