The Falklands’ first commercial oil discovery will make the islands in the South Atlantic rich, bringing the British territory of 2,563 people $10.5 billion in tax revenue over 25 years.

As the bounty transforms the fishing and tourism-dependent economy, tensions may worsen with Argentina, which claims sovereignty over the islands and their mineral wealth. The Latin American country last year threatened to sue any company involved in Falklands drilling and its foreign minister said yesterday the islanders have no right to self-determination.

The local government is already starting a wealth fund to manage the cash. On the agenda: paving the main highway from the airport to the capital of Stanley, improving the port to take larger ships and reimbursing the 60 million pounds ($90 million) the U.K. spends annually on soldiers, jets and ships to defend the islands, which Argentina attacked in 1982.

“In times of recession, it’s difficult for people in the U.K. to justify spending money on a small population on the other end of the world,” said Andrea Clausen, 41, who owns a transport business and is a member of the Falkland Islands Chamber of Commerce. “But as long as Argentina claims the Falklands in its constitution, the threat won’t go away.”

The offshore Sea Lion oil discovery may generate government revenues of about $160,000 per person each year when it starts production 2017, according to Edison Investment Research. That’s equivalent to the after-tax income of a top 1 percent earner in Britain, figures from the Institute of Fiscal Studies show.

Learn Lessons

Britain has no claim on the windfall, which will change life on the islands in ways residents are struggling to grasp. Falkland officials in December visited Norway and the Shetland Islands to learn lessons from similar funds, to avoid inflation or poor financial management.

The discovery “will no doubt be transformational for the islands, increasing government revenue several times over,” Mineral Resources Minister Stephen Luxton said in an interview. “What we’re looking for in a sovereign wealth fund is long-term economic security, a second string to our financial bow to the fishery,” he said, referring to the territory’s commercial fishing business.

It’s the islands’ decision about whether to spend money from oil revenue on defense, an official for the U.K. foreign office said, who declined to be identified in line with government practice. U.K. spending per islander is close to the median British salary of 26,500 pounds last year.

Argentina’s Claim