The Round Table

The Commonwealth Journal of International Affairs

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Oil and the Falklands/Malvinas: oil companies,

governments and Islanders

Grace Livingstone

To cite this article: Grace Livingstone (2022) Oil and the Falklands/Malvinas: oil
companies, governments and Islanders, The Round Table, 111:1, 91-103, DOI:
10.1080/00358533.2022.2037235

To link to this article: https://doi.org/10.1080/00358533.2022.2037235

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Published online: 15 Mar 2022.

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THE ROUND TABLE
2022, VOL. 111, NO. 1, 91–103
https://doi.org/10.1080/00358533.2022.2037235

Oil and the Falklands/Malvinas: oil companies, governments

and Islanders
Grace Livingstone
Affiliated Lecturer, Centre of Latin American Studies, University of Cambridge

ABSTRACT KEYWORDS
This article demonstrates that oil has been a factor in British policy Oil; Falkland Islands;
towards the Falkland Islands since the 1970s. It charts the changing Argentina; oil companies;
perspectives of oil companies and considers how these have Malvinas; hydrocarbons
informed British policy. Multinational companies have shown vary­
ing degrees of interest in exploring for oil around the Islands, but
have remained wary of operating in a region with a contested legal
status. The article also considers the attitudes of Islanders towards
oil exploration. It analyses the contribution of oil to the local
economy today and its potential impact on the local population
and the environment.

Introduction
‘The oil in the Argentine continental shelf belongs to the 40 million Argentines’, declared
Daniel Filmus, the Argentine minister for Malvinas affairs in 2015, launching legal action
against five small companies exploring for oil around the Falkland Islands (Telam, 2015).
‘It is important to defend our energy sovereignty’, reiterated the Argentine energy minister
in July 2021, announcing sanctions on three more companies, which had invested in
exploration around the islands (Argentina.gob.ar, 2021). The sanctions that would have
prohibited the companies from operating in Argentina for up to 20 years prompted two of
the firms to pull out from the Falklands exploration deals shortly afterwards (Ámbito,
2021). In the same year, two much larger British multinationals – BP and Shell – bought
licences from the Buenos Aires government to prospect for oil off the Argentine coast. This
led the left-wing politician Omar Latini to denounce the Argentine President Alberto
Fernández for not being tough enough on oil companies: ‘We must denounce the
systematic plundering of our natural resources by . . . capitalist octopuses, even more so
when the sovereignty of the Malvinas is at stake’ (Nuevo Día, 2019).
Oil has long been an emotive factor in the sovereignty dispute. Many Argentine academics,
as well as politicians and journalists, argue that Britain retains sovereignty over the Falkland
Islands for economic and geopolitical reasons, including a desire to control potential oil
reserves in the waters around the islands (e.g., Bernal, 2011; Borón & Faúndez, 1989; Del
Corro, 2013: Gustafson, 1988; Moro, 2005; Silenzi de Stagni, 1983; Vargas et al., 2006).
Scholars from other Latin American countries have also emphasised extractivism,

CONTACT Grace Livingstone gl340@cam.ac.uk

This article has been republished online with minor adjustments.
© 2022 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.
This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives License
(http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits non-commercial re-use, distribution, and reproduction in any med­
ium, provided the original work is properly cited, and is not altered, transformed, or built upon in any way.
92 G. LIVINGSTONE

