100 Economics Question of the Day: An Intermittent Blog: What does this have to do with the price of oil? Everything.

Tuesday, August 08, 2006

What does this have to do with the price of oil? Everything.

It took me until reading Jenny Diski's Skating to Antarctica (and, iirc, reviewing Sage Walker's Whiteout around the same time) to realize why control of The Malvinas is of singular import to the British. (The 1982 war is remembered primarily two things: that one of the queen's sons served, and for the crack British programming that identified three incoming Exocet missiles as friendly; note the newspaper headline in this video for a flavor of the times.)

The treaty that prevented drilling in Antarctica expired in 2003. The nearest land mass to the continent—and therefore the place you most want to use for storage and/or processing of Antarctic crude—is the Malvinas.

Journalists who didn't mention that in 1982 might be forgiven, but those reporting on the islands now have little excuse. Which is why this:
It seems an unlikely scrap of land to squabble over. Treeless, remote, and blasted by the full fury of the South Atlantic, the Falkland Islands are home to less than 3,000 people, and thrilling only to those who love nature, big winds, and spectacular isolation.

is the type of disingenuous reporting I would expect from The Washington Times, not the Christian Science Monitor.

This is one of the times when the Economic Way of Thinking would make it clear there is a gap in the argument:
Britain says that as long as the islanders want to remain part of Britain there can be no question of ceding sovereignty, despite the annual £100 million ($191 million) bill of keeping 1,200 soldiers on the islands.

It is only near the end that the reporters examine the ROI, and only the current ROI at that:
The economic potential of the islands has not been lost on Argentina. It has repeatedly protested to Britain about oil prospecting and fishing activities in the waters around the islands. The fisheries, professionally run, have proved so lucrative in fact that several Falklanders have become millionaires in recent years. In response, the Argentines have strongly criticized the Falklands government for extending commercial fishing permits from one to 25 years.

This isn't generating anywhere near the 100MM quid in tax revenues referenced above, though. The economic reason to control the Malvinas is, quite simply, the option on Antarctic drilling.

(Cross-posted from Marginal Utility)

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