The Big Question: Could oil exploration of the Falklands lead to a renewal of hostilities?

Why are we asking this now?

Argentina has claimed sovereignty over the Falkland Islands for nearly two centuries, ever since it achieved independence from Spain in 1816, even though the Islas Malvinas, as they are known in Argentina, have been in British hands since 1833, and a British claim to them dates back to 1690.

In 1982 Argentina invaded the Falklands only to be driven out by a British task force, after a two-month war in which 649 Argentinian and 255 British lives were lost. In recent years relations have eased, and transport and economic ties between the islands and Argentina have, in part, normalised. But the basic dispute over sovereignty is as far from resolution as ever, and underlying tensions have never disappeared. This month they have flared up again, over British plans to begin drilling for oil in waters off the islands.



What exactly are the British doing?

The UK oil company Desire Petroleum has towed a rig, the Ocean Guardian, to a point in the North Falklands Basin, roughly 100 miles north of the islands, and drilling operations started yesterday morning. The first results should be available in a month. The site is within the Falklands territorial waters as established by Britain, but of course also in waters claimed by Argentina itself, on the basis of its assertion of sovereignty of the islands.



Exactly how much oil is at stake?

No one knows for sure. For more than a decade, the word has been that the Falklands are sitting on fabulous energy reserves. For oil, the headline estimate is colossal: some 60 billion barrels, equivalent to almost a quarter of the proven reserves of Saudi Arabia. In reality, only a fraction of that figure might be commercially recoverable, perhaps 3.5 billion barrels, according to Desire Petroleum, which says its six licence areas contain "excellent oil source rock".

Geological surveys also point to the presence of natural gas. Oil was actually discovered off the Falklands in 1998 by Royal Dutch Shell. Back then though, an oil price of $10 a barrel made commercial development unviable. Today a barrel costs almost $80 and seems bound to rise as the world economy pulls out of recession and global demand increases. Even if conservatively calculated, a significant find would thus have huge economic implications for the Falklands – and also, of course, for economically battered Argentina, if it could ever get its hands on the stuff.

How valuable are the Falklands, if you exclude oil?



Back in 1982, critics of the war argued that the islands were simply not worth the sacrifice of British and Argentine blood and treasure. The strategic value of the Falklands has diminished since the World Wars, when they commanded the naval route around Cape Horn. Their land area of 4,700 square miles is slightly less than that of Northern Ireland. The population is around 3,100 while GDP per head is put at slightly over US$30,000 (£19,000), implying total GDP of about $1bn. The terrain is mostly moorland, bare, hilly and windswept. Sheep-farming was long the mainstay of the economy.

In recent years fishing has become the most important contributor, followed by tourism. The Falklands are a major stop for Antarctic cruises, while the 1982 battlefields and cemeteries have also become an attraction. Obviously the arrival of big oil would change everything. But even without oil, for the Falklands as for Northern Ireland, politics and raw emotion outweigh most dispassionate economic calculations.



What do the Argentinians think of it all?

The official view from Buenos Aires is fundamentally the same as in 1982. Argentina believes that it automatically acquired sovereignty over the islands with independence from Spain, which had never relinquished its own claim to them. It rejects the bottom-line British assertion that sovereignty is for the local population to determine, on the grounds that today's Falklanders are not an aboriginal people, but in their overwhelming majority descendants of settlers from Britain, 8,000 miles away. Finally, the islands are on Argentina's continental shelf. Buenos Aires says its claim is therefore buttressed by the 1958 UN Cconvention on the Continental Shelf.



And unofficially what do they feel?

They are convinced that the Islas Malvinas belong to them, as a matter of natural right. But they are equally convinced that a military solution is out of the question – mainly because they know they have even less chance of winning than they did 28 years ago. Britain now has 1,076 troops stationed in the Falklands, as well as a four-vessel naval "deterrence" force that could be quickly augmented. In 1985, the UK opened the new, purpose-built Mount Pleasant air base, west of the capital Stanley, so that reinforcements could be brought in swiftly in any emergency. The Falklanders were now "properly protected", Gordon Brown said last week, and the Argentines seem inclined to believe him.



So how is Buenos Aires responding?

This month President Cristina Kirchner imposed a new law requiring permits for ships passing through Argentine waters – i.e. all the waters around the Falklands. The move has been condemned by both London and the islands' government. Given that Argentina does not want to provoke a military showdown, the step is unlikely to interfere with the oil exploration. But it could interfere with cruise traffic originating at the Argentine port of Ushuaia. In concrete terms however, that seems about it. Argentina would use "all legal means" to restrict access to the Falklands, says Victorio Taccetti, the deputy foreign minister, "but I don't think we can go much further."



And diplomatically?

Foreign minister Jorge Taiana is set to meet the UN secretary general Ban Ki-moon tomorrow to demand international action, while the dispute is being raised by Argentina at this week's summit of the Rio Group of Central and Latin American states in Cancun, Mexico. But the initiative is unlikely to get very far. No major external power, like the US or China, has shown any inclination to get involved. The loudest protest has come, predictably, from Venezuela's Hugo Chavez, who told Britain to "get out of there, and give the Malvinas back to the Argentine people. Enough already with empire."



What are the chances of that happening?

None. Since the war the two countries have re-established diplomatic relations and exchanged cordial official visits. In 1998 then president Carlos Menem came to London, where he met the Queen. Three years later, Tony Blair briefly visited Argentina. But no negotiations on sovereignty have taken place – nor will they, barring the quite inconceivable event that the Falklanders, since 1983 full British citizens, themselves, decide they would prefer their tiny outpost of Mother England to become part of Argentina. In 2009 Mr Brown informed Ms Kirchner that there was "nothing to discuss" on the sovereignty issue. With a general election in the offing, and a Conservative victory on the cards, that attitude won't change, oil or no oil.

Can Argentina do anything to stop Britain drilling in Falklands waters?

Yes

*While it may not wish war, Argentina can stop British ships moving through its waters



*It could tie up British claims in the courts through challenges on the precise limits of territorial waters



*It may demand a share of any oil that appears to cross into its seabed territory

No

*Britain has a clear right to exploit any reserves of oil or gas found in Falklands territorial waters



*The presence of British troops on the island and ships around it makes Argentine military action unlikely



*Having lost one war against Britain, and without UN support, there is little that Argentina can do

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