hydrocarbons and strategic resources (Chubrétovich, 1987; Moniz Bandeira, 2012; Vidigal,
2014). In contrast, most British historians dismiss the suggestion that Britain is motivated by
a desire for oil, highlighting instead the UK government’s commitment to the Falkland
Islanders (e.g., Anderson, 2002; Boyce, 2005; Freedman, 2005; Hastings & Jenkins, 2010).
Interestingly, however, geographers have taken a different stance; Klaus Dodds and Matthew
Benwell have mapped Britain’s strategic interests in the South Atlantic and Antarctica, whilst
anthropologist James Blair has characterised Argentine, British and Falklands Islands
Government scientific research projects as the assertion of rival geopolitical imaginaries
(Blair, 2019; Dodds, 2002; Dodds & Benwell, 2010).
Declassified British Cabinet minutes and Prime Ministerial and Foreign and
Commonwealth Office (FCO) papers indicate that domestic political concerns –
fear of a public outcry and a parliamentary revolt if Britain abandoned the
Islanders – were uppermost in ministers’ minds when they considered the sover­
eignty of the Falklands before the 1982 conflict (Livingstone, 2018). However,
government documents also suggest that oil has been a factor in the British
government’s calculations both before and since the conflict. This article is based
not only on FCO, cabinet and prime ministerial papers but also on those of the
Department of Energy (DofE) and the Treasury, which are rarely referenced in
works on the Falklands. Within government, different departments have shown
varying degrees of enthusiasm for exploiting Falklands oil, and this article explores
these inter-departmental differences. It also charts the changing perspectives of oil
companies and considers how these have informed British policy towards the
Falklands. As the Argentine retaliatory measures outlined above show, all oil
companies have to weigh up the potential risks of investing in an area whose
sovereignty is contested; these risks include not only the threat of legal action but
also the high costs of deep-water exploration without logistical or infrastructural
support from mainland South America plus the potential loss of business across
Latin America. This article also considers the changing attitudes of Islanders
towards oil exploration. Using Falkland Islands Government and oil press sources,
it analyses the contribution of oil to the local economy today and considers its
potential impact on the local population and the environment.
In previous work, I have presented detailed archival evidence demonstrating that
in the pre-1982 period, at every stage of the sovereignty negotiations with Argentina,
ministers and officials assessed how any possible deal might affect British access to
the potential oil deposits (Livingstone, 2018). In the present article, I will outline the
different phases of the UK’s policy on Falklands oil before 1982, explaining how the
perspectives of oil companies affected British policy. I will then analyse government
policy for the period 1982–1991, using newly released government papers, showing
that inter-departmental differences continued but that ministers agreed that the
British exchequer should receive the lion’s share of tax revenues from any oil
found in Falklands waters.
 THE ROUND TABLE 93

Before the 1982 Falklands War

Oil companies began asking the FCO for licences to explore the waters around the Falkland
Islands in the late 1960s. The British government commissioned a geological survey of the
area in 1971, which found that the prospects were ‘sufficiently promising to encourage further
commercial exploration’ (Griffiths et al., 1975). A former BP chief geologist analysed the data
for ministers in 1975 and reported that some areas were ‘decidedly promising’ (Kent, 1975).
In 1976, the government also commissioned Labour peer Lord Shackleton to carry out
a survey of the economic prospects of the islands. Before the Falklands war, Britain believed
that it would be too provocative to attempt unilateral oil prospecting around the islands
because it was engaged in a series of negotiations with Argentina over the future of the
islands. Instead, Britain envisaged that joint UK-Argentine exploration of oil deposits would
be part of any agreement. In 1975, Harold Wilson’s government proposed to Argentina talks
on jointly exploring for oil. But Buenos Aires would not agree to a dialogue that did not
include the subject of sovereignty of the islands. The Wilson government then approved, in
principle, a policy of leaseback in 1976, although it did not get as far as proposing this to
Argentina. Leaseback entailed transferring the sovereignty of the islands to Argentina, which
would then lease them back to Britain for a long period of time. Margaret Thatcher’s
government went on to start discussions with Argentina about leaseback in 1980. Both
governments envisaged leaseback as involving UK-Argentine joint oil exploration.

