The tiny island of Cyprus has become a flashpoint in the years-long struggle to resolve the Western debt crisis, but it may be more of a pawn in a power struggle, too.  Cypriots have reacted in outrage over the terms of the bailout offered by the EU, which would confiscate a significant percentage of bank deposits.  That has other EU-bailout targets wondering if their own deposits are safe.

However, Russia appeared with a last-minute white-knight bailout offer that would leave deposits alone.  It would, however, strip Cyprus of its natural-gas assets (via Instapundit):

Russian energy giant Gazprom has offered the Republic of Cyprus a plan in which the company will undertake the restructuring of the country’s banks in exchange for exploration rights for natural gas in Cyprus’’ exclusive economic zone, local media reported.

Representatives of the Russian company submitted the proposal to the office of Cypriot President Nicos Anastasiades on Sunday evening, Sigma TV reported.

The proposal states that Gazprom will fund the restructuring of the country’s crippled financial institutions in exchange for substantial control over the country’s gas resources while Cyprus won’t need to take the harsh bailout package offered by the EU.

Why would Gazprom — tied very closely to the Putin regime in Moscow — try to intervene to save Cypriot depositors?  Certainly, they see value in Cyprus’ natural-gas reserves, but they could probably squeeze Cyprus for a decent price without underwriting their bankruptcy and spend a lot less money.  As it turns out, though, a good number of those Cypriot depositors turn out to be … Russian:

Pictures of long lines of angry Cypriots trying to pull money out of empty ATMs made the rounds on  Monday, as the world woke up to a decision by the Troika and President Anastasiades to impose haircuts on the nation’s depositors.  While Cypriot savers and opposition politicians protested the one-time levy, the unprecedented move appears focused on Cyprus’ large foreign depositor base, particularly Russian citizens and banks, which account for approximately 22% of total deposits, which are nearly four times larger than the island-nation’s yearly GDP. …

The Troika is singling Cyprus out, forcing it to impose a substantial haircut on creditors that will clearly hit the savings of the nation’s citizens.  But the Cypriot financial system is very particular, with nearly €70 billion ($91 billion) in deposits, or about 380% of GDP.  About 37% of deposits are owned by foreigners, according to Barclays, and nearly 60% of that belongs to Russians, numbers compiled byDanske Bank (and published by FT Alphaville) indicate.

Cyprus’ lax anti-money laundering laws and favorable tax treatment has made it a safe haven for rich Russians looking to stash their money cheaply.  In other words, the Troika is punishing Cypriot savers with the one-time tax, but they are also telling the Russians to pay up.

Thus does Gazprom’s intervention make sense.  The Russians want the Cypriot banking system to remain in status quo, and to protect the large amount of deposits from Russian banks.  It’s a protectionist move intended to keep the EU from grabbing assets belonging to Russia’s financial system.  It also makes sense of what looked like a very bad decision on the part of the EU that would normally destabilize a banking system.  Although the decision is still a bad one — and sets a very dangerous precedent that may inspire bank runs in other teetering EU countries — the politics of the decision make a little more sense.

So far, Cyprus says they won’t even consider the Gazprom initiative while they’re negotiating with the EU.  We can bet that the Russian offer is coming up in those negotiations, though.