Chants of "Drill Baby Drill!" echo down Whitehall

Perhaps instead they're chanting "¡Perfore, bebé, perfore!"

British and Argentine officials are again butting heads over who controls the Falkland Islands, this time because of the prospect of considerable oil reserves off the coast of the two islands. As a British firm has established an oil rig about 100 miles north of the contested islands, Argentine president Cristina Fernandez has ordered checks on all ships approaching the Falkland Islands.

Argentina has claimed sovereignty over the islands, which they call Islas Malvinas, and held them for two months in 1982 before British forces drove them out in a highly anticipated and reported response, resulting in the combat deaths of 650 Argentinians and 250 Britons. Argentina has re-asserted its claims to sovereignty over the continental shelf area stretching from its shores, which would wholly encompass the 200-mile British claim around the Falklands as well as the South Georgia and Sandwich islands, 600 miles to the southeast. These claims will be brought up before a meeting of the United Nations next week.

Both Britain and Argentina have made claims to the islands for almost 200 years, claims which are both supported by key economic allies. While the status of the Falklands was included in the recently enacted Treaty of Lisbon, the new governing document of the European Union, Argentina's claim was renewed when they established a democratic constitution in 1994, claims which have been supported by their two continental unions, Mercosur and the Union of South American Nations.

And caught in the middle, potentially, is the US. During the last conflict, the US maintained an official stance of neutrality. While a NATO ally (led by Reagan's good friend Margaret Thatcher) was attacked, to openly support them would have gone in the face of the Monroe Doctrine and the Organization of American States, headquartered in Washington. (It was later revealed that the US provided tacit support for British intelligence operations.) More recently, the US joined the rest of the OAS in supporting Argentina's call for negotiations with the British over the status of the islands.

This is a sticky situation that does have the potential to make global economic recovery even tougher. Argentina's threats to bar British companies from doing business in their country, with the potential support from Hugo Chavez and other leftist leaders in South America, could further weaken the Sterling in international markets. There lies the risk, however absurd and self-defeating the concept, that if this becomes heavily politicised or even come down to military action, several South American nations may boycott the 2012 Olympics in London. (Ironic considering that the UK refused to withdraw from the 1980 Summer Olympics in Moscow following the Soviet invasion of Afghanistan, instead competing under the Olympic flag.)

This is a foreign affairs powderkeg that cannot be taken lightly, and should be watched closely over the coming weeks.