The two nations face their biggest diplomatic dispute since their 1982 war
The Falklands War may have begun and ended in 1982, but for Argentina a new battle is beginning – for the islands’ oil.
While the South American country has long used Britain’s control of the tiny islands to distract voters from its economic and political woes, the discovery of substantial oil resources in the waters around the islands has changed and intensified the debate.
Geological surveys suggest that the seas around the Falklands contain not one but several potential large oil fields.
One called Sea Lion – the most studied to date – could contain up to 1.7 billion barrels of oil, according to test drilling and seismic surveys. This is larger than anything remaining in UK waters.
The Sea Lion field lies 136 miles north of the Falklands under about 500m of water and another 2,000m of rock, making it relatively easy to access using modern drilling techniques.
That means billions of dollars could go to whichever countries or companies control that oil. And those riches could be just the start – surveys already suggest several more major fields could lie south-east of the islands.
Right now, control lies with Rockhopper Exploration, a small British company, and Navitas, an Israeli company listed on the Tel Aviv stock exchange.
Rockhopper – which spotted the potential around the Falklands many years ago – holds a share of just over a third in eight key licences covering the Sea Lion field. It had to hand over the rest to Navitas in return for providing the development capital.
Some of the money made by Navitas and Rockhopper will go to the islands themselves, with hopes of a windfall equivalent to £1m per islander.
The rest of the profits will head north to the shareholders of Rockhopper and Navitas. None of it will reach Argentina.
That’s a situation that infuriates Javier Milei, Argentina’s president, who has turned the claim to the islands into a personal issue – even though they lie a minimum of 300 miles from the Argentine coast.
Tensions have escalated as profits from the oil have become more apparent.
Last year, Navitas signed contracts to move the Aoka Mizu floating production vessel from Shetland to the Falklands, with plans to drill up to 23 wells and produce 55,000 barrels of crude oil daily in the first stages of the development.
Early reports suggested about 791 million barrels of oil could be recovered, but that was upgraded to 917 million barrels last year – twice the annual output of the entire North Sea.
That upgrade prompted Navitas to bring in a second, much larger production ship. Last week it announced it had acquired the OSX1 vessel for $125m (£92m), which would produce 125,000 barrels a day.
In reality, Britain does not control the Falklands – nor its oil policy.
The Falklands, an archipelago of two large islands – East Falkland and West Falkland – plus nearly 800 smaller ones – are a British Overseas Territory.
It means they are an independent democracy with the UK responsible mainly for their defence. Britain has overseen them since 1833, apart from the brief spell during the 1982 war.
Islanders have voted overwhelmingly to keep that link with Britain, with 1,513 of 1,517 votes cast in a 2013 referendum in favour of remaining an overseas territory. But they have shown their independence on energy policy.
The Falklands rejected the Government’s request to ratify the Paris Agreement on climate change, where countries commit to cutting their fossil fuel emissions to keep global temperature rises below 1.5C.
In 2024, they also voted to embrace oil development. The Falkland Islands government will take a 9pc royalty on revenues plus 26pc corporation tax on profits.
These announcements have been followed by a surge in Argentine sabre-rattling. Milei explicitly warned the UK that his administration will defend Argentina’s territorial claim “tooth and nail”.
And he was backed by Donald Trump, who warned that his administration was actively reviewing the traditional, officially neutral US position on the sovereignty of the Falkland Islands.
The apparently co-ordinated moves raised suspicions that Trump and Milei are thinking of future deals over the Falklands oil.
For now, Ed Miliband, Britain’s new Foreign Secretary, is standing firm. “The islanders’ right to self-determination is paramount,” his office said.
It means the future of the Falklands and their oil has become one of the few issues where most UK politicians agree – up to a point.
The growing tension does put Miliband in an awkward position of defending a new oil field development when, in his last job as energy secretary, he did his best to permanently block those in the North Sea.
Andrew Bowie, the UK’s shadow energy secretary, said Argentina’s claims must be rejected – but pointed to the contradiction in Labour supporting oil developments in the Falklands while suppressing the North Sea.
“The Falkland Islands are British. The biggest irony here is that the British Government is allowing the Falklands to exploit the vast natural resources at their fingertips, in British territory in the South Atlantic whilst strangling the oil and gas industry in the North Sea.
“Of course it’s right that the Falklands should be able to benefit from the riches they have in their waters – I just wish the British Government would allow our domestic industry to do the same.”