Argentina Raises Stakes in Falklands Oil Dispute

BUENOS AIRES (Dow Jones), Feb. 17, 2010

With oil drilling off the coast of the disputed Falkland Islands set to start this month, Argentina again increased the pressure, announcing that boats carrying goods to the South Atlantic islands controlled by the U.K. will need Argentina's permission first if they cross Argentine waters.

Argentina's president issued a decree Tuesday requiring any boat carrying goods to the U.K.'s Falkland, South Georgia and South Sandwich Islands to obtain the South American country's blessing before crossing any "waters under Argentina's jurisdiction," Cabinet Chief Anibal Fernandez said.

A permanent commission will be formed to implement the measures, Fernandez said. Getting permission is likely to cause difficulties for boats seeking to put in at Argentine ports before or after a stop by the Falkland Islands, which Argentina refers to as the Malvinas Islands.

The announcement follows Argentina's detention last week of a vessel it claims had illegally shipped drilling supplies to the Falklands in January.

That heightened tension in the spat over oil-exploration rights in the disputed South Atlantic waters.

The vessel, Thor Leader, owned by Denmark's Thor Shipping A/S, is being held at the Argentine port of Campana, where authorities are preventing its cargo of Argentine-made steel tubes from being shipped to customers in Egypt and the Mediterranean.

So far, the U.K. has tried to avoid stoking the dispute.

"It's a matter for Argentina how it applies its own laws in its territory. [The detention] is a commercial matter for the company involved," an embassy spokesman said.

Argentina, which lost a 1982 war with the U.K. over the islands, claims the Falklands and surrounding waters are under illegal U.K. occupation. About 650 Argentines were killed in the clash, while more than 250 U.K. soldiers lost their lives.

At a rally Tuesday, President Cristina Fernandez repeated Argentina's claims to the islands and her commitment to pressing the cause at the United Nations.

"We're going to continue to work tirelessly for your rights in the Malvinas," she told a crowd of supporters.

The U.K.'s plans to explore for oil and gas in the area have infuriated Argentine authorities, who say any companies exploring the waters without Argentine permission will be sanctioned.

But some question the timing of Argentina's decision to take a firm line against the proposed drilling.

As in many countries, this kind of conflict raises suspicions that the government is trying to divert attention from domestic problems, said political analyst Felipe Noguera.

President Fernandez has seen her public support dip to about 20% following a bruising conflict over taxes with farmers in 2008 and she now faces an opposition-controlled Congress for the first time after allies fared poorly in midterm elections last year.

Fernandez also has locked horns with opposition politicians over plans to use about $6.6 billion in Central Bank reserves for debt payments this year. Last month, she fired the head of the bank, Martin Redrado, after he dragged his feet in transferring the funds.

The new Central Bank Chief, Mercedes Marco del Pont, is an administration loyalist and expected to be more pliant, but a court order is blocking the transfer without congressional approval.

Meanwhile, companies are moving forward with their exploration plans.

Three U.K. companies, Desire Petroleum PLC (DES.LN), Rockhopper Exploration PLC (RKH.LN) and BHP Billiton PLC (BBL, BLT.LN), have launched drilling programs in the North Falklands Basin, with the first drilling rig expected to be in position by mid-February.

Analysts say as many as 60 billion barrels of high-grade oil could be found in the 200-square-mile economic zone surrounding the islands.

If confirmed, that could make the Falklands one of the world's largest oil reserves, comparable with the North Sea, which so far has produced about 40 billion barrels.

The U.K. and Argentina have overlapping claims around the Falklands and have clashed over territorial rights at the United Nations.

The U.K. wants to extend its rights to waters surrounding the islands and also wants to lock in a vast tract of seabed off the coast of Antarctica.

"The U.K. has no doubt about the sovereignty of the Falkland Islands and the surrounding maritime areas. It's clear that the hydrocarbons exploration is a legitimate business," the embassy spokesman said.

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