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Next month will determine the eventual fate of the Falkland Islands鈥攁nd the 1.4 billion barrels of oil so far discovered there鈥攚hen a referendum on self-determination is held.

In the run-up to that referendum, Argentina has stepped up the rhetoric, most recently with the Argentine Foreign Minister claiming that within 20 years, the Falkland Islands will be entirely under Argentina鈥檚 control.

UK Foreign Secretary William Hague has responded by calling this a counterproductive 鈥渇antasy鈥�. Hague says the government of Argentine President Cristina Fernandez de Kirchner has refused diplomatic dialogue and chosen instead a path of 鈥渂ullying鈥�.

鈥淲e shall never negotiate about the sovereignty of the islands, unless the islanders wish it,鈥� Hague said.听

For now, the Falklands are a British Overseas Territory, but Argentina claims sovereignty over the islands, which it calls Las Malvinas. It鈥檚 a rather long and complicated history that has seen the islands change hands numerous times, but first inhabited by the French back in 1764. In 1982, Britain and Argentina fought a 10-week war over the islands. One can argue all day about whom the islands really belong to, but that will get us nowhere.

What鈥檚 relevant is what today鈥檚 inhabitants want.听(Related article:听)

The solution鈥攚hich is not to Argentina鈥檚 liking鈥攊s to hold a referendum and let the inhabitants of the islands engage in a bit of self-determination. They will choose to remain a British Overseas Territory.

More than anything, Argentina is using the islands as a way to raise national sentiments at a time when things are not so great at home on the economic front.听听听

And that鈥檚 where the oil comes in. The renewed sovereignty frenzy over the Falkland Islands emerged in 2011 in the wake of a discovery of 1.4 billion barrels of oil in the North Falkland Basin, in Rockhopper Exploration鈥檚 (RKH: LN) Sea Lion field. Overnight, the Falklands was billed as the next big energy hub, as well as a staging ground for a territorial war.

Argentina has threatened legal action against energy firms working in the Falkland Islands who are 鈥渟tealing the natural resources of Argentina鈥�.

So far, Argentina鈥檚 attempts to derail oil and gas exploration have not been successful. Exploration continues unabated, and the oil companies operating there have not even blinked. Indeed, Rockhopper Exploration has signed a $1 billion partnership deal with Premier Oil (PMO.L) to pump from Sea Lion.

Territorial bickering aside, however, the Falkland Islands have been rather disappointing to the industry since the 2011 find. Since then, a much-anticipated four-well drilling frenzy in the South Falkland Basin has failed to turn up any more oil鈥攐nly gas and condensate. 听(Related article:听)

Hedging their bets that the South Falkland Basin would be as lucrative as Rockhopper鈥檚 in the north, companies like Falkland Oil and Gas (FOGL) and Borders & Southern drilled a series of four wells only to find zero commercial oil. Borders鈥� Darwin well did hit an estimated 190 million barrels of condensate, which has just been declared commercially viable, but its second well, Stebbing, was eventually plugged and abandoned. Both of FOGL鈥檚 wells found gas, but the results are still being evaluated.

As for Argentina, for now this is all about rhetoric that is meant to be digested at home to score some much-needed political points and to distract the population from the country鈥檚 economic woes. It is not likely that Argentina is planning to take this to a level that would mean conflict. The referendum next month will force Argentina to respond with even stronger rhetoric and more vivid threats, but barring a much worse economic situation at home that threatens the ruling power base, this should not go beyond the rhetoric.

Rockhopper and Premium will keep pumping, and FOGL and Borders will continue exploratory drilling until they hit pay oil.

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