Who owns the Falklands?

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Shares in British petroleum company Desire Petroleum fell by about half their value last month, when the company announced that its latest search for oil in the Falkland Islands had been fairly unsuccessful.

A statement posted on the company’s website noted that the quality of the reservoir at the Liz 14/19-1 well was “poor.” A few weeks ago, Desire abandoned the Liz well.

The news will be disappointing for investors, but it’s an ironic twist to a long running dispute as to who actually owns the Falklands.

History of the Falklands

Situated about 300 miles (480 kilometers) off the coast of Argentina, the islands were first settled in the mid-1700s by various French, British and Spanish explorers.

The three settled separate communities, but had all left again by the early 1800s following a series of wars and some economic difficulties.

Departure, however, didn’t mean that Britain and Spain had given up their claim to the territory – both left plaques on the islands asserting their ownership.

In the 1820s the Argentineans turned up and created a settlement in 1832. The British returned to reassert their ownership claim in 1833, and the two nations have been fighting for the Falklands ever since (including a famous 73 day war in 1982 which Britain won).

Argentina claims the Falklands are a “disputed territory”, and it has regularly registered its protests with the UN’s decolonisation committee. In March this year, it stirred up more tension by calling for a UN review on the ownership rights of what it calls the “Islas Malvinas.”

But Britain claims the Falklands are called the Falklands and they are still British. They say they have enjoyed uninterrupted ownership for the last one hundred years, and that there is a British ethnic majority on the islands.

The tension between the two nations has never quite eased, and has heightened now that oil is involved.

What’s the big deal?

In 1998 Royal Dutch Shell discovered oil off the Falklands. At the time, the price of oil wasn’t high enough to make it commercially sensible to drill. But since then, the price of oil has skyrocketed.

At the moment, the Falklands’ biggest industries are squid fishing and tourism (mainly cruise ships). But if significant amounts of oil and gas are discovered within the sea floor, the Falklands’ natural resources may become the islands’ most valuable source of income.

No one knows exactly how much oil and gas the sea floor could have – the Liz well was the first to be drilled in a decade.

But when it began to drill, Desire suggested there could be 3.5 billion barrels of oil within the Falklands’ waters. Others have suggested it could be closer to 60 billion barrels.

Whatever the case, the Argentineans are adamant that the Islas Malvinas and its natural resources belong to Argentina, and have begun to take action to protect those resources.

Earlier this year the Argentinean president, Cristina Fernandez de Kirchner, declared that all ships travelling through Argentinean waters between Argentina and the Falklands must now have a permit, making drilling in the area much more difficult for foreign companies.

The bigger issue

In February, the US refused to support Britain’s claim of ownership over the Falklands. It also declined to take a position on whether or not the British oil exploration there is legal under international law (the Argentines say it isn’t).

The ownership issue is one of national pride for Argentina, but it has a wider importance. At a meeting of the Rio Group in Cancun in February this year, 32 Latin American nations backed Argentina’s claim to ownership over the Falklands.

They say Britain’s actions are a form of neo-colonialism. Others see the fight as a warm up for a larger scrap between former colonial powers over resources off Antarctica and South America's Atlantic coast.

In the meantime, the oil companies keep drilling. A second oil company, Rockhopper, has plans to drill two more wells in the Falklands this year. This time though, investors probably won’t be as quick to jump on board the treasure hunt.

By Natalya King

Photo – Stanley, the capital of the Falkland Islands