The old OIL WEAPON… still remains alive

April 16th, 2012… the day Argentina took a drastic turn regarding its oil company YPF. Argentina’s president, Cristina Fernandez de Kirchner, decided to expropriate YPF back from Repsol.  It all started in the 1990’s when Argentina’s ex-president, Menem, decided to privatize Argentina’s oil company (among other national companies) in the hands of the Spanish oil enterprise, Repsol .1 Repsol then owned 85% of the company, with 15% sold to other companies.2 More than 10 years after, Argentina wants to re-gain control over its own oil and gas resources; however, such a decision might come at a high cost for both countries.

In a time where Argentina is not exactly in good terms with the European Union (due to conflicts with Great Britain over the Malvinas Islands), the expropriation of YPF from Repsol counts as another tactic punch from the Argentinean president to recover what once belonged to them. With the expropriation of YPF, Argentina will gain back its sovereignty over 51 percent of the company’s stake and with it the control over a big sector of the country’s economy.1 According to Argentina’s government, Spain exploited oil and gas reserves3 (See Figure 1 for the production chart of Repsol YPF S.A. over a period of 20 years4). The Argentinean vice-minister of Economy, Axel Kicillof, said: “Between 1999 and 2011, the YPF petroleum and gas reserves decreased 40.5% and 47.1%, respectively, while the petroleum and gas production decreased 38.3% and 25.4%, respectively. This is about a predatory behavior. An oil company that every time produces less and that at the same time decreases its reserves, is a company been emptied.” This, among other strong accusations from the Argentinean government, drove Cristina de Kirchner to take over the oil company and make it their own once again. However, Repsol is obviously not very happy about the situation presented. Along with a strong economic recession, now Spain has to also worry about a decrease of two-fifths of their crude oil reserves and one third of Repsol’s profits, Spain’s largest company.1

Production chart of Repsol YPF S.A. over a period of 20 years [4]

                In retaliation to the expropriation of YPF, Spain is looking into employing a hybrid-oil-biodiesel-weapon against Argentina. Spain is seeking a way to restrict imports of biodiesel fuel from Argentina (Spain’s biggest biodiesel exporter with shipments worth €750 million, or $991 million, last year) in an attempt to recover control over Repsol YPF and Argentina’s oil and gas.5 However, this is only one of the many measures Spain is planning to implement against Argentina’s sudden decision.1,5 Not to mention the international relationship repercussions  this heavily criticized action may have in the eyes of foreign companies such as the French oil company Total and the American companies Exxon Mobil and Apache that are making investments in the recent huge discoveries of shale oil in Argentinean soil.1

              What now? What happens to the reliability of Argentina in making deals with other countries over oil, gas, biodiesel, or any other national company? Though it is understandable that a country wants to have ownership on decisions regarding its own natural resources and reserves, was maybe the way Argentina expropriated YPF from Repsol incorrect? Could have any other way had a smaller impact on the now very tense relationship between both countries? More importantly, will Spain be able to halt YPF from growing by employing oil and gas weapons?

References:

[1] http://www.nytimes.com/2012/04/17/business/global/argentine-president-to-nationalize-oil-company.html?pagewanted=all#

[2] http://dealbook.nytimes.com/2009/07/03/repsol-acknowledges-offers-for-ypf-none-certain/

[3] http://www.lanacion.com.ar/1468044-ypf-acuso-a-repsol-de-aplicar-una-politica-depredatoria-de-los-recursos-naturales

[4] http://markets.on.nytimes.com/research/stocks/tools/analysis_tools.asp?B64ENCc3ltYm9sPTI0MDg4OCZkdXJhdGlvbj0xMDk1MCZmcmVxdWVuY3k9MW1vbnRoJmRNaW49MCZkTWF4PTAmc2NhbGluZz1saW5lYXImZGlzcGxheT1maWxsY2xvc2UmdXBwZXJzPVt7InR5cGUiOiJldmVudCIsInZhbHVlIjoiZHBwIn0seyJ0eXBlIjoiZXZlbnQiLCJ2YWx1ZSI6Im5ld3MiLCJwYXJhbXMiOiIyNDA4ODgifV0mbG93ZXJzPVt7InZhbHVlIjoidm9sdW1lIiwicGFyYW1zIjoiRU1BLDEzIn1d

[5] http://www.nytimes.com/2012/04/21/business/global/spain-stings-argentina-over-nationalization-of-repsol-ypf.html?_r=1

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