Oren Anolik: “We could see Israeli companies relocating to Cyprus”

In a visit to IMH’s offices in Nicosia, the Ambassador of Israel to Cyprus Oren Anolik discussed the latest developments regarding the war in the Middle East, Israel’s economy, energy in the eastern Mediterranean, and his country’s economic relations with Cyprus.

The war enters a different stage

For three months now, the Middle East has been shocked by renewed turmoil. “The war is now moving into its third stage,” noted Anolik, referring to Defence Minister Yoav Gallant’s interview with the WSJ on 8 January where he said that Israeli forces will shift from the “intense manoeuvring phase” towards a longer phase which “will last for a longer time”.

“I want to remind you of our goals,” stressed the Ambassador. “They are the eradication of Hamas, as the ruler of Gaza, not Hamas as a movement or an idea. What we want is that this terrorist organisation no longer controls the territory, which is what allowed them to initiate attacks against Israel in the first place.” Israel’s second goal is the return of all hostages taken by Hamas, with the third being a return to a sense of security at the country’s north and southern borders, according to Ambassador Anolik.

Israel’s historically resilient economy expected to rebound

Though Israel entered the war with a budget and current account surplus (4.2% of GDP) and healthy foreign exchange reserves, there is no doubt the war has hurt its economy. Ambassador Anolik was quick to point out that historically, Israel’s GDP growth rebounded almost immediately after crises, citing the aftermath of the Second Intifada (+4.1% in 2005), the 2008 financial crisis (+0.9% in 2009 and +5.7% in 2010), and the COVID-19 pandemic (+8.6% in 2021). “Our finance ministry estimates that even though we will see a continuation of the war in 2024, albeit with lower intensity, our economy will grow by 2%, and around 5% the following year. Furthermore, our transport infrastructure (ports, airports) is operating without issues, and so is our financial system – our currency is stable and financial transactions are being completed without interruptions”.

Our conversation then led to the effects of the war on the Cypriot economy. Israeli-Cyprus business relations have long been close in a number of areas, with significant inbound Israeli investments in sectors like technology and real estate. The two countries have also been in close discussions over energy collaboration, most notably regarding the proposed 1,208km HVDC link between Israel, Cyprus and Greece, now referred to as the Great Sea Interconnector (formerly known as EuroAsia Interconnector) in particular, while Israeli tourists were the second largest group of visitors to the island during the high season month of August, comprising 14.9% of tourists according to official figures.

Cyprus a potential destination for company relocation

“We could see increased interest among Israeli companies looking to relocate their headquarters to Cyprus, which can be attributed to the war. Cyprus is close by and has a lot to offer Israeli companies, like its favourable tax system. It is also much easier to bring over foreign employees to Cyprus [from third, non-EU countries] as software engineers, for example, in comparison to Israel.”

It is worth noting here that Israel’s enormous startup ecosystem (US$120bn in startup value in 2022) has it dubbed as ‘the Startup Nation’. Cyprus, meanwhile, hosts its own share of startups at a much smaller scale, and holds aspirations of becoming a hub of technological innovation by acting as a suitable host for such companies.

In the summer of 2023, there were indications that Israel’s proposed judicial overhaul was causing concerns among its business community to such an extent that a large survey showed nearly 70% of startups were taking action to relocate parts of their business outside Israel. Since then we’ve had the war break out in October, while the proposed judicial reforms were struck down by Israel’s Supreme Court just last week.

Cyprus to remain a strong candidate for Israeli tourists in the future

When it comes to tourism, a year-on-year short-term drop in arrivals from Israel to Cyprus is to be expected, but Ambassador Anolik is optimistic that Israelis will eventually start flooding into Cyprus as they were prior to the war. “Right now, we are still traumatised from the attack in October. That said, Cyprus is an intuitive destination for Israelis. It’s close by, you don’t need to plan your trip months ahead, it can be an inexpensive weekend trip – I think that from springtime, when people start looking to travel once again, many will choose Cyprus.”

A winter freeze in energy negotiations

The Cypriot Energy Minister said in December that negotiations between Israel and Cyprus on the Great Sea Interconnector were paused after the war began, with no change in that regard as of yet. Israel has appointed a new Energy Minister in the interim, shifting its Foreign Minister Eli Cohen to the Energy Ministry at the end of last year. “We’ll have a period of a few weeks when the new minister needs to first learn the portfolio and get to work. Our principal position on this issue hasn’t changed – we still want to see this project move forward”, noted Ambassador Anolik. One of the pivotal points of the negotiations will be to reach a CBCA (cross-border cost allocation agreement).

Currently, there is an agreement in place with Israeli fund Aluma on the project. An MoU was also signed with Abu Dhabi National Energy Company (TAQA) for the Greece-Cyprus leg of the project, which Ambassador Anolik welcomes. “one of the elements of this project for the future would be to extend the link to other countries in the region all the way to the Gulf Area, providing Europe with access to its solar energy”.

Turkey’s off the table

As late as September of last year, Turkey and Israel were in talks over collaboration in energy drilling, even entertaining the idea of developing an energy network through Turkey to Europe. Following Hamas’ attack on October 7, a series of statements from Turkish President Recep Tayyip Erdogan, which included referring to Hamas as “liberators” and condemning the Israeli government have put him firmly at odds with Israel’s leadership.

“We have always been clear that we’re exploring several options for exporting natural gas. One of those was the Turkish option, which is no longer on the table. We now look to our other options, one of which was a proposal by Cyprus to construct a pipeline to the island for the transfer of natural gas, which could then be converted to liquid natural gas at an onshore LNG facility. I believe this will also be part of the discussions between our countries’ respective technical committees that were created to explore these energy issues”.