Protecting Britain’s rights to the oil

Although the British government was proposing co-operation with Argentina, it vigorously
defended the UK’s claim to potential hydrocarbon resources in the area. When Argentina
commissioned two US companies to carry out seismic surveys of the waters off the
Argentine coast in early 1977, the British Government was concerned that the surveys
would cross the – unofficial – median line in the sea between Argentina and the Falkland
Islands. ‘The worst thing would be to do nothing’, a DofE official wrote, as this could lead to
‘our giving up without so much as a whisper the title to any oil which might lie beneath the
sea outside the 200 metres line’ (Brown, 1977). Concerned that inaction could also weaken
Britain’s sovereignty claim, the FCO instructed its chargé d’affaires in Buenos Aires to
deliver a formal protest to the Argentine Government in May 1977 (FCO telegram, 1977).
Another example of Britain’s determination to preserve its rights to the oil came in 1981
when Argentina auctioned licences to explore for oil off its coast. The British government
lodged a formal protest with Argentina and placed adverts in the media warning oil
corporations that the tender area went over the median line. An FCO official wrote: ‘We
must maintain that any oil in the Falkland Islands continental shelf is British, without
specifying whether we mean HMG [Her Majesty’s Government] or Falkland Islands have
the right to exploit it. The important point is that it is ours not Argentine’ (Smith, 1981).

Oil companies and British policy

Within government, the Department of Energy (DofE) was the strongest advocate of
defending Britain’s rights to potential oil reserves in the Falklands. The department had
regular contact with British oil companies, and as well as asserting the rights of the British
94 G. LIVINGSTONE

state over future resources, it acted as the voice of the corporate oil lobby within
government. As early as 1975, the DofE wrote to the FCO saying: ‘Our ministers are
very interested in the possibility of exploiting offshore oil around the Falkland Islands’
(Lindley, 1975).
The perspective of British oil companies changed during the period 1970–1982 and
two distinct phases can be identified. Before 1979, oil companies were eager to start
surveying and exploring the waters around the Falkland Islands. Interest in Falklands oil
was fuelled by the sharp rise in international oil prices following the oil embargo by Arab
countries in 1973–1974. The DofE was therefore keen to secure a rapid agreement with
Argentina to start joint oil exploration – although it determined that, if a co-operation
agreement was signed, Britain should get the maximum possible benefit from the
exploration, production and refining of oil. Several small companies contacted the
government to enquire about the possibility of exploring Falklands oil during the
1970s, but officials worked most closely with BP, a company in which the British
government had a majority shareholding. Small firms wanted immediate exploration
licences but big players like BP, concerned about legal aspects of the sovereignty dispute,
favoured joint oil exploration. Accompanied by DofE officials, BP executives visited
Buenos Aires in late 1976, where they met the Argentine military government’s energy
minister and Argentine oil company executives (Forrest, 1976). BP representatives also
met Argentine energy secretary Daniel Brunella when he visited London in 1977. Keen to
start UK-Argentine operations in the South Atlantic, BP met twice with FCO officials in
early 1977. But joint exploration between Argentine and UK companies was impossible
without a political settlement.
During Margaret Thatcher’s first administration there was a subtle change in the
demands of oil companies and the DofE. This was partly because the Thatcher
government came closer to signing a leaseback agreement than any previous adminis­
tration, prompting officials in the DofE, Treasury and Cabinet Office to advocate
caution to ensure that Britain did not sign away its rights to oil and other resources.
Moreover, the outlook of large British oil companies changed. BP, which had lobbied
hard to begin exploration work during the 1970s, became less enthusiastic after viewing
the geological survey data, which became available in 1979 (Harding, 1979; Record of
Meeting with BP, 1981). The data appeared to show that the most promising areas were
around the shores of Argentina, rather than the Falklands. Shell and Esso, for example,
bought licences from Argentina to prospect offshore between 1979 and 1982.
Furthermore, the technology needed to access many of the deep-water hydrocarbon
deposits around the Falklands would not be available for 10 to 15 years. Finally, BP was
heavily involved in developing North Sea oil so, although it did not rule out exploring
Falklands waters in the future, it did not regard it as an immediate priority. Smaller
companies, however, continued to lobby hard for immediate access to Falklands waters,
and the British National Oil Corporation (BNOC), a state-owned company established
in 1975, spent £250,000 purchasing geological survey data. BNOC officials met repre­
sentatives of the state-owned Argentina oil company YPF in Buenos Aires to discuss
joint exploration in 1979, but although keen to pursue Falklands oil prospects, it
concluded that it would need at least 10 years before it had the capacity to operate
overseas as a leading player (FCO telegram, 1979; Record of Meeting with BNOC, 1981;
Reidy, 1978a, 1978b).
 THE ROUND TABLE 95

