Milei has also proposed new legislation—the Ley de Defensa de la Soberanía Nacional (National Sovereignty Defense Law)—that would substantially expand the scope, sanctions, and penalties applicable to unauthorized natural-resource activities around the Islands. The bill in English can be accessed here. For companies, investors, lenders, insurers, contractors, and service providers, the bill's most immediate significance lies in Title I. That title would broaden the prohibited conduct, impose severe administrative and criminal penalties, restrict dealings in Argentina with sanctioned parties, and require the termination of certain Argentina-connected contracts. Given traditionally strong cross-party support for Argentina's claim over the Islands, swift legislative approval appears likely.

The escalation also includes an international-law component: Milei has recently instructed the Foreign Ministry to initiate arbitration against the United Kingdom under Annex VII of the United Nations Convention on the Law of the Sea (UNCLOS), signaling that Argentina’s response extends beyond domestic enforcement.

Milei has the apparent support of the U.S. government.

Key Developments

Current Sanctions Framework

• Expanded enforcement. Decree 868/2026 strengthens enforcement of existing legislation governing unauthorized hydrocarbon activities in the disputed area under Law 26,659 (as amended).
• Enforcement actions against 60 entities. Argentina has initiated sanctions proceedings against approximately 60 companies and individuals across nine jurisdictions, targeting not only operators but also shareholders, directors, service providers, and financial partners.
• Criminal investigations. Criminal complaints have been filed against a number of companies and certain associated individuals.
• Focus on the Sea Lion project. The measures are primarily directed at participants in the Sea Lion offshore development, where drilling is expected to commence in 2027.

Proposed New Framework: The National Sovereignty Defense Law

• Broader substantive scope. The proposed regime would apply to unauthorized exploitation of any renewable or non-renewable natural resources in the disputed area, not only hydrocarbons.
• Expanded covered relationships. Prohibited conduct would extend beyond direct operators to encompass essential economic, financial, logistical, technical, and consulting transactions with unauthorized parties, as well as equity participation and direct or indirect control relationships.
• Severe administrative consequences. Available sanctions would include oil-indexed fines, suspension or cancellation of Argentine authorizations, and disqualification from economic activity in Argentina for up to twenty years.
• Mandatory commercial separation. Government entities and private parties operating in Argentina would be barred from contracting with listed parties. Disqualification would also trigger the termination of the sanctioned party's Argentina-connected contracts, subject to a mandatory wind-down period.
• Claims bar and internationally mandatory rules. Claims arising from contract terminations under the law—including enforcement of foreign judgments and arbitral awards—would be barred when brought by sanctioned parties or their affiliates. These provisions are declared internationally mandatory, purporting to override party-chosen governing law.
• Heightened criminal exposure. The bill would significantly increase prison terms and oil-indexed fines for unauthorized exploration and extraction and would create a new offense for knowingly providing essential goods or services to parties engaged in prohibited activities.
• Continuity and anti-avoidance rules. Administrative and criminal liability would survive mergers, restructurings, and other corporate reorganizations—including those occurring outside Argentina—where the underlying economic activity continues in substance.
• Corporate criminal liability. Legal entities may face severe sanctions—including fines, long-term suspension from government contracting, revocation of state authorizations, and dissolution—where offenses are committed in their name, interest, or benefit.

Heightened Geopolitical Tensions

President Trump has suggested a possible reassessment of U.S. neutrality on the sovereignty dispute, while the United Kingdom has reaffirmed its commitment to the Islands.

Key Takeaways

• Argentina is no longer focusing solely on project operators. Enforcement efforts now expressly target shareholders, directors, suppliers, service providers, and financing partners.
• Companies with exposure to both Argentina and Islands-related operations face increased legal, regulatory, and commercial risk.
• The bill is not limited to Sea Lion or to oil and gas. Its natural-resource provisions cover all renewable and non-renewable resources and a broad range of commercial relationships.
• The bill's claims bar and internationally mandatory rules could affect the enforceability of foreign arbitral awards and judgments arising from terminated contracts.
• The practical reach of Argentina's enforcement efforts remains uncertain, particularly with respect to insurers, lenders, and other downstream participants.
• Disruptions to existing commercial relationships may generate contractual disputes and commercial arbitration claims. The proposed contracting ban could force Argentine counterparties to disengage from listed entities, while the contract-termination provisions may create significant disputes concerning performance, payment, guarantees, and allocation of regulatory risk.
• Businesses with direct or indirect exposure should map ownership, control, financing, supply-chain, and contractual links to potentially covered activities and evaluate Argentine touchpoints across their corporate groups.

King & Spalding will continue monitoring these rapidly evolving developments.

In-Depth Review

Argentina's Legal Framework: Law 26,659 

Argentina's sanctions regime rests principally on Law 26,659 and its amendments, which regulate hydrocarbon activities on Argentina's claimed continental shelf and require prior authorization from Argentine authorities.

The framework provides for:

• Mandatory Argentine authorization for hydrocarbon exploration and exploitation within the claimed continental shelf area.
• Administrative sanctions, including disqualification from all commercial activities in Argentina for 5 to 20 years.
• Potential criminal liability for individuals involved in unauthorized operations.
• Liability extending beyond direct operators to certain entities and persons associated with unauthorized activities.

