Turkish Cypriots to Greek Cypriots: Cut gas deal or forfeit peace deal

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By Andrew Osborn

LONDON, Nov 25 (Reuters) - A peace settlement in Cyprus is not possible unless Greek Cypriots cut a deal on natural gas exploration with the Turkish-backed breakaway state in the north of the island, the chief Turkish Cypriot negotiator said on Tuesday.

Natural gas offshore in Cyprus, which has been partitioned since 1974, was first discovered in 2011. Greek Cypriots, who represent Cyprus's internationally recognised government, have since licensed exploration sites to Italy's ENI (NYSE: E - news) , France's Total and U.S. Noble Energy (NYSE: NBL - news) in an offshore area south of the eastern Mediterranean island.

A Turkish company sent a research vessel into the same area last month, prompting Greek Cypriots to suspend peace talks with Turkish Cypriots, saying the move was provocative and designed to undermine their own exploration efforts.

But in an interview in London, Ergun Olgun, the Turkish Cypriot negotiator, said such exploration would continue and even accelerate if Greek Cypriots pressed ahead with their plans to allow multinationals to exploit the area.

And that, he said, would prevent a peace deal.

"We are approaching a turning point. The Greek Cypriots need to decide whether they want to share power or whether they want to go it alone with their resources," Olgun told Reuters.

"Hydrocarbons is a common issue. It can't be decoupled from the negotiations."

Greek Cypriots have refused to back down. The issue has taken on extra importance to them since a financial crisis that prompted an international IMF and EU bailout in early 2013.

Olgun said the two sides must stop exploration and exploitation work simultaneously and create a joint committee to decide how contracts are managed and profits shared.

If this offer went unheeded, he said peacemaking could be ruined and Turkish Cypriots would pursue their own exploration and exploitation activities in the north and south of the island. "The offer is to work together. If they refuse our offer we are going to exercise our rights on our property.

"It could lead to a situation where we could start talking about a velvet divorce between the two sides," he said.

Cyprus's two major communities have lived separately since a 1974 Turkish invasion triggered by a brief coup inspired by the military junta then ruling Greece.

Peace talks have been conducted sporadically for decades, without result, while a U.N.-monitored ceasefire continues. (Additional reporting by Michele Kambas in Nicosia; Editing by Mark Heinrich)