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Cablegate: Argentina: Saber Rattling Over Oil Exploration in The

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RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFISS/DEPT OF JUSTICE WASHINGTON DC
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RUEATRS/DEPT OF TREASURY WASHINGTON DC
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C O R R E C T E D C O P Y - ADDED AMEMBASSY LONDON AS ADDITIONAL
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SIPDIS
DEPT OF ENERGY FOR MANOLIS PRIONIOTAKIS

E.O. 12958: DECL: 2020/02/04
TAGS: ECON EFIN PREL PGOV ENRG AR
SUBJECT: Argentina: Saber Rattling over Oil Exploration in the
Falklands

CLASSIFIED BY: Tom Kelly, DCM; REASON: 1.4(B), (D)

Summary

1. (C) This is the first in a series of cables which will address
the Argentine reaction to hydrocarbons-related activities in the
Falklands/Malvinas islands.


2. (C) The GoA is reportedly hardening its policy on the
Falkland/Malvinas Islands in response to accelerating oil
exploration efforts under British authority that lack Argentine
participation or consent. According to local press reports, the
Foreign Ministry has created a plan to press Argentina's historic
claim to the islands which involves expressing displeasure to the
UK, to any companies involved, and to the governments of the
companies' home countries. This could involve the USG, since an
American supplier is sending a drilling rig to the islands. These
steps follow a 2007 resolution which threatens to cut off the
Argentine operations of any oil company that operates in the
Falklands without GoA permission. British diplomats in Argentina
are not sure how far the GoA will take these threats, and do not
rule out an "irrational" response. At present, no U.S. energy
company operating in Argentina appears to be considering activity
in the Falklands. End Summary.


Keep Your Oil Equipment Away from Our Islands


3. (SBU) Argentine press reports on January 27 state that the
Argentine Foreign Ministry (MFA) has developed a plan to resist oil
exploration in the Falklands/Malvinas islands located to the east
of southern Argentina, a territory claimed by the Argentines and
the British, but controlled by the British. British firm Desire
Petroleum is reportedly moving a drilling rig to the area to drill
exploratory wells. The GoA plans to assert that "any hydrocarbons
operation in the Malvinas area linked to the UK is 'illegal'
because, by authorizing it, the UK government is assuming
competency in areas of the continental shelf which are subject to
Argentine jurisdiction and sovereignty." The GoA has reportedly
planned three courses of action: a formal protest to the UK;
sending "notes of discouragement" to each company involved in such
activities, advising them that their actions are "illegal" and they
could therefore face legal sanctions; and, in the case where
companies are not British, sending protest notes to the
corresponding government(s) signaling GoA concern over the
"illegal" activities and noting possible sanctions. The USG could
receive a note under the third category because the U.S. firm
Diamond Drilling owns a drilling rig en route to the islands (and
expected to be in place by mid-February).

4. (SBU) The above GoA policy would be consistent with Energy
Secretariat Resolution 407 issued in 2007, which threatens to
terminate the Argentine activities (including the cancellation of
all energy concessions) of any company that operates in the
Falklands area without express GoA permission. Energy analyst
Daniel Gerold sees little chance of GoA sanctions against companies
while the process remains in the exploration stage. However, in
the event of a significant hydrocarbons discovery (either petroleum
or natural gas, which he believes is more likely), Gerold foresees
the GoA making it "a major issue," as more companies become
involved in the extraction process -- and as the GoA perceives it
is missing out on a significant revenue stream.


What Next? Brits Concerned


5. (C) Argentina launched the first diplomatic shot across the
British bow on February 2; British diplomats in Argentina confirmed
to EconOff that the GoA delivered a formal protest to their ChargC)
that afternoon. UK political Officers Lynda St Cooke and Oliver
Moss (the latter a former Shell Oil employee) previously told
EconOff January 28 that, while such a protest was expected and
routine (they receive numerous Falklands-related communications


from the GoA each year), they were still concerned over where GoA
actions might lead. Their concern is over the shape of future
sanctions on companies as well as threats and protests against
energy companies operating in the Falklands by NGOs, including
environmental activists.


6. (C) On possible sanctions, St Cooke believes that the GoA will
seek to "make an example" of a company if possible, and she
wondered what would happen if the first company to cross the "line
in the sand" were one with significant activities in Argentina.
She cited Schlumberger as an example of a company which could
provide services for oil extraction in the Falklands, given its
extensive global operations, including within Argentina. She noted
that stopping its Argentine operations would be very detrimental to
Argentine hydrocarbons production. While pursuing such an action
would be "irrational" for the GoA, she said, "We can't rule it
out." She added that this is a very one-sided issue in Argentina.
Since there are virtually no advocates for relinquishing
Argentina's claim to the islands, which is taught as sacred writ to
Argentine children beginning in elementary school, there could be
significant political pressure on the GoA to take action in case of
an oil discovery. Gerold agreed and suggested that, following a
significant hydrocarbon find, the GoA would quickly seek to begin
operations in its (undisputed) Exclusive Economic Zone (EEZ) as
close as possible to the location of the find.


7. (SBU) U.S. companies currently operating in Argentina have not
indicated an interest to participate in current exploration
activities near the Falklands; Randy Smith, ExxonMobil's Public and
Government Affairs Manager, told Econoff January 29 that his
company is not interested..


Comment


8. (C) Although the budget-strapped Argentine military is
ill-prepared for any course of action involving projection of
power, the GoA would likely feel compelled by a significant
hydrocarbon find to press Argentina's historic claims by any other
possible means. A strategy of tough talk, complaints in
international fora, and protest letters is likely, with economic
sanctions against participating companies possible, even if they
might damage Argentina's own hydrocarbons output.
MARTINEZ

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