The Oil War Between Spain and Argentina

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Juan Mabromata / AFP / Getty Images

YPF gasoline tanks in the Argentine town of Río Gallegos, around 2,500 km southwest of Buenos Aires, on Oct. 23, 2011

Argentina's President was not even through with her televised decision when her emissaries arrived at the 35-story headquarters of the targeted oil company in Buenos Aires on Monday to announce that her government was taking control. They gave the directors of YPF — appointed by the Spanish company Repsol, the majority stockholder — 15 minutes to vacate the premises.

And so, with a knock on the door and President Cristina Fernández de Kirchner's say-so, YPF, which Argentina sold 13 years ago for $15 billion, was back in local hands by outright confiscation. Or at least that's how Madrid and many foreign governments saw it. Spanish Prime Minister Mariano Rajoy had blistering words for Fernández: "This seriously damages Argentina's international reputation," he said Tuesday at the World Economic Forum on Latin America in Puerto Vallarta, Mexico. "What happened yesterday could happen to any other investment." Rajoy described the seizure as "completely unjustifiable and without any economic motive." Repsol announced meanwhile from Madrid that it would seek $10 billion from Argentina for its 57% stake in YPF (it had originally owned 97%). "This is being done to cover up the social and economic crisis in Argentina," said Repsol chief Antonio Brufau.

Spain's words were echoed by Mexico's President Felipe Calderón, whose Pemex oil company controls 10% of Repsol. Said the Mexican leader: "It definitely seems very sad to me that the government of Argentina, of our good friend Cristina Fernández, has taken a step that is not going to do anybody any good. We all need investment and nobody in their right mind invests in a country that expropriates investments ... I fervently hope that Argentina will rectify this step." U.S. Secretary of State Hillary Clinton spoke at a press conference in Brasília, saying, "Decisions taken by different countries are decisions they have to justify and will have to live with. This decision will be a very debated one, and with good reason. An open-market model for energy and commodities is the best model."

The Argentine President's move, however, was extremely popular at home. She had begun her campaign to take it back months ago, first by revoking some of YPF's explorations licenses. That sent the stock of Argentina's largest company plummeting on Wall Street. King Juan Carlos of Spain had personally phoned President Fernández two months ago to lobby against such the confiscation — to no avail. Brufau flew to Buenos Aires to try to avert the move. But, he said, "She refused to hear us, just as she refused to hear the Spanish government." Fernández, who has swung periodically between enacting liberal economic reforms and imposing greater state controls more characteristic of her Peronist party's history, is clearly moving in the direction of economic nationalism.

Fernández supporters hailed the seizure of YPF as welcome confirmation that their self-defined "national and popular" model had come of age. "This is an historic decision," said Agustín Rossi, leader of the President's block of the Peronist party. "This situation will surely signify a change of paradigm." Full state control of Argentina's oil has long been a doctrine of faith for the country's nationalists who deeply resented the privatization of YPF by a previous Peronist administration. "Some Spanish media say we want to steal our oil from them," is how a cartoon in the pro-Fernández daily Página/12 put it a few days ago.

That line of thinking was reflected by the new state controller at YPF, Deputy Economy Minister Axel Kicillof, Fernández's main economic adviser. Kicillof made a two-hour presentation before the Senate on Tuesday afternoon. "Nobody can claim that we are taking from them something that was theirs," he said.

Fernández got the backing of her fellow leftist ally, President Hugo Chávez of Venezuela, who issued a statement rejecting "the threats and attempts at intimidation issued by Europe against the Argentine Republic." Neighboring Uruguay also supported Fernández's decision. "I don't like the arrogance of rich Europe's response," said Uruguayan President José Mujica, who said Argentina's mistake was to privatize YPF in the first place.

But the response from Argentina's more prosperous neighbors Chile and Brazil were alarm and ambivalence, respectively. Chile's Industry Minister Felipe Larraín expressed some concern about investments in Argentina by Chile's ENAP state oil firm, which is a partner with Repsol-YPF in some ventures. "This issue is not unnoticed by our government, and we will support what belongs to ENAP," Larraín said, making it clear that Chile was not going to go down the same road as Argentina. "We're very clear about what we're doing in our country." Brazil denied any concern regarding the large investments by its own oil giant Petrobras in Argentina. "I don't want to anticipate problems where I don't see any," said Brazilian Energy Secretary Edison Lobão.

Spain, which is undergoing its own deep economic problems, is likely to make louder noises in the days to come. "Argentina has just shot itself in the foot in a really bad way," said Spanish Foreign Minister José Manuel García-Margallo on Tuesday. Argentina, however, intends to disregard Madrid's or everyone else's complaints about the forced takeover. Said Fernández: "This President is not going to answer any threat, any insults; she won't respond to any disrespect or insolent phrases. I am a head of state, not a bully."