The Argentine government led by Cristina
Fernández sparked a fierce controversy and a potential trade
war this week by re-nationalizing the country's largest
company, YPF. The action came as a sharp blow to one of Spain's
industrial giants, Repsol, which prompted widespread condemnation
and the promise of a major economic conflict between Spain and
Argentina, several sources reported.
Repsol owns 57.43 percent of the Argentinian energy firm. The
plan put forth by Fernández will see the government take
control of 51 percent of the company, including nearly all of
According to the
, the re-nationalization represents the largest action of its kind
in an extractive industry since Russian President Vladimir
Putin's takeover of Yukos.
The Argentine government cited mismanagement of YPF by Repsol and
claimed the Spanish firm had effectively been extracting the
profits and bringing them back to the battered European economy.
Rising energy costs and slumping domestic production have forced
Argentina to import billions of dollars worth of fuel every year.
Repsol YPF recently discovered massive deposits of shale
and oil in the Vaca Muerta fields of western Argentina.
In a Madrid conference, Repsol's executive chairman Antonia Brufau
at the Fernández government, claiming that the act was an
attempt by Argentina to hide the country's economic crisis and
social malaise and that "these acts will not go
unpunished." Repsol shares slipped about 7 percent in European
in response to news of the re-nationalization.
The Spanish response
?The FT reports that Madrid has summoned the Argentine ambassador
and vowed "clear and decisive action," which could take the form of
international arbitration, the collapse of trade agreements or
"With this attitude and hostility there will be consequences that
we will see over the next few days," stated Spanish Minister of
Industry Jose Manuel Soria.
There's a lot at stake in this conflict - Repsol is demanding $8
billion in recompense for the loss of its stake in YPF, and the
plan will also dramatically impact a
made by Repsol to the Petersen Group, an
owned by the powerful Eskenazi family of Argentina. The Spanish
firm loaned them $1.9 billion, which Petersen used to buy up 25.5
percent of YPF. Because the loan's collateral is in the form of YPF
shares, the exact process of re-nationalization and the eventual
value will be extremely important.
An aggressive trend
The South American nation has shown a certain tendency towards
aggressive and muscular foreign policy
The status of the Falkland Islands (Las Malvinas, as they're known
in Argentina) continues to generate tension and saber-rattling with
the United Kingdom, where the Conservative-Liberal Democrat
government has plenty of motivation to engage in a bit of overseas
political theater with a past military adversary.
In the Falklands, oil comes into play as well - the reported
discovery of significant petrochemical deposits in the waters
surrounding the islands ups the stakes for both Argentina and the
U.K. British military leaders and their Argentine counterparts will
surely be examining the strategic ramifications of the YPF
expropriation. In any case, it certainly won't reduce tensions over
the windblown South Atlantic isles.
On the market
The news slammed YPF (
) shares traded via ADRs in New York, which dropped 11 percent
yesterday before trading halted. The iShares MSCI Spain Index
), which holds Repsol shares as about 5 percent of its total
holdings, was up about 1 percent at 9:45 a.m. EST today.
Repsol values YPF in total at $18.3 billion, with its own
portion worth over $10 billion.