Between 2012 and 2022, Argentina imposed sanctions on several companies involved in offshore exploration around the Islands. Several international energy companies also reportedly withdrew from Islands-related opportunities following Argentine enforcement efforts.

September 2026 Escalation: The Milei Administration's New Measures

In a nationally televised address on September 3, President Milei announced a series of measures intended to strengthen Argentina's response to offshore activities conducted without Argentine authorization. These include:

• Accelerated enforcement proceedings under existing legislation.
• Measures aimed at strengthening defense and monitoring capabilities.
• The proposed "national sovereignty defense" bill to broaden available enforcement tools.

As part of these measures, the President issued Decree 868/2026 on September 4, which introduces several significant changes to the existing legal framework:

• Designation of the Ministry of Foreign Affairs as the primary enforcement authority.
• Enhanced coordination and reporting obligations across federal agencies.
• Expedited sanctions procedures.
• New compliance requirements for participants in Argentina's RIGI investment-incentive regime.
• Additional compliance requirements for applicants seeking permits and concessions in the Argentine hydrocarbon sector.

On September 4, the Office of the President announced that the Cancillería (Ministry of Foreign Affairs) had initiated sanction proceedings against 45 subjects (both natural and legal persons).¹ Of relevance, the official communiqué expressly stated that proceedings would target “not only companies carrying out illegitimate hydrocarbon activities on [the] continental shelf, but also their shareholders and companies that have been providing services to enable their activities.”

Between September 5 and 8, the government initiated proceedings against approximately 60 companies and individuals allegedly connected to the Sea Lion project. The targets reportedly include operators, shareholders, directors, service providers, and financial partners across multiple jurisdictions.

A significant issue arising from these measures is the exposure of service providers and contractors that operate both in Argentina and in the Islands offshore sector. In particular, the existing legal framework provides for disqualification (inhabilitación) for a period of 5 to 20 years. This sanction entails a complete prohibition on conducting activities of any type in Argentina—not merely hydrocarbon activities, but all commercial activities.

Companies involved in Argentine energy developments while simultaneously supporting Islands-related operations—or that have foreign affiliates that do so— may face increased scrutiny under the expanded enforcement framework. This risk may be particularly relevant for contractors, suppliers, financiers, and other commercial participants whose business interests, span both jurisdictions.

Reports also indicate that some major oilfield service companies have elected not to participate in the Sea Lion project to preserve existing business opportunities in Argentina.

International arbitration

On September 28, President Milei instructed the Foreign Ministry to initiate international arbitration against the United Kingdom under Annex VII of the United Nations Convention on the Law of the Sea (UNCLOS), seeking to enjoin hydrocarbon activity on the continental shelf. President Milei gave the UK a two-week deadline to halt the Sea Lion project and warned that Argentina would seek provisional measures from the International Tribunal for the Law of the Sea (ITLOS) if the UK does not comply.²

The UK’s Guidance

On September 15, the UK issued guidance titled “Doing business with the Falkland Islands” which stated the UK’s position regarding sovereignty over the Islands and was directed at companies and individuals conducting economic activity related to the Islands. While the UK government expressed support for these companies and individuals, it warned that the guidance “does not constitute legal advice” and that “[c]ompanies and individuals that receive correspondence or threats of legal action from the Argentine authorities should obtain independent legal advice on their particular circumstances.”

The Argentine government reacted to the UK guidance by strongly reaffirming its sovereignty over the Islands.

Proposed Legislation: The National Sovereignty Defense Law

On September 17, 2026, Argentina's Executive Branch submitted to Congress a broad National Sovereignty Defense Bill. The bill would replace the existing hydrocarbons-focused regime under Law 26,659 with a substantially wider framework addressing natural-resource activities around the Malvinas/Falklands, South Georgia, and South Sandwich Islands and the surrounding maritime areas claimed by Argentina. Unlike the existing framework, the prohibition would extend beyond hydrocarbons to the exploitation of renewable and non-renewable natural resources generally.

The bill would prohibit not only unauthorized natural-resource activities, but also transactions that are essential and indispensable to the viability or execution of such projects. The text expressly identifies economic, financial, logistical, technical, and consulting operations. It would also cover direct partners or shareholders and persons exercising direct or indirect control or decisive influence over an operator.

