Insight

Argentina: how not to assert energy independence

Energy & Commodities
  • The announcement on April 17 by Argentine President Christina Fernandez that she would be sending a bill to Congress to mandate the nationalisation of oil company YPF has sent shockwaves through the energy industry. Although a degree of nationalisation was expected, the expropriation of a majority stake from Repsol was abrupt and sweeping. It was also hugely politically popular.
  • Christina Fernandez’s actions were arbitrary, but they were not erratic. In fact they are a part of a pattern stretching back to Argentina’s 2002 default and its subsequent battle to maintain its dollar reserves and exploit its energy resources. To understand the YPF nationalisation, you have to understand why energy-rich Argentina produced more energy in 2000 than in 2011.  
  • In Latin and Southern-American terms, Argentina’s fully privatised energy sector was in fact an anomaly. However clumsily, by asserting a public claim on reserves and revenues, the Fernandez government is aligning itself with the emerging regional norm.
  • The YPF episode will probably cost Argentina less in terms of energy investment than some predict, especially if it can reform its subsidy regime. It will however reinforce perceptions of political risk in Argentina and is likely to further isolate Argentina in Europe and the US. It may well push it further towards closer ties with China.

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