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Analysis - Case Study Example

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Nationalization of Oil Industry Abstract The Argentinean President, Cristina Fernandez de Kirchner has announced in mid 2012 that Argentina would take control of its biggest oil producer, YPF, from its Spanish owner, Repsol. This has created significant commotion in the international forum…
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The incident has also led to public protests in Spain and the Spanish government has assured its interference in any situation to protect its private entrepreneurs in foreign countries. Nationalization of local assets in Argentina might trigger retaliation from the international community and its effect might also spill over other aspects of economic activities. Table of Contents Nationalization of Oil Industry 1 Introduction 4 Justifications Cited for Nationalization of Oil 4 Losses faced by Repsol 6 Effects on Argentina 6 Consequences of nationalization of oil in Argentina 7 Conclusion 8 Introduction Argentinean President Cristina Fernandez de Kirchner in April 2012 has announced that Argentina would take control of Repsol YPF, the country’s biggest crude oil producer, by nationalizing 51 percent of the company’s shares (Gaudin, 2012). Until 1999 YPF was the largest oil company of Argentina and was owned by the government. However lack of efficient management and expertise was pulling down profits in the oil industry. As a result the government started encouraging foreign investment in the market so as to invigorate oil production. Between the years 1993 and 1999, Madrid based Repsol had acquired 100 percent of the company’s shares (Weinstein, 2012) and its name was changed from YPF to Repsol YPF. Spain is the largest foreign investor in Argentina with the European market being the largest export market to the country (Hernandez, 2012). However, the current dispute is over a slump in investment by the Spanish owner of YPF, which is leading to a droop in energy output in Argentina. Justifications Cited for Nationalization of Oil In the home country, Buenos Aires based YPF, is considered an emblem of state pride (Economist, 2012a). Nationalization of the $18 billion worth company in 2012 would bring huge revenue to the cash-strapped government, which is a significantly beneficial aspect of the President’s decision. Hence nationalization of the country’s biggest oil company is apparently a populist move by the President. Energy officials from Brazil and the President of Uruguay have praised this action (Economist, 2012a). Ms. Fernandez has accused Repsol in terms of its failure to make enough investment in exploiting the resources of the country. YPF has declared that it has discovered an oil shale site whose estimated potential yield would be 23 billion barrels approximately (Forero, 2012). In the context of soaring cost of oil, which is damaging the country’s economy, the lack of potential investment in Argentinean gas and oil reserves is a primary show cause behind the seizure of Repsol YPf’s shares. The President said that Repsol was not producing enough oil and was therefore failing to meet the country’s total energy requirements. Argentina is currently facing a serious shortage in its total production of energy. This situation is being fixed by importing energy at a higher price from other countries (Economist, 2012a). Ms. Fernandez has said that if this continues Argentina would become an unviable state for investment (Macalister, 2012). Pressure exerted by the government on YPF was increasing since the past two months before the decision of nationalization was taken. It is evident that the current situation has been created as a turn from the 2004 ... Read More
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