The DofE therefore called for a cautious and gradual approach to the leaseback
negotiations in the Thatcher years to ensure that Britain did not give up its rights to
any potential oil deposits. When Foreign Secretary Lord Carrington proposed a leaseback
deal in late 1979, for example, the secretary of state for energy, David Howell, wrote to
prime minister Thatcher saying: ‘We ought to be very careful about adopting a course
which could lead to British oil companies losing a favourable position they might
otherwise have had’ (Howell, 1979). Howell warned that if sovereignty was transferred,
‘it could also involve a substantial loss to the British economy if oil were found’.
Chancellor of the Exchequer Geoffrey Howe agreed that the costs and benefits are needed
to be examined, whilst Sir Kenneth Berrill, head of the Cabinet Office’s Central Policy
Review Staff, said that the terms of any agreement should be studied carefully because
Buenos Aires would want to see ‘the benefits of any oil discoveries going to the Argentine,
rather than to the Falkland Islands and United Kingdom companies’ (Berrill, 1979;
Howe, 1979). Carrington outlined Britain’s objectives in the sovereignty dispute to
ministers in 1979. These included the need ‘to ensure that the UK derives advantage
from economic resources of the area, possibly oil and certainly fish’ (DOP, 1979). As talks
with Argentina progressed, Howell wrote to Carrington again, in February 1980, to press
the point that Britain should defend its oil rights: ‘I hope . . . you will not lose sight of
retaining, if at all possible, access for the UK to any oil or gas which might be found in
Falkland Island waters’ (Howell, 1980).

Oil since 1982

After the 1982 conflict, the Falklands Islands Government, for the first time, auctioned oil
exploration licences unilaterally. However, this step was not taken until 1996 and only
after considerable debate within the British government. Large multinational companies
have remained wary about operating in a disputed area, but Islanders themselves have
become more enthusiastic about the potential for oil to provide long-term economic
stability.
Just four months after Britain’s military victory, energy secretary Nigel Lawson wrote
to the foreign secretary suggesting a survey to evaluate the hydrocarbon potential of the
area (Lawson, 1982). Over the next four years, the DofE lobbied within government for
a seismic survey around the Falklands, whilst the Foreign Office took a more cautious
stance, believing that such a move would be regarded as ‘highly provocative’ by Argentina
(Westbrook, 1983). The sensitivity of the issue was illustrated by Argentina’s protest to
the UN Secretary General at the Falkland Islands Government’s issuing of an onshore
exploration licence to the small British company, Firstland Oil and Gas PLC, in July 1984.
This was the only oil exploration licence issued by the Falkland Islands Government
before 1996. Almost no exploratory work took place as a result of this licence and to date
no onshore oil has been found (Luxton, 2022).
On 29 October 1986, the British government unilaterally declared a 150 nautical mile
Interim Conservation and Management Zone (FICZ) around the Falkland Islands. The
main reason for declaring this zone – which became effective on 1 February 1987– was to
enable the Falklands to start issuing fishing licences in the seas around the Falklands.
Since that date, revenues from fishing licences have been the main source of income for
the Falkland Islands Government. As part of the October 1986 declaration, the British
96 G. LIVINGSTONE

Government also asserted its rights to the continental shelf around the Falkland Islands,
extending to a distance of 200 nautical miles or to ‘such other limit prescribed by the rules
of international law, including those concerning the delimitation of maritime distance
between neighbours’ (Declaration on the Conservation of Fish Stocks and on Maritime
Jurisdiction around the Falkland Islands, 1986). By stating its claim to the continental
shelf, Britain was asserting its rights over potential oil deposits and other natural
resources in the waters around the Falklands, paving the way for possible exploitation
of these resources in the future.

Who benefits from oil?

