Oil Makes Troubled Waters
Argentina Nationalization of Oil Company Angers EU

Spain and Argentina are at loggerheads over an oil company nationalization.

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Amiel Ungar,

YPF Headquarters
YPF Headquarters

The Argentine government of Cristina Fernandez Kirchner nationalized the YPF oil company in which the Spanish oil company Repsol held a controlling interest.

The nationalization of a profitable company could not have come at a worse time for a Spain trying to contend with massive unemployment and a budget deficit. It also sent tremors through Spanish companies that are invested in Argentina in areas such as banking, communications and clothing chains.

Spanish Prime Minister Mario Rajoy condemned the seizure as "completely unjustifiable and without any economic motive." Under international law, countries are permitted to expropriate, providing they pay prompt adequate and effective compensation to the former owners.

Argentina, going through an economic crisis of its own, expects oil royalties to help solve the problem. It has already indicated that it is in no hurry to pay the $10 billion that the Spanish company Repsol is asking in compensation.

The nationalization runs counter to liberal trading policies that were meant to encourage foreign investment. Spain received support in the dispute from fellow members of the European Union and from European commission President Jose Manuel Barroso.

The EU "postponed" a meeting between the EU and Argentina scheduled for Friday. Speaking in Brasilia, US Secretary of State Hillary Clinton called the move debatable and contrary to the open market model which appeared to be the most promising.

Cristina Fernandez Kirchner received support from Venezuelan president Hugo Chavez, who has taken similar measures in Venezuela, and from Nicaragua.

The decision was criticized by Mexican President Felipe Calderon as "a step that is not going to do anybody any good... It would merely deter investment.

Chile, under a leftist government, disassociated itself from Argentina's course of action. while Brazil did not see any immediate threat to its own investments in Argentina.

The United Kingdom may have emerged as the ironic winner of this dispute. Britain was quick to declare its solidarity with Spain and condemn the Argentine nationalization of YPF. British Foreign Secretary William Hague lent his voice to the general condemnation, saying: "This goes against all the commitments Argentina has made in the G20 to promote transparency and reduce protectionism."

The conflict between Britain and Argentina over the Falklands Islands has heated up. Under the previous Socialist Spanish government, Spain prioritized relations with Latin America within the EU, and joined other Latin American countries in calling for the resumption of sovereignty talks on the islands.

At the 2010 Mar Del Plata conference, Spanish Foreign Affairs Minister Trinidad Jiménez. signed a declaration calling on London to abstain from hydrocarbon exploration in the islands and to refrain from military exercises there. Given the current tensions between Madrid and Buenos Aires, the Spanish government is not expected to get worked up over the Falklands.