The Falklands: Oil and Argentina

From 1833, the UK has exerted rule over the Falkland Islands with neighboring Argentina asserting territorial claims to the 'Islas Malvinas'. With the 32nd anniversary of Argentina's unsuccessful efforts to 'reclaim' the islands by force, this April has seen the UK and Argentina remember the Falklands war of 1982. Arguably a motivational issue to Argentina's efforts, it has been speculated for some decades now that oil exists in the offshore areas around the islands.

Sharpening antagonism between the UK and Argentina, the Falkland Islands Government gave the go ahead in the late 2000s for oil companies to investigate the sea bed of the Falkland's waters. Oil giants such as BP and Chevron are however not expected to take part in exploration and extraction in the foreseeable future. This has therefore opened the way for smaller oil companies to make headway, with Premier Oil said to be the closest to extracting oil.

Aware of this prospect, President Kirchner, around the time of her election in 2007, halted all talks with the UK and Falkland Islands Governments over resources. Further indicating her view of the situation, she made it a criminal offence to support the Falkland's oil industry within Argentina. In response the UK government has taken a hard line with the Argentine Government and President Kirchner, toughening diplomatic rhetoric with the country.

Earlier this year Argentina's President Kirchner retaliated by creating a Secretariat for the Malvinas to pursue Argentina's 'rights and interests' around the island. Should the Falklands successfully utilize their natural resources, commentators predict the islands could become the new 'Norway' of the world. With a population of around 3000 and an estimated $167 billion in oil revenues, the Falkland Islands could indeed see their GDP per capita rise significantly in the next few decades.

It is easy to see what oil could do for the islands. The roads are unpaved outside the capital Stanley and there is only one commercial flight to the islands per week which is frequently obstructed over Argentine airspace. With the greater investment and tax revenues the prospect of oil brings, so does the prospect of population growth.

Michael Poole, Member of the Falklands Legislative Assembly, pointed out at last week's FOTBOT reception that the islands could see a population increase of 10% or above, due to essential workers migrating to the island. That percentage means an increase of only 300 but with the current small population of around 3000, that is quite a rapid change for the islands.

There are also obstacles to overcome in terms of investment. There are disputes between the Falkland Islands Government and the oil companies over who will pay for the deepwater port to aid in exploration of the waters. In addition, Premier's shareholders are worried about the potential $4 billion that it will cost to get the 'first oil' which is expected to be extracted in 2018. To finance their operations, Premier are also seeking to sell a 30% stake in their project and have yet to find a partner.

The next few decades will be an exciting and challenging time for the Falklands. The arguments will undoubtedly continue with Argentina over sovereignty, with the UK continuing to support the overseas territory through defense and diplomatic means. So long as the oil is found, the problems of investment and capital will be swept away as the market will seek to cash in on the 1.4 billion barrels of oil believed to be there. On a visit to the islands some months ago, UK Foreign Office Minister Hugo Swire summed up what many islanders are thinking. “No, we very much hope that people won't be scared off...I think once we know there is oil and gas here, it is just a question of making it happen.”