In October 1989, Britain and Argentina announced a ‘Formula for Sovereignty’ in a joint
declaration in Madrid in which the two countries agreed to put aside temporarily the
question of sovereignty and instead try to cooperate on a range of practical economic,
scientific and humanitarian issues. Diplomatic relations were restored in 1990. This led to
renewed interest from survey companies in licences to evaluate the hydrocarbon prospects
in the area. The Falkland Islands Government had long been keen to start exploring for oil,
and the British government also wanted to know the extent of the potential oil reserves
around the Islands. In 1991, the Falkland Islands Government (FIG) sought to revise its
minerals legislation to allow for offshore exploration. In order to make this possible, it
asked the British government to extend its jurisdiction over the Continental Shelf to the
full limit permissible under law. Whilst debating within government whether to extend the
UK’s jurisdiction over the continental shelf, Treasury officials were adamant that if oil
were found, ‘the bulk of the tax revenues should flow to HMG and not FIG’ (Parramore,
1991). Chancellor Norman Lamont wrote to the Foreign Secretary saying:
I have no doubt that in the event of a major oil find, tax revenues should accrue to the UK
Exchequer. That seems to me only equitable given the very substantial financial as well as
other sacrifices that the UK has made . . . to secure the freedom of the Falkland Islands
(Lamont, 1991).

Ministers therefore agreed to issue a proclamation extending the limits of the Falkland
Islands continental shelf but decided to change the Falkland Islands Government’s draft
mineral legislation to allow them only to issue licences for surveying, not yet for
exploratory drilling or exploitation (Baker-Bates, 1991; Hurd, 1991a). This would ensure
that the British government could claim the lion’s share of oil revenues, if a large
discovery was made. A briefing paper approved by ministers belonging to the Overseas
and Policy Defence (OPD) committee stated:
If oil were to be found in commercially recoverable quantities, HMG should have ultimate
control of the licensing procedure and should take such measures as are necessary to ensure
that HMG can secure access to a substantial share of the concomitant revenues (‘Oil and the
Falkland Islands’, 1991).

It added:
By not revealing now what would happen now to any revenue obtained from oil, HMG
could avoid any criticism over revenue sharing arrangements at least until it became clear
that there would be sizable revenues to share (‘Oil and the Falkland Islands’, 1991).
 THE ROUND TABLE 97

The paper posed the question: ‘Should the Falkland Islanders be the exclusive benefici­
aries of what might be a comparatively enormous amount of wealth?’ (‘Oil and the
Falkland Islands’, 1991). By taking a two-stage approach, ministers hoped to gauge
Argentine and international reaction to surveys before going ahead with oil drilling or
oil production and to assess the extent of the oil reserves in the South Atlantic before
deciding whether it was worth demanding a share in them. The paper concluded: ‘We
should only seek access to oil-related revenues when it is clear that the financial benefits
will outweigh the political difficulties’ (‘Oil and the Falkland Islands’, 1991).
On 22 November 1991, the Governor of the Falkland Islands, instructed by UK
ministers, issued a proclamation, which provided for the British Crown’s rights over
the sea bed and subsoil of the Falkland Islands continental shelf, extending to a maximum
of 200 nautical miles or to such other limits prescribed by international law, including
those concerning the delimitation of maritime jurisdiction between neighbours. Britain
did not define the boundary with Argentina.
This proclamation was made less than two years after Britain had agreed to work more
closely with Argentina under the sovereignty umbrella. Whilst officials were discussing
the draft OPD paper, the British ambassador to Buenos Aires, the Defence Secretary and
the Treasury expressed concern that the unilateral move could anger Argentina and
provoke tension (King, 1991; Maud, 1991; Williams, 1991). Over the next few months,
Foreign Office ministers and officials discussed measures – described in FCO papers as
‘fig leaves’ and ‘sweeteners’ – that might placate Argentina and avoid a souring of
relations or retaliation (Beamish, 1991; Glass, 1991). These measures included delaying
the timing of the announcement until after upcoming Argentine elections, offering to
share technical data with Argentina and offering to discuss possible joint future coopera­
tion around the putative median line between Argentina and the Falkland Islands. An
official noted ‘on substance we have nothing to offer the Argentines . . . This means that
there is a premium on presentation and timing’ (Beamish, 1991).
During this period of the ‘sovereignty umbrella’, Britain and Argentina wanted to
maintain good relations. Foreign Secretary Douglas Hurd suggested to Prime Minister
John Major that Argentina might be willing ‘to work with us so as to minimise the extent
to which our actions appear as unilateral moves’ (Hurd, 1991a). Argentina was at that
time preparing its own legislation to define the baselines of Argentine territory. When
Hurd met his Argentine counterpart Guido di Tella in September 1991, they agreed that
the two countries would enact their legislation simultaneously to convey ‘an impression
of equilibrium’. Di Tella and Hurd also agreed to discuss ‘what other cooperation on the
oil issue might realistically be possible’ (Hurd, 1991b).
The British government was adamant that it was entitled to claim the continental shelf
and unilaterally approve oil surveying. Whilst its immediate focus had been on short-
term presentational measures to avert an adverse reaction from Argentina, it did not rule
out more substantial cooperation with Argentina in the future. The OPD paper recom­
mended that whilst the surveying took place, Britain should ‘see whether some form of
cooperation with Argentina over oil proves to be necessary and possible in the light of
Argentina’s reaction to the continental shelf’ (‘Oil and the Falkland Islands’, 1991). This
fitted Britain’s two-stage strategy of first determining the size of the oil reserves around
the Falklands and then deciding how to proceed based on the likely revenues, the views of
the Islanders, the reaction of Argentina and that of the international community.
98 G. LIVINGSTONE

