Dispute Shows Argentina’s Lack of Oil Exploration

Feb 25, 2010 New York Times
RIO DE JANEIRO — The diplomatic jousting between Argentina and Britain over drilling for oil off the coast of the disputed Falkland Islands may be less about rubbing salt in old wounds than about exposing new ones of the Argentine government’s own making, political analysts and energy consultants said. Argentina’s failed war with the British over the Falklands in 1982 was a painful and embarrassing moment in Argentine history. Neither country has given up on its sovereignty claims, but a rig for a British company arrived off the Falklands this week to begin drilling.
The notion that Argentina could watch as British companies discover sizable oil deposits so close to its shores would be a crushing blow to a country already envious about the huge oil discoveries made in the past three years in neighboring Brazil.
But while the Argentine government has expressed outrage over the prospect, it has made little mention of a glaring absence the British endeavor has highlighted: 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.
In the last year alone, President Cristina Fernández de Kirchner’s 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.
“If you don’t have stable rules and prices that can make offshore investment profitable, then companies are going to go to other geological regions to explore,” said Daniel Montamat, an economist and energy consultant at Montamat y Asociados, an energy consultancy in Buenos Aires.
“There are very few companies exploring the Argentine sea,” he said. “There should be a lot more.”
Since the Falklands dispute flared up again this month, Mrs. Kirchner’s government has accused the British of violating Argentine sovereignty and threatened to make life tough for oil ships passing through Argentine waters. The Argentine foreign minister, Jorge Taiana, met Wednesday with Ban Ki-moon, the United Nations secretary general, to press Argentina’s case once again that Britain should be forced to sit down and negotiate sovereignty claims.
Argentina’s central complaint is that the British government does not have the right to unilaterally exploit resources in the “disputed” waters around the Falklands without first consulting or obtaining approval from Argentina’s government.
“Britain refuses even to answer the requests by the United Nations to sit down and discuss the issue,” said Lucio García del Solar, an Argentine diplomat. He said that by drilling off the Falklands, the British were in violation of a United Nations resolution requesting that the Argentines and the British refrain from any new resource development without first having a dialogue.
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.
Still, many analysts see the Kirchner government’s motivations as largely political. Mrs. Kirchner has struggled to reverse flagging popularity since a drawn-out conflict with farmers over export taxes. And her husband, Néstor Kirchner, who was president before her and leads the Peronist Party, suffered disappointing results in June’s congressional elections.
“With elections next year and a deteriorating fiscal situation, a call to the flag to defend the islands is part of the campaign to rally the Peronists and elect one of the Kirchners again,” said Riordan Roett, director of the Latin American Studies Program at Johns Hopkins University.
Argentina’s former military junta had a similar aim in 1982 when Lt. Gen. Leopoldo Galtieri provoked a bloody confrontation with Britain. The junta was being criticized for economic mismanagement and human rights abuses and hoped that the recovery of the islands, which were seized by Britain in 1833, would unite Argentines behind it.
That idea backfired when the British sent a fleet to retake the islands and prevailed in a 74-day war that resulted in the deaths of about 900 soldiers and civilians, including 649 Argentines.
The defeat turned many Argentines against the military government, hastening its fall from power. Since then, successive governments have insisted on keeping their sovereignty claims alive, though few expect Argentina’s saber rattling to lead to another military conflict.
Argentina has been producing oil for more than a century but has yet to find anywhere near the billions of barrels of oil that Brazil and its foreign partners have discovered around Rio de Janeiro since 2007.
A consortium of oil companies is scheduled to do seismic studies this year off the coast of southern Argentina and around Buenos Aires. But no rigs have been ordered and no dates for drilling have been set, said Alejandro Albanese, an energy expert at the Institute of Strategic Planning, a Buenos Aires research group.
While oil experts are skeptical that the small British-based company now drilling off the Falklands will find an undersea gusher, the discovery of any sizable reserve would be tough for the Argentines to swallow.
“This is a case of a lost girlfriend,” said Federico Mac Dougall, an economist and political analyst at the University of Belgrano in Buenos Aires, referring to the Falklands. “Argentina lost its girlfriend, and now she is going out with somebody else, and together they may very well strike it rich with oil.”
Alexei Barrionuevo reported from Rio de Janeiro, and Charles Newbery from Buenos Aires.