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DE RUEHBU #0095/01 0482240
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O R 172240Z FEB 10
FM AMEMBASSY BUENOS AIRES
TO RUEHC/SECSTATE WASHDC IMMEDIATE 0538
INFO MERCOSUR COLLECTIVE
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RHMFISS/DEPT OF JUSTICE WASHINGTON DC
RHMFISS/HQ USSOUTHCOM MIAMI FL
RUEAIIA/CIA WASHINGTON DC
RUEHLO/AMEMBASSY LONDON 0029
RUEKJCS/SECDEF WASHINGTON DC
RULSJGA/DEPT OF TRANSPORTATION WASHINGTON DC

C O N F I D E N T I A L BUENOS AIRES 000095

SIPDIS
NOFORN
OES FOR EVAN BLOOM AND HAROLD TAYLOR
DEPT OF ENERGY FOR MANOLIS PRIONIOTAKIS

E.O. 12958: DECL: 2020/02/17
TAGS: ECON PHSA PBTS EFIN PREL ENRG AR
SUBJECT: Falklands/Malvinas: GoA Requires Permission for Ships to
Travel to the Islands

REF: Buenos Aires 0118; Buenos Aires 0071

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

Summary


¶1. (C) The GoA issued a decree on February 16 requiring ships to
obtain GoA permission before sailing from Argentina or through
Argentine waters to reach the Falkland/Malvinas Islands. Argentine
President Fernandez de Kirchner sought to justify the decree based
on UN resolutions. The decree is intended to discourage oil
exploration in territorial waters of the islands. British
diplomats in Argentina are seeking to calm the waters, but note
that Argentina has sent warning letters to companies currently
involved in such exploration. They think that there is a real
possibility that the GoA might place sanctions against these
companies, even if Argentine economic interests might be harmed in
the process. While it is unclear to what extent U.S. companies may
be affected, one target may be U.S. tour operators for Southern
Cone and Antarctica cruises that include a stop at the islands.
The British strategy is to let CFK score political points now and
wait for the issue to fade away as the public debate shifts to more
pressing domestic issues. End Summary.



Argentina Requires Ships to Request Permission to Travel to
Falklands/Malvinas



¶2. (SBU) On February 16, Cabinet Chief Anibal Fernandez announced
that President Cristina Fernandez de Kirchner (CFK) had that day
signed a new decree (Executive Order equivalent) requiring ships to
obtain GoA permission to sail from Argentina or through Argentine
waters to the Falklands/Malvinas and other South Atlantic islands
claimed by Argentina, or before loading cargo destined for them.
According to a GoA press release, it "establishes the requirement
for (GoA) permission to navigate between the Argentine continental
territory and the Malvinas, South Georgia and South Sandwich
Islands." Anibal Fernandez will head a commission (which will
include representatives from the Ministries of Foreign Affairs,
Planning, Industry and Tourism, Economy and Justice) to oversee
implementation of the decree.



¶3. (SBU) At a public event later in the day, CFK explained that
"all ships that are headed to Puerto Argentino (i.e., Port Stanley)
must request authorization from Argentina, whatever their reason
for going." She justified this new requirement, arguing that
"there are numerous UN resolutions which request and require both
countries (i.e., Argentina and the U.K.) to renew talks to reach an
agreement on sovereignty (of the islands), and resolutions which
say that neither party can take unilateral actions." She added
that "these resolutions have been systematically ignored by the
United Kingdom, which refuses to discuss the matter," and that "the
U.K. refuses to sit at the table to discuss it as the UN orders."
She stated that she would raise the issue at the Rio Group summit
meeting to be held next week in Playa del Carmen, MC)xico.



The Reason: To Raise the Cost of Doing Business in the Islands



¶4. (SBU) Numerous press reports cited anonymous government sources
with more detailed justifications and explanations of intent.
Leading daily Clarin's source stated that "The ships that go (to
the Falklands to support oil drilling) should know that they won't
get any assistance in Argentine ports." Pro-government daily
Pagina 12's source in the MFA went further, claiming that the goal
was "to make the exploration process more expensive" and thus
discourage firms from operating there. Foreign Minister Taiana, in
a closed-door session with CFK-aligned congressmen, reportedly


repeated that last argument, while also expressing the hope that
companies would choose instead to conduct similar activities in
nearby (undisputed) Argentine waters. Another MFA source told
pro-government Pagina 12 that "last Friday, the Financial Times
reported that stock prices (of Desire Petroleum, the British
company leading the exploration efforts) were falling. That is
what our sanctions aim for, always through peaceful and legal
means, so that the risk factor that every petroleum company
(operating in the Islands) faces is increasingly higher."



