The Argentina Oil Conflict: Why it’s not the Next Brazil

The recent diplomatic battle between Argentina and Britain over drilling for oil off the coast of the Falkland Islands/ Malvinas has opened wounds nearly three decades old for many Argentines. Political analysts and energy consultants also claim that post-war sentiments isn’t the only reason for Argentina’s troubles, and that perhaps many problems may be the country’s government’s own making.

While many Argentines feel embarrassed over the failed war with the British over the Falklands/ Malvinas in 1982, and consequently feel embarrassment over Britain’s claim of ownership over the oil, it appears that many are resigned to the situation. Argentina is already envious of Brazil’s huge oil discoveries over the past three years, and this is just another blow to the country’s spirit. An October poll by Ibaro metro consultancy found about 80% of respondents thought Argentina’s claim on the islands was important.

Argentina’s leftist President Cristina Kirchner has denounced Britain before the U.N. and other international forums, and diplomatic tensions between the two countries have risen to perhaps the highest level since the war. Although anger has been expressed, neither President Kirchner nor any other government representative has mentioned that no oil-drilling rigs are operating in Argentina’s own expansive waters, largely because many oil companies are wary of working in Argentina these days, analysts say. Furthermore, neither country has given up on its sovereignty claims, and a rig for a British company arrived off the Falklands/ Malvinas this week to begin drilling.

Polls show Argentines weary of Mrs. Kirchner’s autocratic style and populist economic policies. In the last year alone, her government has nationalized the country’s largest airline, seized billions of dollars in private pension funds and now is trying to tap more than $6.5 billion in currency reserves to pay long-overdue foreign debt. Argentina also has a system of export taxes that has kept domestic oil prices low, and that has dissuaded some of the larger oil companies from investing in offshore exploration.

Energy consultants say that because Argentina doesn’t have stable rules and prices that make offshore investment profitable, companies are exploring other geological regions. Analysts agree that there are very few companies exploring the Argentine sea, and that there should be a lot more.

President Kirchner’s government has claimed the British have violated Argentine sovereignty and threatened to make life tough for oil ships passing through Argentine waters. Argentina also complains the British government does not have the right to unilaterally exploit resources in the “disputed” waters around the Falklands/ Malvinas without first consulting or obtaining approval from Argentina’s government.

Its neighbors have defended Argentina’s claims. President Luiz Inácio Lula da Silva of Brazil criticized the United Nations on Tuesday for not forcing the British to negotiate.

Argentina has been producing oil for more than a century but has not found anywhere near the billions of barrels of oil that Brazil and its foreign partners have discovered around Rio de Janeiro since 2007. Brazil has become an huge economic power, partly due to the recent oil discoveries, and mostly in part to it’s government’s policies.

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