Cyprus, officially the Republic of Cyprus, is an island country in the Eastern Mediterranean Sea, east of Greece, south of Turkey, west of Syria, Lebanon, northwest of Israel and north of Egypt. Cyprus is the third largest island in the Mediterranean Sea, and a member state of the European Union.
In September 2011, the credit rating of Cyprus was downgraded by all major credit rating agencies following the Evangelos Florakis Naval Base explosion in July 2011 which occured in a period of slow progress of the fiscal and structural reforms. At the same time yields on its long-term bonds rose above 12%. Despite its low population and small economy Cyprus has a large off-shore banking industry that was shaken to its foundations during the financial turmoil. With a total nominal GDP of €19.5bn ($24bn) the country was unable to stabilize its banks, which had amassed €22 billion of Greek private sector debt and were disproportionately hit by the haircut taken by creditors.
Lately, on 16 March 2013, the EU and IMF agreed a €10 billion deal with Cyprus, making it the fifth country—after Greece, Ireland, Portugal and Spain—to receive money from the EU-IMF in order to avoid bankruptcy . As part of the deal, a one-off bank deposit levy of 6.7% for deposits up to €100,000 and 9.9% for higher deposits, was announced on all domestic bank accounts, a measure that sparked international outcry and was rejected by the Cypriot Parliament on Tuesday.
The unstabilized economic situation strongly affected the oil prices which rebounded slightly in Wednesday morning in Asia after Tuesday’s sharp decline, due to the initial bailout of the economy. The barrel of WTI for delivery in April, gained 6 cents in Wednesday morning reaching $ 92.22 a barrel, while Brent North Sea for May delivery raised by 34 cent reaching 107.79 dollars.
“The feeling is that the market will reach an agreement and that Cyprus will not cause a crisis that will force her to leave the euro,” said Victor Schumann of Purvin and Gertz IHS Singapore.
“But until the situation normalized, there is great instability”, he said to AFP. On Tuesday, oil prices have fallen sharply because of fears that the situation in Cyprus will spread to Europe and lead to a reduction in demand for energy in the region.