Geopolitical instability in our area shows how fast a crisis can affect our daily lives. Flights were canceled, access was lost, sirens went off, emergency SMS tests happened, and shelter readiness was checked, leaving us with more questions than answers.
In a small, open, and connected economy like Cyprus, no regional crisis is far away. Cyprus relies on tourism, air transport, shipping, trade, financial services, energy imports, and regional stability. When things get tough nearby, trust takes a hit.
Tourism Takes the First Hit
The first blow to the economy hit travel and tourism. The numbers show how serious this risk is. Larnaca and Paphos airports saw 12.3 million passengers in 2024 compared to 11.6 million in 2023. This proves how vital air connectivity is for Cyprus’s economy. Tourism revenues from January to October 2025 reached €3.43 billion, up 15% from the same time in 2024. These figures explain why flight cancellations and route changes are not just annoying for travelers. They impact bookings, business trips, market supply, and the country’s image as a safe European destination.
Tourism revenues from January to October 2025 reached €3.43 billion, up 15% from the same time in 2024.
The Energy Crisis
The second impact comes from energy and markets. Cyprus heavily depends on imported energy. According to Eurostat data from 2023, our energy dependency is at 92%, one of the highest in the EU. This means any disruption in global energy flows can easily shake our local economy. The conflict and disruption of flows raised fears of a severe energy shock since about 20% of global oil trade goes through the Strait of Hormuz, which explains why markets react nervously to any escalation.
Gold as a Safe Haven
Meanwhile, gold becomes more appealing as investors look for safety while stocks struggle during uncertain times. This may seem like a trader’s problem but it affects everyone: higher fuel prices, increased transportation costs, rising operational expenses for businesses, fluctuations in investment portfolios, and price hikes for consumers. Such times remind us that investment diversification is important but has its limits. During crises, different investment types often move together. Diversification is a key protective measure but doesn’t erase risk when uncertainty becomes widespread. This doesn’t mean diversification isn’t valuable; it needs careful planning, liquidity, and awareness of risks.
Fiscal Discipline Needed
For a small economy like Cyprus, fiscal discipline is crucial. In times of external shocks, solid public finances can be lifesaving as they allow the state to support the economy and society if things worsen. For instance, Cyprus’s public debt is decreasing; it dropped to 62.8% of GDP by the end of 2024 and is expected to fall further to 51.0% by 2026. In uncertain times, these numbers are not just technical; they form part of our economic defense.
Citizens will feel the crisis at gas stations, on their electricity bills, at supermarkets, in transportation costs, through investment losses, and generally in living expenses. They will also feel it mentally: through anxiety and uncertainty, leading to delayed decisions, reduced spending, and fear about future choices. During tense times, the economy suffers not only from real events but also from the fear they create.
Inflation Lurks
The risk of a new wave of inflation can’t be ignored if energy pressures continue or worsen; costs could rise even if inflation in Cyprus is low right now. Borrowing costs remain a big issue for households and businesses. For households with high debt levels—especially those with variable interest rates—this means more pressure on monthly payments and less ability to handle another round of high prices.
Financial Planning
A citizen’s personal financial “shelter” is good financial planning: keeping some cash aside controlling essential expenses being careful with borrowing ensuring proper investment diversification so that intense instability doesn’t lead to personal financial shock.
Stella Damtsa, Board Member of CFA Society Cyprus