The bill provides for:

• Scope. The bill prohibits any natural person, legal entity, trust, or other arrangement from: (a) engaging in any renewable or non-renewable natural-resource activity in the disputed area without Argentine authorization; (b) entering into economic, financial, logistical, technical, or consulting transactions that are essential and indispensable to the viability or execution of such unauthorized activity; (c) being a partner, shareholder, or direct participant of a party engaged in unauthorized activity; or (d) exercising direct or indirect control over such a party, or possessing the power to direct or decisively influence its decisions.
• Administrative sanctions. The enforcement authority must impose one or more of the following: (a) fines of 4,000 to 500,000 barrels of oil; (b) suspension or cancellation of authorizations held before Argentine authorities; and (c) disqualification for 5 to 20 years. In determining the appropriate sanction, the authority must consider the severity of the conduct, recidivism, the economic benefit obtained, the degree of responsibility, and the party's post-infraction conduct.
• Disqualification regime. A disqualification order would prohibit economic activity in Argentina for its duration and trigger the revocation of authorizations, cessation of tax benefits, and termination of contracts executed in Argentina or concerning Argentine-situs assets. A wind-down period of 30 to 180 days applies. Upon expiration, all remaining contracts terminate by operation of law, and the contracting ban under Article 9 takes effect.
• Public registry and contracting ban. The executive branch must maintain a public registry of sanctioned parties. National and subnational government entities and private parties domiciled, incorporated, or regularly operating in Argentina may not contract with registered parties
• Claims bar. No claim based on the termination or non-performance of a contract resulting from the law's application—including claims for indemnification, guarantee enforcement, or recognition of foreign judgments or awards—may be brought in Argentina by the sanctioned party, its controlled or related entities, or their assignees. These provisions are declared internationally mandatory under Article 2,599 of the Civil and Commercial Code.
• Criminal provisions. The bill establishes tiered offenses: unauthorized prospection or exploration of hydrocarbons (12–15 years); unauthorized exploration or exploitation of non-renewable natural resources (12–20 years); unauthorized extraction, transport, or storage of hydrocarbons (15–20 years); and knowingly providing essential and indispensable goods or services to a party engaged in any of the foregoing (5–7 years). Legal entities may face fines, suspension of activities, revocation of contracts, and—where the entity was created solely for the commission of the offense or the offense constitutes its principal activity—dissolution. The bill also provides for trials in absentia.
• Anti-avoidance. Liability survives corporate reorganizations—including mergers, spin-offs, and transfers occurring outside Argentina—and subsists where the economic activity continues with substantially the same clients, suppliers, and employees under a different corporate form.
• Exit and regularization. Eligible parties may apply once for incorporation into a desistimiento and regularization regime by ceasing prohibited activity, committing not to reoffend, and either paying a prescribed fine (scaled by the nature and gravity of the conduct, in amounts ranging from 8,000 to 400,000 barrels of oil) or redirecting investments to authorized activities in Argentina. Incorporation suspends administrative and criminal proceedings; full compliance extinguishes both.

Risk Assessment

1. Broader Enforcement Exposure

The recent developments reflect an effort to extend enforcement beyond project operators to a wider range of participants, including investors, shareholders, directors, service providers, and financial partners.

2. Legislative Expansion

If enacted, the proposed legislation would significantly strengthen penalties and expand the framework to cover other natural-resource activities beyond hydrocarbons.

• Counterparty and supply-chain exposure. Because the bill targets essential and indispensable support and ownership and control relationships, businesses should assess not only direct project participation but also financing, logistics, engineering, consultancy, equipment supply, insurance, and other services that may be characterized as critical to a covered project.
• Dual-exposure risk. The strongest practical consequences would likely arise for corporate groups with meaningful Argentine touchpoints, including operations, permits, concessions, investment incentives, public or private contracts, assets, or market access.
• Contractual and dispute risk. Mandatory termination and contracting restrictions may disrupt existing agreements and generate disputes over force majeure, illegality, sanctions clauses, termination rights, payment obligations, guarantees, indemnities, and change-in-law provisions. The proposed restrictions on Argentina-based claims and enforcement add a further jurisdictional and recovery dimension.
• Legislative and implementation uncertainty. The text is a bill and may change during congressional consideration. Important implementation details, including the identity and approach of the Title I enforcement authority, will be determined after enactment. Companies should monitor amendments, committee treatment, implementing regulations, and initial enforcement practice.

4. RIGI Implications

Companies participating in Argentina's RIGI investment-incentive regime face additional compliance requirements under existing and proposed legislation.

5. Geopolitical Uncertainty

Recent political developments have added a new diplomatic dimension to the dispute. The current administration’s intensified focus on the Malvinas issue is widely viewed as strategically tied to the October 2027 presidential election. Heightened enforcement and broader invocation of the Malvinas cause may therefore be expected as the administration seeks to improve its reelection prospects. While no major shift in international positions has yet occurred, the issue is likely to remain a focus of regional and international attention.

6. Arbitration and Litigation Risk

The measures may give rise to commercial disputes and arbitration proceedings arising from disruptions to existing contractual relationships. Companies operating in Argentina or the Islands may face increasing pressure to evaluate whether current contractual arrangements adequately address the risks created by the evolving sanctions environment.

Conclusion

Argentina's recent measures represent the most significant expansion of its sanctions regime in more than a decade. Although important questions remain regarding the scope and enforceability of the new framework, the developments materially increase legal, regulatory, and commercial risks for companies involved in offshore activities around the Islands, particularly those with existing or prospective interests in Argentina.

Businesses with such exposure should closely monitor further legislative and enforcement developments and assess potential impacts on their operations, investments, financing arrangements, and contractual relationships.

King & Spalding continues to monitor these developments and their potential implications for businesses with exposure to the current and proposed sanctions regime.