Northern Cyprus' Reliance On Turkish Lira Undermines Cypriot Peace Hopes

A moderate Turkish Cypriot politician won the presidential election in Northern Cyprus, raising hopes for a United Nations solution to the decades-long conflict and for improved ties between Turkey and the European Union (EU).

Tufan Erhurman won the presidential election on October 19, defeating a hard-liner pro-Turkish candidate. His victory could boost much-needed dialogue between the Greek and Turkish communities on the Mediterranean island.

Erhurman's decisive win has revived elusive hopes of reuniting the island after the Turkish invasion of Cyprus in 1974 divided the Greek and Turkish communities. Northern Cyprus declared independence in 1983, but only Turkey has recognized it.

The EU is "ready to play an active role, with all the means and tools at its disposal, in supporting all stages of the UN-led process for the reunification of Cyprus," the European Commission said in a statement.

Turkish President Recep Tayyip Erdogan said this election has demonstrated the "democratic maturity" of Northern Cyprus and will be "beneficial for our countries and our region." Cypriot President Nikos Christodoulides congratulated Erhurman on his victory, suggesting meeting in person "as soon as possible."

Erhurman received 62.8% of the vote, compared with incumbent president and Ankara-backed Ersin Tatar's 35.9%.

Turkish Cypriots Grow Frustrated with Ankara's Interference

Turkey's invasion has obstructed Ankara's long-stalled bid for European Union (EU) membership. Ankara has backed a two-state solution on the island, while the EU has supported a bicommunal federation through the United Nations.

Despite the strong ties between Turkey and Northern Cyprus, many Turkish Cypriots have become critical of Ankara's consistent interference in their domestic affairs. Northern Cyprus, subjected to trade restrictions, embargoes, and isolation, has become dependent on Turkey, its largest trading partner.

"It's a new beginning for us," Mete Hatay, a Turkish Cypriot political analyst at the Peace Research Institute Oslo's Cyprus centre, told the Financial Times. "It's a message against any kind of intervention and impositions coming from Turkey."

Turkish exports to Northern Cyprus increased to $2.63 billion in 2024 from $860 million in 2020, according to data on Trading Economics' website. Northern Cyprus imported $1.1 billion of mineral fuels, oils, and distillation products in 2024.

Northern Cyprus has relied on the Turkish Lira and has no independent monetary policy tools. This makes it vulnerable to the Central Bank of Turkey’s decisions, according to the World Bank. The Central Bank of Turkey cut its key one-week repo rate today by 100bps to 39.5% in October 2025.

With the Lira down about 18% year-to-date, Turkish Cypriots have experienced higher prices of basic goods. Turkey's annual inflation accelerated to 33.3% in September 2025. It was the first rise in 15 months, as costs of transportation, education, and communication increased.

Northern Cyprus Faces Multiple Economic Headwinds

Along with persistent inflation, Northern Cyprus has other significant economic headwinds. Gross domestic product growth will slow to 4.2% this year from 6.4% last year, due to softer external and domestic demand and rising fiscal pressures, according to the World Bank.

"Products entering the Turkish Cypriot community cost more than in many other economies," Anna Akhalkatsi, World Bank Division Director for the EU, said in June. "Reducing trade frictions and improving regulatory transparency could unlock significant opportunities for greater economic convergence and integration across the island."

Fraud in higher education has become a significant revenue for public finances, according to an analysis by the Financial Times. Students, mainly from the Global South, are lured into participating in education programs in "Cyprus." Most expect to study in the Republic of Cyprus, an EU member, yet end up in Northern Cyprus instead.

Deniz Altiok, an anti-trafficking coordinator of Turkish Cypriot NGO Human Rights Platform, told the Financial Times that international students from Africa and Asia also face higher risks of falling victim to forced labor and sexual exploitation.

Northern Cyprus has reportedly become a transit point for human trafficking to the EU, with criminal organizations moving migrants through the island, according to the Cypriot government.

Northern Cyprus Peace Remains Elusive

Even with Erhurman's election victory, efforts to resolve the conflict will be strenuous 43 years after Turkey intervened in response to intercommunal violence and a Greek-sponsored coup d’état. Peace talks have stalled since 2017.

Erdogan has maintained significant influence over Northern Cyprus due to its dependency on Turkish security provision and trade. Ankara-backed Tatar is a strong proponent of the two-state solution and has been seeking to gain international recognition.

Turkey's far-right leader, Devlet Bahceli, chairman of the Nationalist Movement Party, ruled out any possibility of a bicommunal federation and instead suggested Northern Cyprus join Turkey as its "82nd province."

Erhurman's Republican Turkish Party criticized Bahceli's comments on X. The party said Bahceli showed "disrespect for the right of the Turkish Cypriot people to self-determination" and violated the political equality of Northern Cyprus.

Erhurman has conceded that "foreign policy will be conducted in close coordination with Turkey." He has rejected claims that he opposed to close ties with Ankara.

"If Turkey's ruling power insists on a two-state solution, negotiations on Cyprus will not begin," Abdullah Korkmazhan, a scholar based at the Near East University in Nicosia, said. "Erhurman's next steps remain uncertain in this regard."

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