Trade

Argentina Points To An Oil Company And Says: This Is Now Ours

A woman holds an Argentine national flag in front of the presidential palace.
Daniel Garcia/AFP/Getty Images

If a government wants money, it can sell bonds or raise taxes. It can also just start pointing to stuff and saying: This is now ours.

That's what Argentina did this week with YPF, a domestic oil company that's owned by a Spanish firm called Repsol.

This week, Argentina's government basically said to Repsol: "That oil company you own in our country? We're going to take it away from you."

"Expropriation" is the fancy term for this, and it has a long history.

As John Gapper writes in the FT:

Governments strike deals with companies when the price of oil is low and the cost of exploration high and then tear them up when the expensive work has been done and the yield rises.

Cristina Fernández, Argentina's president, says expropriation will allow Argentina to invest more heavily in developing the oil resources. But it's not entirely clear where the money for that investment will come from.

As Chile's economy minister told Reuters, Argentina's decision "turns us into a less attractive, less trustworthy region, and capital flows exit to those places where there is more investor confidence," he told Reuters in an interview.

Spain, not surprisingly, has promised retaliation. Jose Manuel Soria, the Industry Minister, told The Christian Science Monitor the reprisals will be in the "diplomatic field, the industrial field and on energy." This could mean, among other things, bans on imports from Argentina.

China, as well, could be put off. Sinopec, one of China's giant, state-owned oil companies, was set to buy a 57 percent stake in YPF after years of planning, according to Reuters.

Alieto Guadagni, a former Argentine politician, supports the government takeover of YPF. "But with my head," he told The Christian Science Monitor, "I wonder where the money to invest will come from."

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