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Another Falklands Conflict? Argentina's Rhetoric Heats Up

Jen Alic
Thursday, 21 Feb 2013 | 12:24 PM ET
Argentinian Foreign Minister Hector Timerman leaves in a car from Britain's Houses of Parliament in London, on February 5, 2013.
Justin Tallis | AFP | Getty Images
Argentinian Foreign Minister Hector Timerman leaves in a car from Britain's Houses of Parliament in London, on February 5, 2013.

Next month will determine the eventual fate of the Falkland Islands—and the 1.4 billion barrels of oil so far discovered there—when a referendum on self-determination is held.

In the run-up to that referendum, Argentina has stepped up the rhetoric, most recently with the Argentine Foreign Minister claiming that within 20 years, the Falkland Islands will be entirely under Argentina's control.

U.K. Foreign Secretary William Hague has responded by calling this a counterproductive "fantasy". Hague says the government of Argentine President Cristina Fernandez de Kirchner has refused diplomatic dialogue and chosen instead a path of "bullying".

(Read More From OilPrice.com: The Real Reason Behind Argentina's Renewed Interest in the Falkland Islands)

"We shall never negotiate about the sovereignty of the islands, unless the islanders wish it," Hague said.

For now, the Falklands are a British Overseas Territory, but Argentina claims sovereignty over the islands, which it calls Las Malvinas. It's a rather long and complicated history that has seen the islands change hands numerous times, but first inhabited by the French back in 1764. In 1982, Britain and Argentina fought a 10-week war over the islands. One can argue all day about to whom the islands really belong, but that may not be what matters.

What's relevant is what today's inhabitants want.

The solution—which is not to Argentina's liking—is to hold a referendum and let the inhabitants of the islands engage in self-determination. If opinion polls are to be trusted hey will choose overwhelmingly to remain a British Overseas Territory.

More than anything, Argentina is using the islands as a way to raise national sentiments at a time when things are not so great at home on the economic front.

(Read More From OilPrice.com: Is Europe Next for a Shale Natural Gas Boom?)

And that's where the oil comes in. The renewed sovereignty frenzy over the Falkland Islands emerged in 2011 in the wake of a discovery of 1.4 billion barrels of oil in the North Falkland Basin, in Rockhopper Exploration's Sea Lion field. Overnight, the Falklands was billed as the next big energy hub, as well as a staging ground for a territorial war.

Argentina has threatened legal action against energy firms working in the Falkland Islands who are "stealing the natural resources of Argentina".

So far, Argentina's attempts to derail oil and gas exploration have not been successful. Exploration continues unabated, and the oil companies operating there have not even blinked. Indeed, Rockhopper Exploration has signed a $1 billion partnership deal with Premier Oil to pump from Sea Lion.

Territorial bickering aside, however, the Falkland Islands have been rather disappointing to the industry since the 2011 find. Since then, a much-anticipated four-well drilling frenzy in the South Falkland Basin has failed to turn up any more oil—only gas and condensate.

Hedging their bets that the South Falkland Basin would be as lucrative as Rockhopper's in the north, companies like Falkland Oil and Gas and Borders & Southern drilled a series of four wells, only to find zero commercial oil. Borders' Darwin well did hit an estimated 190 million barrels of condensate, which has just been declared commercially viable, but its second well, Stebbing, was eventually plugged and abandoned. Both of Falkland Oil and Gas' wells found gas, but the results are still being evaluated.

(Read More From OilPrice.com: Pollution Laws Threaten to Drop Britain into an Energy Crisis)

As for Argentina, for now this is all about rhetoric that is meant to be digested at home in order to score much-needed political points and to distract the population from the country's economic problems. It is not likely that Argentina is planning to take the disagreement to a level that would mean military conflict. The referendum next month will force Argentina to respond with even stronger rhetoric and more vivid threats, but barring a much worse economic situation at home that threatens the ruling power base, the situation seems unlikely to go beyond the current rhetoric.

Rockhopper and Premium will keep pumping, and Falkland Oil and Gas and Borders & Southern will continue exploratory drilling until they hit pay oil.

—This story originally appeared on Oilprice.com. Click here to read the original story.

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