Following an agreement on fisheries in 1990 in which both countries agreed to work

together on monitoring and maintaining fish stocks in the South Atlantic, Britain and
Argentina did indeed sign a Joint Declaration on Oil in 1995. This included provisions
for joint exploration and exploitation of hydrocarbons in an Area of Special Cooperation
covering 21,000 km2 around the putative median point between Argentine and Falklands
waters. A Joint Commission was created to oversee exploration, but very little progress
was made and no joint oil exploration took place.
With the support of the British government, the Falkland Islands Government went
on to unilaterally auction licences to explore the waters in other parts of the 200-mile
zone around the islands in 1996, a move that led to a deterioration of relations with
Argentina. Seven production licences were awarded to 14 companies, including Shell,
Hess, Lasmo and Lundin, in the North Falkland Basin (www.falklands-oil.com, 2022).
The licences covered 48 blocks (some 12,800 km2). No Argentine companies took part in
the bidding. A drilling campaign began in 1998, and six exploratory wells were drilled.
Following the 1998 international oil price slump, several operators, including Shell,
relinquished or sold on their licences.
Since the Falkland Islands Government began to auction oil production licences in
1996, all revenues to date have accrued to the Falklands government not to the British
exchequer (Luxton, 2021). The issuing of production licences still requires the ultimate
approval of the British Foreign Secretary, but to date, that minister has never overturned
a decision on oil licencing made by the Falklands government. British government's
internal documents for the period since 1991 have not yet been opened, so it is not clear
whether ministers made a final decision on who benefits from Falklands oil, or whether
they have so far taken the view that, given that no enormous oil reserves have been found,̶
the financial benefits of seeking a share of revenues do not outweigh the political
difficulties.

Rising tensions with Argentina

The Argentine president Néstor Kirchner, who came to office in 2003, ended the
sovereignty umbrella agreement of 1989. The UK-Argentine hydrocarbons agreement
of 1995, which had been ineffective for many years, was formally rescinded in 2007. The
Falklands government continued to auction exploration licences, despite opposition
from Argentina. Following the sale of several licences, two drilling campaigns were
launched, one in 2010–2012 and another in 2015. The drilling heightened tensions
with Argentina and South American nations; in December 2011, the member states of
the South American trading bloc, Mercosur (Argentina, Brazil, Uruguay and Paraguay)
agreed to close their ports to vessels flying the Falkland Islands’ flag. From an Argentine
perspective, Britain is a former colonial power staking claim to hundreds of miles of
a distant ocean and exhausting the natural resources within it. Latin American economies
since colonial times have been suppliers of primary commodities to richer nations, so the
question of resource extraction has particular historical sensitivity. Whilst the auction of
fishing licences has caused tension with Argentina, hydrocarbon exploration has trig­
gered particular anger because oil – unlike fish – is a non-renewable resource. The
Argentine government, as well as some legal commentators, considers oil exploration
unlawful, as the depletion of natural resources is a permanent and irrevocable change to
 THE ROUND TABLE 99

