Prince William arrives in the Falkland Islands

But it is the prospect of an oil bonanza in the waters off the Falklands that
is really fuelling the anger of Cristina Kirchner, the Argentine president
who has made the islands her top foreign policy priority.

British officials in the region believe that she is planning to push for a
full-fledged economic blockade of the islands by threatening the only
commercial air link – a weekly flight from southern Chile.

Argentina already cajoled its South American neighbours into banning
Falklands-flagged ships from their ports. William Hague’s advice that the
vessels can circumvent the ban by raising the Red Ensign instead only
deepened Argentine irritation.

“The Kirchner government has made clear that it will intimidate private
companies in South America that do business with the Falklands,” a senior
British diplomat told The Sunday Telegraph. “They seem to consider
any commercial links with the islands tantamount to regional treachery.”

Entrepreneurs on the islands said that similar pressure was already being
deployed against freight container companies, to which it has privately been
made clear that they will lose lucrative contracts if they do business with
the Falklands

“The Argentine government rails against the blockade of Gaza and the sanctions
against Cuba, but they have no compunction about trying to force their
neighbours to cut us off, “ said Roger Spink, president of the chamber of
commerce. “It’s collective punishment of a civilian population.”

For islanders long accustomed to sporadic shortages, the currently lack of
peaches, grapes and eggs is just another inconvenience. But many believe
that they should use expected oil riches to defend themselves against
commercial bullying by Buenos Aires, possibly by establishing an alternative
air link via Miami.

“The real reason people here are excited about oil is that it will give us
some extra clout and influence and restrict the ability of the Argentines to
try and push us about,” said Lisa Watson, editor of Penguin News, the weekly
newspaper.

Yet just three decades ago, even islanders say that the territory that British
forces liberated from the short-lived Argentine occupation was a failing,
feudal and forgotten relic of Empire.

The economy was dependent on the wool market, farms were owned by absentee
overseas landlords and islanders would watch as fishing fleets from around
the world helped themselves to lucrative trawls of squid and fish from their
waters.

But even before the prospective oil boom, the island economy has been
transformed, growing 30-fold in 30 years – thanks to the sub-division and
sell-off of farms to islanders, a surge in cruise ship tourism and the
establishment of conservation waters to create a thriving fishing industry
which supplies more than half the calamari served up in European
restaurants.

GDP has soared from £3.5 million in 1982 to more than £100 million today – a
figure that is likely to rise again when oil starts to be pumped, expected
from offshore wells in the middle of this decade.

Sian Davies, one of three “war babies” born on the Falklands during the
invasion, is typical of the young islanders who might in the past not have
returned to the Falklands after taking A-Levels and university in Britain,
paid for by the islands’ government.

“Before the war, young people were leaving in droves,” said Miss Davies, 29,
who manages a gift store on the Stanley waterfront.

“I always wanted to come back, it’s that type of place, but financially I am
now confident that I have a future here. That was not always the case.”

Nowadays, the capital’s population of about 2,000 people swells to more than
double when a cruise shop lays anchor offshore. On other days, it returns to
its sleepy small town status, although the new housing developments and
expanding oil support facilities bear testimony to its changing face.

“There’s definitely much more of a buzz around town of late,” said Carl
Stroud, managed for 10 years of the Malvina House hotel, its title drawn
from a popular Scottish girl’s name of a century ago, rather than the
Argentine name for the islands (Las Malvinas).

In the hotel, Norwegian and Scottish oil rig workers tuck into squid and lamb
while US energy executives recently jetted into town from Houston for buy-up
talks.

But even amid this fast pace of change, reminders of Britain are everywhere,
from the Union flags to the Marmite in the shops and the British-style pubs
serving Cornish pasties beneath the dart-boards.

Indeed, this is not a place for conspicuous consumption and locals have no
desire to build a new “Dubai” in the South Atlantic. The millionaires
already created by the fishing boom are not wearing designer clothes or
driving around in Ferraris, although there are plenty of new Land Rovers on
the roads.

But despite the propaganda line from Buenos Aires that Britain is only
interested in the islands because of their natural resources, the oil and
gas reserves within the 200-mile territorial zone belong entirely to the
Falklands.

The islands’ government has sold exploration licences to several companies and
will levy a nine per cent royalty fee on the value of all oil and gas that
is produced, and a 26 per tax on company profits.

The islands are looking at establishing a sovereign wealth fund to invest the
income so that it will benefit future generations long after the oil has run
out. And if the funds become available, they will pick up the bill for the
defence of the islands, estimated at about £110 million a year (0.5 per cent
of the annual defence budget).

“We are aware that some people in Britain might be thinking ‘why should we be
supporting them if they are all getting very rich’ so it’s important for us
to send the message that we won’t be ungenerous,” said Mike Summers, a
Falklands assemblyman.

The waterfront 1982 war memorial is visible behind him through the windows of
government offices – an immediate reminder of those who died to liberate the
islands from their 74-day Argentine occupation.

But Mr Summers said this year’s Liberation Day on June 14 would be a time to
look forward as well back.

“It is important for us to be able to show veterans and the families who visit
that the huge sacrifices they made in 1982 were not in vain, but enabled the
Falkland Islands to develop into a great success story.”

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