Dorita Yiannakou
Cyprus once again finds itself exposed to geopolitical developments and international turmoil. Renewed tensions between the United States and Iran, along with measures being considered by the Trump administration, are raising concerns about the possible impact on Europe and, by extension, Cyprus.
The U.S. president has spoken of an approaching “economic D-Day” for Iran. On Monday, U.S. Treasury Secretary Scott Bessent unveiled the next phase of Washington’s campaign, warning third countries that continuing to do business with Tehran could leave them facing U.S. sanctions.
The U.S. Treasury Department has announced that it is suspending licenses that allowed certain remittance payments to Iran. It has also identified five sectors that could face secondary sanctions: digital assets, technology, gold, aviation, and shipping.
A possible rise in global oil and natural gas prices, combined with higher transport costs and growing uncertainty, is creating fresh pressure for businesses and households.
The Treasury’s measures also target a network of intermediary companies and “shadow fleet” vessels in the United Arab Emirates, Hong Kong, China, Singapore, Switzerland, and Europe.
Uncertainty reaches red-alert levels
Rising energy prices, higher transport costs, and a worsening business climate are the main risks facing the Cypriot economy.
The biggest headache in crises such as this is the uncertainty surrounding how events will unfold and how long the disruption will last. Even if the effects on Cyprus are expected to be largely indirect, uncertainty alone can put pressure on businesses and investors while also affecting households and consumers.
Economist Tasos Yasemides told Kathimerini that the main concern is energy, particularly the possibility of restrictions on Iranian oil exports.
If the flow of oil from the Middle East is disrupted, there is a significant risk that prices will rise on international markets, he said. For a country such as Cyprus, which depends heavily on imports, that could quickly affect transport and energy costs—and eventually the prices of everyday goods.
At the same time, Europe faces the wider issue of its dependence on imported energy. With Russia playing a much smaller role as a supplier, the European Union has been looking for alternative sources of oil and natural gas. Any new disruption in the Middle East could drive costs even higher.
Yasemides said another major concern is Europe’s reliance on imported goods.
Europe imports large quantities of products from China and depends heavily on sea transport to bring them in. Any disruption along international trade routes could raise shipping costs and push up prices.
The problem is even more serious in Cyprus, where dependence on imports has long been a weakness. Even basic agricultural products are brought in from other European countries, despite the potential for more of them to be produced locally.
Strengthening domestic production, Yasemides said, could reduce Cyprus’ dependence on international markets and provide some protection against external crises.
Interest rates and borrowing costs are another concern for businesses and households. A period of rising energy and operating costs, combined with expensive borrowing, could hold back investment and place further pressure on economic activity.
Tourism is also vulnerable. Cyprus has already experienced the effects of geopolitical crises in the region, Yasemides said.
A deterioration in business confidence should not be underestimated either. During periods of geopolitical tension, companies and investors tend to become more cautious, postponing decisions and investments until the situation becomes clearer.
Limited direct impact on exports
The direct effect on Cypriot exports to Iran is expected to be limited because Iran is not a major market for Cyprus.
Andreas Andreou, deputy secretary-general of the Cyprus Chamber of Commerce and Industry, told Kathimerini that trade between the two countries remains low. This limits the Cypriot economy’s direct exposure to developments and sanctions involving Iran.
The indirect effects, however, could be more serious.
Higher shipping costs, fuel prices, and insurance premiums, together with possible disruption to international supply chains, could make it more expensive to transport Cypriot products to overseas markets.
Andreou also expressed concern about the impact on shipping. Higher transport costs could make imported goods more expensive in Cyprus while also raising the cost of Cypriot exports.
Rising fuel prices would affect airlines as well. That could have consequences for tourism because, as an island, Cyprus depends heavily on air connections.
Who ends up paying?
Ultimately, experts say, much of the additional cost is passed on to the consumer.
For the average person in Cyprus, the most likely immediate consequences are more expensive fuel and energy, followed by higher prices for goods. If the situation escalates further, tourism, shipping, and the wider economy could also be hit.
The big question, and one no one can answer at this stage, is how long the crisis will last and whether there will be further disruption to global energy supplies and trade routes.
For Cyprus, the greatest risk does not come from its limited direct trade with Iran. It lies in the chain reaction that another international crisis could set off across key parts of the economy.
The challenge for Cyprus and Europe is therefore twofold: dealing with the immediate effects of a possible energy crisis while also reducing their long-standing dependence on imports, foreign energy, and international supply chains.
