Natacha Pisarenko/Associated Press

By Andrew Melton

Last week, I was alarmed to hear the Argentine government was considering nationalizing the Spanish owned oil company, YPF. These rumors met strong opposition from the Spanish government that promised a swift and definitive response if Argentina went through with its plans. The weekend was relatively quiet without a response from the Argentine government, and the Spanish company, Repsol, denied receiving any information regarding an intended nationalization of its majority stake in YPF. I assumed that indicated Argentina was rethinking its plan in the face of backlash from its number one foreign investor, but that was not the case. Yesterday evening, President Kirchner announced the Argentine government would go through with the nationalization of YPF, an announcement ill received by Spain and much of Europe.

The Argentine government created YPF in 1922, which at the time was the only state-owned oil company in the world. It was not until the 1990’s that the government began the process of privatizing YPF, and in 1999 Repsol bought its majority stake in the company. Relations seemed to be pretty good. The company survived the economic crisis of 2002, and things looked good with Nestor Kirchner coming to power. 

However, Argentina once again found itself faced with economic issues. The country is struggling with inflation in the mid-twentieth percentile and recently had to begin importing energy, leading to a negative energy trade balance. Many Argentines felt Repsol was not using YPF to its full capacity and increasing output. With the takeover, the government plans to increase output and begin exploiting the recently discovered shale fields.

On paper, the nationalization of YPF makes sense for Argentina. With the state in control, they will have greater control over oil production and may even return to their position as energy exporters. Perhaps privatizing the company in the 1990’s was a poor decision in the first place. 

This logic, however, ignores the real world repercussions that do not show up on balance sheets. Spain is the largest foreign investor in Argentina. Repsol has already vowed legal action against Argentina, and the Spanish government looks to retaliate diplomatically and economically. Most of the European Union already came out on the side of Spain, and I expect more countries will do the same. Argentina already maintains tense relations with the United Kingdom due to the territorial dispute over the Falklands, and now the nation is in the process of adding more European enemies to the list.

I believe the move by Argentina will help it with its energy problems, but at what cost? Argentina already had issues with attracting foreign investment, and this takeover will only scare more investors away. President Kirchner should have done more to pressure Repsol into increasing energy output. Argentina now runs the risk of becoming an international pariah unwilling to cooperate. The nation may be closer to energy independence today than it was a week ago, but I fear it may come at the cost of its long term economic goals.

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