In a controversial move, Argentina’s President Kitty Cristina Fernández nationalized Repsol, a Spanish owned oil company, which was previously state owned.  After the expropriation, 51% of the funds will go to the national government and 49% will go to Argentina’s oil-producing provinces.  The President says that Argentina is rich in natural resources, and yet it does not control those very resources.  She argues that Argentina is the only country in the world that does not control their natural resources.  In fact, Argentina is a net importer of natural resources, even though a recent discovery confirmed that Argentina has the third largest supply of shale oil in the world.

There are some advantages to the takeover.  For example, company profits can be used to finance public spending since Argentina can no longer borrow money at low interest rates.   Furthermore, there is a short term political benefit.  Argentina suffered a setback after failing to convince the Summit of the Americas that Argentina had a legitimate claim to the Falkland Islands.  Arguably, the takeover is a showing of Argentine muscle after the Falkland setback.

However, in terms of economics, the decision could be problematic.  No private investor will seek to develop Argentina’s shale fields for fear that their investments could be expropriated.   Furthermore, it is expected that oil experts will leave Argentina in droves.  The diplomatic impact may be massive.  The Spanish government will seek to defend Repsol’s shareholders and considers the act to be an act of aggression against Spain.  Even if Argentina pays a fair price for Repsol, she will end up spoiling the Spanish-Argentine relationship.  Repsol will likely file a claim against Argentina at the World Bank.  This controversy will not go away.