The politics of oil took centre stage on Thursday as Britain quarrelled with Argentina over exploration off the Falkland Islands and opened talks with the US on joint action to try to subdue crude prices.
UK officials confirmed that David Cameron and Barack Obama had discussed such a presidential plan to release oil stocks at an Oval Office meeting. Speculation that the US and UK were preparing to co-operate in this way helped send Brent crude down by around $1 a barrel to $124, still very high by historic standards, although short of the record $148 in mid-2008.
Both leaders are under political pressure from motorists and consumers over soaring fuel costs.
Speaking in New York on Thursday, Cameron said: “We are all facing the problem of higher oil prices and that translates into the cost of filling up the family car, which is very high here in the US but frankly even higher in the UK.
“I want to try to help British families, just as Barack Obama wants to help American families. We didn’t reach a decision yesterday about oil reserves but we discussed the issue and I think it is important that we do what we can to try to help families who are trying to make their family budgets add up.”
Obama is particularly worried that high prices could derail his country’s fragile economic recovery in a presidential election year.
Both of them are also aware that the Middle East – still the world’s main oil producing area – remains highly volatile, a situation which could worsen if Israel attacks Iran, as some fear.
One British source said of a potential reserves plan: “President Obama is getting a lot of grief over the high price of oil.”
Britain also responded on Thursday to a threat of legal action by Argentina against companies involved in energy exploration around the Falklands.
Argentina says Britain is flouting UN resolutions that call for talks and prohibit any unilateral action as long as the sovereignty dispute persists. Foreign minister Hector Timerman said offshore oil exploration amounts to a unilateral move.
At a news conference in Buenos Aires, the minister called the exploration and drilling activities illegal. He said Argentina would bring civil and criminal charges against the companies involved.
“With these actions we assume the responsibility of defending Argentina’s natural resources,” he said. “The South Atlantic’s oil and gas are property of the Argentine people.”
A UK Foreign Office spokesman said: “Hydrocarbon exploration is a legitimate commercial venture and the British government supports the rights of the Falkland islanders to develop their hydrocarbons sector.”
“This right is an integral part of the right of self-determination, which is expressly contained in the International Covenant on Civil and Political Rights,” he added, referring to a United Nations’ treaty.
He said there could be no negotiations on the sovereignty of the Falkland Islands unless the 3,000 islanders wanted them.
Several companies have drilled in waters off the islands. British explorer Rockhopper has been seeking a partner to invest in the $2bn (£1.3bn) Sea Lion project. Borders & Southern and Falkland Oil & Gas are set to drill wells south of the islands this year.
An industry source in London said legal action against companies involved in Falklands oil exploration “will have no impact on Rockhopper’s operations as they look to develop the Sea Lion project”.
Borders & Southern declined to comment.
As to the US plan, Britain is open to the idea of attempting to subdue the oil price by releasing reserves, if only because it is a way of showing a desire to help. But officials are sceptical about whether the UK and US, as major oil consumers rather than producers, can have a long-term impact on the price.
One source said: “To bring down the price of oil you need to increase the supply, which at the end of the day is down to the Opec producing countries. Saudi Arabia has already increased production.
“You also need a fall in demand. But that is not going to happen because there has been a structural change in demand – that is, 8% annual growth in China.”
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