The Falklands Once Again Show Argentina is Neither High-Flying, Nor Adored
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The nine-nation Castro-inspired, Chavez-led Bolivarian Alliance for the Peoples of our America (popularly known by its Spanish acronym ALBA) is missing one member. As it turns out, their fellow traveler Argentina (birthplace of Che Guevara), is currently too much of a freak even for the ALBAnians. Although, Chavez has been using Argentina's tantrum over the Falkland Islands (Las Malvinas to the tango-inclined) to bring about Latin American unity, it seems for all the bark, the arrangements have little bite.
Under President Cristina Fernandez, it appears Buenos Aires has decided to stay true to its historic on-again-off-again affair with economic reality, and is sitting out this decade – and maybe preparing to replay 1982. At Argentina's urging, all of the ALBA nations (except mighty Antigua & Barbuda) along with the slightly less irrelevant Mercosur talk shop have issued "solidarity" declarations barring from their ports, "any vessel flying the Malvinas [Falklands] flag." The 25 fishing vessels that are currently flagged Falklands are mostly jointly operated with Spanish companies and are likely to re-flag as British whenever it suits them.
However, the recent announcement by the UK's Premier Oil (LSE: PMO) to partner with Rockhopper Exploration (LSE: RKH) and sink $1 billion into an oil field off the Falkland Islands may be the casus belli Fernandez needs to distract from her amazing domestic failures (even by Argentine standards). With shades of Maradona, the controversial ad featuring an Argentine Olympic athlete training in the Falklands and proclaiming, "To compete on English soil, we train on Argentine soil," is hopefully just popular jingoism. (Although the 3,000 Falklanders, all essentially British, don't think so.) Hopefully winning some gold in London will release some of the tension instead of igniting a Patagonian Soccer War.
At the moment, Argentina may have over played its hand by issuing statements and threatening legal action against Premier, Rockhopper, and others involved in South Atlantic oil operations like Argos Resources (LSE: ARG) and Desire Petroleum (LSE: DES). While it appears none of these UK companies have any assets in Argentina, Fernandez's request to other Latin American states to help Argentina deal with "illicit" activities of these corporations (the exploring and drilling for oil in the Falklands exclusive economic zone) have created some concerns (and may be setting a dangerous precedent). However, as the drama plays out, it seems that Argentina has over reached as its attempt to extract lists of Falklands assets from Uruguayan banks was brushed aside by officials in Montevideo keen to keep their sterling reputation (as a popular "tax haven" according to former French President Nicolas Sarkozy). Moreover, Punta del Este authorities' refusal to let a Falklands-flagged vessel dock was gesture enough for Uruguay which does not want to jeopardize its position as the Spanish fishing industry's preferred base of operations in the South Atlantic.
Moreover, even with full cooperation from Latin American states, it is unlikely Argentina could make much of an impact on the "illicit" companies. Only Premier has operations outside of the British Commonwealth – and China's encroachments on their Vietnamese operations in the South China Sea are far more concerning. Argentine foreign ministry's threats to tattle on Premier's "clandestine" activities and "erroneous" reporting to the New York and London stock exchanges have barely elicited a yawn from Premier representatives.
Possibly the only one immediately impacted by this celebration of the 30th anniversary of the Falklands War is Britain's BAE Systems (NASDAQOTH: BAESY.PK). As the world's second largest military contractor, the tightening of arms export licenses for Argentina is unlikely to dent their bottom line and is more likely to result in a delay in shipments rather than any long-term cancellations. (Though it is possible Israel will step up and fulfill its old role supplying Argentina via third parties when the British refuse.)
Of greater importance, but probably less likely to materialize, is the $70 million the UK claims Argentina still owes from the late 1970s (mostly for the arms it sold to Argentina prior to the Falklands invasion – though in Buenos Aires' defense the majority of those weapons were used against its own citizens in acts of state terror, "worse than Pinochet's.") As with Premier in Southeast Asia, BAE is more likely to have greater problems with the political fall out from its more substantial sales of weapons to Indoneisa, whose past record of state terror against its own citizens is worse than all of South America's record combined.
Regardless, Argentina is unlikely to make substantial traction in its quest for the Malvinas unless it gives companies like Brazil's Petrobras a stake in its claims. Even then, the oil reserves in the Falklands are far from proven, and ultimately the gains in the Malvinas for a state like Brazil are less significant than other joint activities with the United Kingdom in the Falklands or elsewhere.
Ultimately, Fernandez would have a better chance at wooing the islanders (assuming that is her real goal) if Argentina were a more attractive state to join, but historic and recent behaviors make a peaceful union unlikely.
Nick Slepko has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.