Celebrim
Legend
I think you are right about one of the central conflicts/tropes of a campaign like this will be the interaction between the surface dwellers and the subsurface dwellers. But the setup you create here strikes me as too much lacking in history. If the culture has existed for any period of time, they'll have long ago passed the sort of juncture you are describing here. These two peoples would have been neighbors for a while, and this sort of invasive operation just seems clueless and clumsy on the part of all parties involved.
1) Long before you'd have conflict over undersea mining operations, you'd have conflict over stuff that requires far less technology (where technology and magic mean the same thing in this context). If the undersea dwellers aren't unhappy about the surface dwellers fishing, trawling, drag netting, trapping, dumping garbage, harvesting oyster beds, and so forth, why would undersea mining involving probably far less of the sea bottom be suddenly beyond the pale? I mean surely the two groups will have had to work out some sort of working agreement already regarding how intensely you fish before the natives get annoyed.
2) Magical submarines are terribly economically inefficient compared to barges, cranes, and water breathing spells. Why would you need to invest in such high tech stuff when water breathing is available not only to pretty much any mid-level caster, but abundantly available from typical aquatic life if you can befriend them?
3) Trade is economically far more efficient than any sort of underwater industrial activity by the surface dwellers. Any sort of subsurface activity is vastly more efficiently performed by creatures that can breath underwater and move efficiently in it, and conversely any sort of manufacturing activity that involves solvents or fire is vastly cheaper above the surface than below it. At the very least, the surface dwellers have a much easier time refining metals and making booze than their aquatic neighbors. It's highly unlikely that the subsurface dwellers have ever paid much attention to any ore that oxidizes rapidly in water, so hunks of iron or copper ore are pretty much valueless to them. You'd think they'd be more than happy to trade iron and copper ore, pearls, and seafood for things like booze, wooden tools, ceramics, wax, and gold. Once you put booze into the equation, even the fairies are probably reasonably amendable to trade, so exactly why would anyone ever first think, "Let's invade the undersea realm.", as opposed to something like, "Lets ask Duke Blubbedibloop if he'd be willing to trade ten tons of hematite for 400 jars of wine. Good idea. Let's send Sean as an ambassador. They say his mother is a Selkie, and anyway he speaks their language." If that's even possible, whoever tries that strategy is absolutely going to crush whoever is thinking, "Lets build magic submarines and invade the undersea realm and start mining resources without permission." in terms of profit to investment ratios.
I'm not saying it's impossible to have a scenario like you suggest - one obvious way to get there is have in the prior century a war between the surface dwellers and the aquatic races that nearly drives the aquatic races to extinction. In that manner, you really do have a situation that can be new and evolving, as there are few neighbors (many might assume they no longer exist) and what remains is likely in hiding and not well disposed to the folk on the surface. But for me, the immediate question that raises is, "How did we have the technology to wipe out undersea races a century ago, and yet are just now developing undersea mining technology?" Again, that's a question that can be answered ("There was an archmage that bound an army of fiendish Krakens to his will, and sent them to exterminate the merfolk. Then the archmage died and there is currently no heir to his power."), but it's the sort of thing where there ought to be answers.