the environment, contravening UN resolutions to refrain from unilaterally modifying the

situation in the Falklands or taking action that could aggravate the sovereignty dispute
(Ruzza, 2011).
All the exploration and production licences sold by the Falklands government since
1998 have been bought by small and medium-sized oil companies such as Desire
Petroleum, Falklands Oil and Gas (FOGL), Rockhopper and Borders & Southern. In
2007, the multinational BHP Billiton bought a 40% stake in 14 of FOGL’s exploration and
production licences and became the designated operator, but the company withdrew
from the agreement in 2010 (BHP, 2019). Large multinational oil companies have
remained wary of drilling in a disputed area.

Oil exploration in the Falklands today

The areas of oil exploration in the ocean around the Falklands are split into three main
zones: the North Basin, the South Basin and the East Basin. Since 2010, a number of
moderate discoveries have been announced, all located in the North Basin. The largest of
these is the Sea Lion oil field, which is estimated to hold the equivalent of 1.7 billion
barrels of oil, of which about 580 million barrels are thought to be recoverable
(Rockhopper, 2021). (For comparison purposes, more than 60 billion barrels have been
extracted from the North Sea since the 1960s.) Plans to start producing oil from Sea Lion
have been delayed several times. In 2020, the medium-sized US oil company, Premier
Oil, suspended a project to get Sea Lion on stream because of the low international oil
price and the COVID-related global economic downturn. The following year, the
company, now merged with Harbour Oil, pulled out of the project altogether.
Although press releases and newspaper headlines during the drilling campaigns sug­
gested that the discoveries could herald an oil bonanza, production of oil had not started
on any of the Falkland sites by 2022. The low global oil price, the turn to fracking in the
United States and the growing interest in renewables, in addition to the sovereignty
dispute with Argentina, have made companies unwilling to take the risk. Rockhopper
Petroleum, a tiny British oil and gas exploration company founded in 2004 with a cash
balance of only US$17 million in 2019, now holds by far the biggest share of Falklands oil
fields (Rockhopper Exploration PLC, 2019). In 2022, it controlled 30% of the Sea Lion
project and had a 30% stake in two other smaller potential oil fields in the North Basin.
Rockhopper also owns 100% of the rights to the South and East Basin exploration zones
after other companies relinquished their rights (Rockhopper, 2021).

Islander views on oil

Despite the difficulties, Falkland Islanders have come to regard oil as a potential source of
economic security. Oil was not a key issue for the residents of the islands before the
Falklands War. During Anglo-Argentine negotiations in 1981, two Islanders, accompa­
nied by FCO minister Nicolas Ridley, met Argentine officials in New York. The
Argentine ambassador promised the Islanders various benefits, if sovereignty was trans­
ferred, but Falkland Islands Councillor Stuart Wallace told the Argentine delegation that
the Islanders ‘were primarily concerned with the structure of their way of life; that came
before any economic benefit’ (FCO Record, 1981). The UK-based Falkland Islands
100 G. LIVINGSTONE

