Falkland Feud

At this moment, the UK is sending a deep-sea oil drilling platform over to the Falkland Islands, and the Argentineans don’t like it one bit. The government has arrested a ship bringing in supplies, and it has even passed a law that all ships sailing to the Falklands through its waters need a special permit. The Falkland sovereignty question goes back decades. Britain and Argentina fought a war over the islands in the early 1980’s. Argentina lost, and the issue, not surprisingly, still stings.

The last two Argentinean administrations have aggressively pursued new negotiations. In 2007, then-president Nestor Kirchner unilaterally scrapped an agreement with the UK to share fishing rights and the proceeds of oil discovered in Falkland waters.

The recent flare up of tensions isn’t really about the Falklands’ sovereignty; it’s about money. Geologists estimate that up to 60 billion barrels of oil could lie in the seabed around the islands. It’s no secret what a difference the extra revenue could make to Argentina’s rapidly deteriorating finances. 60 billion barrels and it's all ours!

Some argue that current president Cristina Fernández de Kirchner is using the Falkland question to stir up nationalist sentiments to divert attention away from the country’s large international debt. Thirteen billion dollars of Argentina’s international debt matures this year and economists predict a budget shortfall of up to $7 billion.

But is Argentina acting in its own interest? No. The country stands to gain tremendously from a large oil boom. The Falklands – populated by a mere 3,000 people – don’t have anywhere near enough man-power, infrastructure or space to helm a large drilling and extraction operation (and neither do the islanders want to).

There’s a lot of room for Argentina and the UK to work together. Argentina would be the natural choice to land oil on the mainland. In this high priced energy environment, even a couple hundred thousand barrels a day of oil could plug a significant part of Argentina’s budget deficit. However, if the UK doesn’t see a good partner in Argentina, it could easily opt for Brazil as a viable alternative.

If it wants to capitalize on any oil windfall, Argentina needs to find another way to manage relations with England and its island neighbor.

- Ed Head