¶5. (C) While the decree has yet to be published in its entirety,
the GoA may have already begun to enforce it. A British-flagged
ship, the "Thor Leader," was detained in a port north of Buenos
Aires on February 11 (it arrived at the port February 4) based on
allegations that it had delivered equipment related to the oil
exploration activity to Port Stanley prior to stopping in
Argentina. (Initial reports quoted GoA sources accusing Argentine
oil tubing manufacturer Techint of shipping its goods to the
Islands on board the Thor Leader. The company quickly denied those
claims, stating that the goods to be loaded on the ship were
destined for various customers in the Mediterranean. The
accusations against Techint have not been repeated in the past few
days, but the ship remains detained.) Local press cited the
Financial Times as the source for the information that the ship was
owned by Desire Petroleum, and attributed the drop in Desire's
stock price to the detention. However, other press reports state
that the justification for the detention was a resolution issued in
2007 (see Ref B) which threatens to shut down the Argentine
operations of any oil company that operates in the Falklands
without GoA permission.



UK Expects Continued GoA Moves to Discourage Oil & Gas Exploration
Off Falklands



¶6. (C) British diplomats in Argentina are concerned about how far
the GoA will take this matter, and are therefore seeking to
downplay the situation as much as possible. British Ambassador
Shan Morgan told DCM February 16 that the British strategy is to be
quiet and patient in the hope that the situation blows over, but
adding that London was "jumpy" over the issue. A British Embassy
source quoted by multiple dailies has followed that tack, stating
that "Argentina applies its own laws in its own territory,"
suggesting that this regulation was strictly a domestic Argentine
issue. (Several newspapers said that the quote was in response to
a question about the British-flagged Thor Leader, suggesting that
the UK is not making the detention a bilateral issue.) However,
the source is quoted as adding that "The U.K. has no doubt over its
sovereignty in the Falklands and its maritime waters, and is
convinced that the petroleum exploration is a completely legitimate
activity." Morgan noted her belief that the Kirchners were fanning
the flames in an effort to score political points domestically, a
point underscored in the Argentine press as well.



¶7. (C) British DCM Simon Thomas told EconCouns on February 11 that
the GoA had, as widely reported in the press, formally delivered to
him (as ChargC) d'Affaires) on February 2 a protest over
hydrocarbons exploration activity in the Falklands/Malvinas Islands
territorial waters that was expected to begin in mid-to-late
February. He downplayed the protest, calling it similar to many
their mission has received previously. Thomas was surprised to
learn that the USG had not yet received any similar protest,
despite the fact that the drilling rig contracted by Desire
Petroleum to do the drilling in the Falklands/Malvinas is owned and
operated by a major U.S. drilling firm, Diamond Offshore Drilling.
(British Ambassador Morgan also raised this point with DCM, saying
she has been told by London that U.S. companies had been warned by
the GoA to not participate in the project. She asked us to confirm
that the USG is not/not aware of such approaches, either to U.S.


companies or to the USG itself.)



¶8. (C) British diplomats also told EconCouns that several companies
involved in the planned exploration had received warning letters
from the GoA threatening to cancel (or prevent) their operations in
Argentina if they participate in the Falklands/Malvinas exploration
without GoA permission. In addition to Desire Petroleum, these
include Danish shipping giant Maersk, which is towing the rig to
the planned drilling site. The British believe that the intent of
the letters is to pressure companies into dropping all
Falklands-related activity; they did not rule out GoA sanctions
against these companies for continuing Falkland-related activities,
even if such action would also damage the Argentine economy.
Maersk, in particular, handles approximately 20% of Argentina's
foreign shipping, including an estimated 50% of Argentina's soy
exports, the country's top export commodity and a critically
important source of export tax revenues for the GoA.



¶9. (SBU) There have also been press reports claiming that
British-owned Barclay's Bank, the lead bank working on behalf of
the GoA on the proposed debt restructuring agreement to resolve the
problem of the "holdouts" from the earlier 2005 debt swap (Ref A),
is the single largest shareholder in Desire, with about 4.5% of the
shares. Barclay's is also said to own an interest in Minera
Alumbrera, a large copper and gold mining firm, which was
Argentina's 10th-largest exporter in 2009. Post has not yet been
able to verify either claim. In light of Barclay's ownership
position in Desire, a former Argentine congressman has filed a
lawsuit seeking to force the GoA to end Barclay's participation in
the debt restructuring. Australian company BHP Billiton was also
identified in the press as a firm with interests in both the
Falklands/Malvinas exploration and mining in Argentina.



Comment



¶10. (C) While the GoA seeks to prevent companies from participating
in oil exploration activity in the waters off of the
Falklands/Malvinas, it is not clear how much it is willing to risk
real harm to the Argentine economy as it exploits a nationalistic
issue for political gain. For now, the GoA is being scrupulous to
couch its actions in terms of adherence to UN resolutions and
international law. In the absence of an (unlikely)
British-Argentine accord on the Islands, the GoA will, in all
probability, continue to ratchet up economic pressure on Falkland
Islands residents, for whom tourism is an important cash generator.
An aggressive position on the issue unites Argentines behind their
unpopular government, and there is still a long way to go before
the steps contemplated by the GoA cause any real damage to the
Argentine economy. Current ship traffic between Argentina and the
Falklands (as well as the other islands) is limited, and the impact
of the decree on U.S. and other companies will likely also be
limited for now. However, this could change if the GoA ups the
ante and imposes significant sanctions on companies such as tour
cruise ship operators with current activities in both the Falklands
and Argentina, harming both the companies and the Argentine
economy.
MARTINEZ