Committee, however, did lobby in favour of oil exploration. This was partly because it
had links with the Falkland Islands Company and other private firms, which would
benefit from increased economic activity in and around the islands. But the committee
also highlighted – and exaggerated – the economic potential of the islands in an effort to
win political support in Britain, adding a masthead to its note-paper reading: ‘the
Falklands Islands: the new North Sea’ (Bright, 1980).
Since the Falklands War, support amongst Islanders for developing an oil industry has
grown. Governor Rex Hunt was a strong advocate of oil exploration during the 1980s
(FCO Summary of Meeting, 1984). Falkland Islands councillors are also keen proponents
of developing the oil industry; speaking in 2012, Mike Summers, a member of the
Falklands elected legislative assembly (2011–2017), indicated that revenue from oil
could make the islands economically self-sufficient, enabling Islanders to pay for their
own defence – a cost that is currently covered by the British government (Summers,
2012). Islanders are nevertheless aware that oil could dramatically transform their way of
life. Each drilling campaign has entailed an influx of temporary workers onto the islands.
A study commissioned by the Falklands government estimates that if the Sea Lion field
does start pumping oil, the population of the islands could rise sharply to 4,000 by 2035,
compared with the 2,834 residents recorded in the 2016 census (FIG, 2019). Whilst
Islanders are broadly in favour of developing the oil industry, surveys by the Falklands
government, show that they favour ‘sustainable and measured growth’ (FIG, 2017). There
is also growing awareness of the environmental risks to the fragile and unique ecosystem,
which is home to elephant seals, sea lions and tens of thousands of seabirds. Oil pollution
could not only jeopardise the islands’ most important source of revenue, fishing, but also
the potential for eco-tourism. Moreover, in the context of climate change, it should be
considered whether drilling for oil is consistent with COP26 goals.

Brexit and declining fish stocks

Nevertheless, in the context of Brexit and apparently declining fish stocks, oil presents an
attractive potential alternative source of revenue to Islanders. Fish accounted for over
90% of Falklands exports in 2019 and fishing licence fees are the biggest single source of
government revenues (OEC, 2022; FIG, 2018). The average annual fishing catch was 17%
lower in 2011–2020 than in 1989–1999 (FIG Fishery Statistics, 2020, p. 2015; FIG Fishery
Statistics 2005).
Brexit also poses a serious problem for the Falklands. Europe is by far the biggest
market for its exports, but the islands were excluded from the EU-UK Brexit trade deal.
Before Brexit, almost 90% of Falkland Islands fish exports were destined for the European
Union (EU), entering through the port of Vigo in Spain. With Brexit, fish exports faced
the imposition of tariffs of between six and 18%. In 2021, the EU and UK negotiated
a partial deal for zero-tariff access for Falklands loligo squid (calamari), the islands’ most
important export, but this tariff-free access only applied to 20% of the loligo squid that
the Falklands sells to Europe (Penguin News, 2022).
 THE ROUND TABLE 101

But the prospect of oil replacing fishery products as the mainstay of the Falklands
economy in the short term is doubtful. Revenues from oil prospecting have so far been
extremely erratic, reflecting the surges of investment during the drilling campaigns,
followed by falls when the risks and costs of developing discoveries are analysed. Oil
and gas exploration, along with other mining and quarrying activities, contributed only
0.8% to the Falklands Islands GDP in 2007; this soared to 20% during the 2015 oil drilling
campaign but fell back to 0.4% by 2018 (FIG, 2014, 2020).

Conclusion
Oil has never been the most important factor in the Falklands dispute for the British
Government or the Islanders, but it has always played a role in Britain’s calculations.
Before the war, at every stage of the negotiations with Argentina, ministers and officials
considered how any possible agreement might affect Britain’s access to potential oil
reserves. Since the 1982 conflict, Britain has supported the unilateral exploration of oil.
Large multinational companies, however, remain reluctant to take on the economic, legal
and technical difficulties of operating in an area under legal dispute. For this reason, the
British Government continues to advocate Argentine-UK economic cooperation, with
the possibility of joint oil exploration, under a ‘sovereignty umbrella’. However, the idea
of exploiting the oil around the islands with Britain, whilst not discussing sovereignty,
remains anathema to Argentina. Islanders, meanwhile, believe oil has the potential to
secure their economic future, but they know it also poses risks. Exploration has already
exacerbated diplomatic tensions. Demographic growth and the construction of an oil-
infrastructure could dramatically change the Islanders’ way of life, whilst the extraction
and transportation of South Atlantic oil could threaten the Falklands’ fragile and unique
eco-system.

Disclosure statement
No potential conflict of interest was reported by the author(s).

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