After Argentina’s footballers secured their place in the World Cup final by beating England, they controversially unfurled a banner bearing the message “Las Malvinas son Argentinas”, which translates to "the Falklands are Argentinian".
The remote British territory of the Falkland Islands is about to become a lot more valuable, after companies started construction on its first oilfield. But angry as Argentines may be over the islands, they have a lot more to win at home.
Argentina is rich in natural resources. Its very name comes from the Spanish word for “silver”. It was one of the wealthiest countries in the world in the years around 1900, surpassing even the US and Great Britain, based on exports of wool, beef and wheat. As late as 1962, its GDP per capita was higher than that of its former colonial ruler Spain, and Japan.
It has major lithium deposits in the north-west of the country, part of the “Lithium Triangle” that includes Bolivia and Chile, and is the world’s fifth largest miner of the key battery metal. It has big copper and silver reserves, but has progressed slowly in developing these.
Yet there is no VAR review to save countries from bad economic management. After Argentina's turn-of-the-century heyday, its economy deteriorated into a morass of protectionism, nationalisation and repeated bouts of high inflation and default on its debts. Populist and authoritarian military governments, wild oscillations from left to right and political instability deterred investors.
In 1958, the president at the time, Arturo Frondizi, launched the “oil battle” to make the nation self-sufficient in petroleum, partly by opening up to foreign investment. The only Argentinian president to have played professional football, Mr Frondizi was later a rare voice in opposing the invasion of the Falklands.
But his petroleum policy was very controversial, he was overthrown by a military coup in 1962 and his successor voided the contracts with international companies including Shell and Exxon. Foreign investment dried up, oil production dropped and the country was soon importing again.
The junta that seized power in 1976 ran state oil corporation YPF into the ground through corruption, mismanagement and excessive taxation. YPF was given a monopoly to supply the Falkland Islands with fuel through a 1971 agreement with the UK, and a proposal was made for joint oil exploration, as Britain tried to ease tensions with Buenos Aires over the territory.
Surveys in the late 1970s suggested the promise of petroleum around what Argentina calls the Malvinas. Britain was at that point basking in the successful exploration of the North Sea. Oil was one, though not the most crucial, factor in discussions with Buenos Aires over the future of the islands. But seeking a distraction from economic turmoil and human rights abuses at home, Argentina invaded in March 1982. Defeated by June, the junta collapsed.
Mr Frondizi’s cycle repeated itself a half-century later. President Carlos Menem privatised YPF in 1993 and Spanish energy company Repsol acquired it in 1999 for more than $15 billion. Price controls and government limits on exploration and exports made it unattractive for Repsol to invest in YPF and its output fell.
Complaining about this, the government of President Cristina Fernandez de Kirchner then renationalised YPF in 2012, triggering a major dispute in which Repsol was finally awarded $5 billion in compensation. But one of Repsol’s last acts as a YPF owner would be crucial for the nation’s future – in 2011, it found shale oil in the Vaca Muerta, a vast formation spreading across Neuquen province.
The “Dead Cow” has emerged as one of the world’s best unconventional oil and gas reservoirs. After slumping up until 2014, Argentinian gas output has now reached an all-time high. Oil has done even better: national production is up almost two and half times since 2017. At more than 1.4 million barrels per day, Argentina is the third-biggest producer in Latin America, and fast gaining on Mexico.
As the war rages again in the Gulf, and oil prices increase, this output is very welcome – to Argentina, which has become a significant net exporter for the first time since the early 2000s, and for the global market, hungry for alternative supplies.
This opportunity has attracted attention from the Gulf, too. In November, XRG, the international investment arm of Adnoc, signed up with YPF and Italy’s Eni to develop a liquefied natural gas export plant. Last month, XRG and Eni bought stakes from YPF in the Vaca Muerta itself. This is a chance for Adnoc both to practise shale development and to bring its own experience from the similar, slightly older, Diyab Formation of Abu Dhabi.
Still, the YPF saga continues. Argentina's President Javier Milei won a victory when a US appeals court ruled in March against former minority shareholders who had been seeking $16 billion in compensation. The libertarian leader strongly supports oil and gas development. He has had to shelve plans, though, to privatise the state corporation, yet again, after meeting political opposition.
Meanwhile, the Falklands’ tortuous road to oil may be nearing fulfilment. After unsuccessful exploration in the late 1990s, the first discovery, Sea Lion, was made in 2010 to the north of the islands. Low oil prices and changes of ownership held up development.
Finally, Navitas Petroleum, an Israeli company, now intends to begin production in 2028, reaching 50,000 barrels per day from about 500 million barrels of recoverable reserves. Other finds, including Zebedee, Liz and Isobel Deep near Sea Lion, and Darwin south of the Falklands, await development.
Progress at Sea Lion might catalyse further projects and exploration, especially with high oil and gas prices. The exclusive economic zone in the waters around the Falklands is huge – almost twice the area of the entire Arabian Gulf.
Sea Lion is not on the scale of the Vaca Muerta. But it will make the 3,465 islanders the wealthiest in petroleum revenue per person anywhere in the world. This outstrips even recent hotspot Guyana, or long-established small oil states such as Kuwait. Having reached the final whistle, the Falklanders will not want to lose their prize to a penalty shoot-out.
