Return to the Falklands/Malvinas?

By Daniel Kerner and Willis Sparks

Remember when Britain and Argentina went to war over a handful of hard-scrabble islands with little to recommend them but two thousand windblown people and a few million penguins? In 1833, Britain seized and begun occupying what it called the Falklands, a set of islands just 350 miles off Argentina’s coast and about 8,000 miles from London. Argentines, who refer to them as Islas Malvinas, have demanded their return ever since.

In April 1982, General Leopoldo Galtieri’s military government announced that Argentina had finally claimed ownership of the islands. Prime Minister Margaret Thatcher insisted that they still belonged to Britain. To rally the Argentine people to a military junta blamed for large-scale human right abuses and a floundering domestic economy-and convinced that Thatcher would let the islands go rather than fight for them, Galtieri ordered an amphibious invasion. The British navy arrived and quickly forced an Argentine surrender.

The war lasted 74 days and killed 255 British and 649 Argentine troops — along with three local residents. The Argentine government was soon forced from power, and Thatcher rode a surge of patriotic pride to a landslide re-election the following year.

Though Argentina withdrew, it has never surrendered its legal claim on the islands; ownership is enshrined in the country’s constitution. The Falklands have experienced an economic boom in recent years, thanks to the revenue generated by increased exports of squid. But for most people outside Argentina and Britain, the war represents little more than a curious footnote of naval history. 

Until last weekend.

On Sunday, a British-based oil company, Desire Petroleum, began drilling for oil in the northern basin of the islands. The news has provoked sharply rising tensions between a lame duck government in Britain, where the 1982 war remains a point of pride, and a struggling government in Argentina, where hard feelings over the conflict remain alive and well. Both governments face critical elections — Britain later this year and Argentina in 2011.

Faced with few real options, the Argentine government tried to pre-empt the British exploration with a decree on February 16 that all ships moving to and from the islands that use Argentine ports or pass through Argentine waters must have a permit. Cristina Fernandez de Kirchner’s government is now tightening the diplomatic screws on Britain, mainly by working to win broad support for its position from across Latin America. Other British oil companies are expected to explore the area soon.

Exploration will continue for the next few months. Local officials in the Falklands government claim there could be as many as 60 billion barrels in reserves beneath the basin, but some experts are skeptical. It’s not yet clear that oil deposits near the islands contain enough accessible oil to make further investment worthwhile. Tensions will likely subside in coming weeks, and no one envisions a sequel to a war that killed nearly 1000 people. The Argentine government has said publicly that armed conflict is not an option, and the Argentina public is highly unlikely to support one.

But what if local officials are right about size of the oil reserves? What if there is much more oil there than some experts think? If two governments fighting for their political lives at home will go to war over islands famous only for their penguins, what might they do to secure billions of barrels of oil?

Daniel Kerner is a Latin America analyst at Eurasia Group, and Willis Sparks is an analyst in the firm’s Global Macro practice.