Oil and nationalism: the Falkland Islands briefing

AN OIL RIG, the Ocean Guardian, arrived in the Falklands in February after a three-month journey with its crew of 72, towed by tug to the South Atlantic from the Cromarty Firth in the north of Scotland. Each day of towing cost $245,000. Drilling has already begun.

Six companies registered in the UK and Australia, including Desire Petroleum, intend to use the rig to explore the North Falkland Basin – thought to be the most hopeful of the oil fields surrounding the islands. The exploration will go deeper than previous tests, in an attempt to establish the size of the reserves.

The news that the Ocean Guardian was on its way prompted immediate protests from Argentina, which has a territorial claim to the islands, known there as Las Malvinas. In 1982, Argentina invaded the islands in a surprise attack. Britain retook them in a short war that left 649 Argentine and 255 British servicemen dead.

Surely these islands should be given back to Argentina?That's certainly the opinion of Argentina's glamorous president, Cristina Fernandez de Kirchner. But the UK wouldn't be giving them "back": Argentina has never owned the islands, which were uninhabited until Europeans settled them in the 18th century. The first residents were French fisherman, with the British arriving in 1765 – some 55 years before Argentina existed as a nation. Britain and Spain then made various claims to the islands until 1833 when the British asserted their sovereignty.

And no-one is denying that the majority of the 3,140 islanders want to remain under British control. Jan Cheek, a member of the islands' ruling assembly, whose family has been in the Falklands for "eight or nine generations", wrote in the Guardian recently that Argentina's "claim to a territory 300 miles away is neither logical nor valid... Falklands inhabitants did not replace an indigenous population because there was none."

Kirchner says the UK's attitude is a relic of colonialism, and Argentina's claim to the islands certainly brings out Britain's flag-wavers – dividing the national press along its political fault line with the right-wing papers bullish and left less certain. The Falklands War was of course prosecuted by a Conservative government, but, as obituarists noted last week, it is often forgotten that the then Labour leader, Michael Foot, fully supported Mrs Thatcher.

Why are the fields only being drilled now?There was a flurry of oil exploration around the islands in the late 1990s. Six test wells were drilled in the North Falkland Basin, and five showed promising results. But that's as far as things went in 1998, when the cost of oil had fallen to an astonishing low of just $10 per barrel. With prices now fluctuating above $75 a barrel, the whole enterprise suddenly looks much more attractive.

Some observers have asked why Argentina has not set about exploiting its own, undisputed, oil reserves, with one theory being president Kirchner's uneasy relationship with big business. But, shortly after the Ocean Guardian arrived in February this year, a Spanish firm announced it will also start drilling at several sites off the coast of Argentina by December. Repsol said it would explore for oil "well within Argentine waters".

How much oil is there?The oft-quoted figure is 60bn barrels – but that's a figure which has been around for a long time and was recently described by one analyst as "mythical". In fact, nobody can be absolutely certain yet that the oil is there in commercially viable quantities, and the companies investing in exploration are gambling. Desire Petroleum now say they are looking at 3.5bn barrels – though in 2007 they were quoting 5bn to 6bn.

If there do turn out to be 3.5bn barrels available, that doesn't compare too favourably with the 267bn reserves claimed by Saudi Arabia - but it would certainly be more than enough to transform the lives of the 3,000 Falkland Islanders, who currently scratch a living from fishing, sheep farming and cruise ship visits.

In 2007, Desire told the BBC: "It could make the Falkland Islanders the richest people in the world per head of capita, much more so than in places like Dubai." The islanders have said they would like to use some of the money to pay for their own defence, an expense met currently by the UK taxpayer.

Are we heading into a second war over the islands?Most observers think war is unlikely. But, at a Latin American and Caribbean summit in Mexico last month, all 32 leaders supported Argentina's claims and condemned the plans to drill. Venezuelan president Hugo Chavez was particularly vocal, saying: "Queen of England I'm talking to you. Queen of England, the times of empires are over, didn't you hear?  Give the Falklands back to the Argentine people, Queen of England.

"The English continue to threaten Argentina but times have changed dear Queen - it is no longer 1982. If Argentina is attacked you can bet on it you will not be alone like it was before."

However, a recent poll in Argentina suggested that while 80 per cent of the population felt the issue was "important", only 3 per cent said it was worth going to war over it. Alongside the sabre-rattling, though, Argentina has taken some concrete steps.

Falkland Islander Jan Cheek says Argentina has: "threatened sanctions against companies holding licences to fish in Falklands waters and tried to exclude our representatives from participating at international conferences. It prevents charter flights from other South American countries flying to the islands, and is now attempting to disrupt our oil exploration by threats to hinder shipping."

Do any other countries support the UK?While Ronald Reagan was slow to support the UK's claim to the islands publicly in 1982, when he did, it was wholeheartedly. The current administration, by contrast, started out by affirming its neutrality, before Hillary Clinton weighed in at a joint press conference with Kirchner on a visit to Argentina earlier this month.

Sitting next to president Kirchner, the Secretary of State said the US supported Argentina's call for the UK to "sit down at the table and negotiate". As the UK position is that there is nothing to negotiate about, this hardly qualifies as "neutral".

There was nothing neutral either about a senior US official's February 25 use of the islands' Argentine name, Las Malvinas, at a press conference. Philip J Crowley's words prompted a formal protest to Washington by the UK government. ·