Oil and Trouble
Cristina Kirchner renationalizes an industry.
Apr 30, 2012, Vol. 17, No. 31 • By CHRISTOPHER CALDWELL
Argentine president Cristina Fernández de Kirchner cannot claim to be the only world leader to lash out against oil speculators this week. Last Tuesday President Obama used an appearance in the White House Rose Garden to do the same. But Kirchner put her money where her mouth is. She announced she was renationalizing YPF, Argentina’s national oil company, which was privatized in 1993 and still accounts for almost all of the country’s oil production.
Señora Kirchner was in the widow’s weeds she has worn since her husband, president until 2007, died of a heart attack two years ago. Like Hugo Chávez in Venezuela, Néstor Kirchner mixed postmodern global activism and backward-looking Cold War ideology. His country was ripe for it. Argentina’s decision to peg its peso to the dollar in the 1990s proved foolhardy, just as pegging the drachma to the deutsche mark did in this decade. The debts and public rage mounted even faster. In February 2001 Fidel Castro accused Argentines of “licking the Yankee boot.” There were riots a year later. After strikes, devaluations, and emergency decrees, Argentina defaulted on its debts to the World Bank. Nestor came to power in 2003. The Kirchners nationalized private pensions (good for $24 billion) and central bank reserves ($6.6 billion), but that still has not put the state’s finances in order. When this oil-rich country needed to import $9 billion worth of energy last year, someone was going to take the fall, and it was not going to be Señora Kirchner.
She blamed the Spanish multinational Repsol, which had acquired a majority stake in YPF in 1999. Repsol was offshoring its profits, she said, and not doing anything for Argentina. It was paying out ridiculous dividends instead of investing in research and drilling wells into the vast shale-oil deposits at Vaca Muerta, discovered in 2011, which may hold 20 billion barrels of oil. Señora Kirchner’s accusations were not baseless. Oil production in Argentina peaked in 1998, before Repsol took control. Countries that nationalize can do well. Government oil companies (Aramco, Pemex, PdVSA) are responsible for most oil production worldwide.
But there was another side of the story. Spain’s El País newspaper estimated that Repsol had paid the Argentine government $19 billion in taxes over the past four years, making it the country’s largest taxpayer. While Repsol’s oil production is indeed plummeting, that of other oil producers in Argentina is falling even faster. The company’s new government leadership wasn’t exactly brimming with ideas. It announced it would make YPF more efficient by “optimizing production.” Why didn’t Repsol think of that!
It is true that Repsol had tripled its dividend, but only to pay off the Eskenazi family, political cronies of the Kirchners. When Repsol controlled almost all the YPF shares, Néstor Kirchner insisted that it create some sort of “domestic” stake. And who better to hold it than Kirchner’s wealthiest backer? A quarter of the company was carved out for the paterfamilias, Enrique Eskenazi, financed by loans from Goldman Sachs, BNP Paribas, Itaú, Credit Suisse, and—to the tune of at least $1.6 billion—Repsol itself. The loans were to be paid back through the company’s dividends. If there was little money to spare for drilling, it was the Kirchners’ fault for meddling as much as Repsol’s for hoarding.
Like most insurgencies against the “powerful,” Argentina’s takeover of YPF is actually the opportunistic kicking of the formerly powerful before most people have quite realized they’re down. The Uruguayan president José Mujica supports Señora Kirchner’s move, calling it a blow against European arrogance. But these words came on a day when it was not certain Spain would be able to carry off a routine bond sale.
There have been signs that it is not really Spain that the Argentines are worried about. The day after Kirchner announced her nationalization, the Financial Times reported that Repsol had been quite far along in negotiations to sell its whole stake to a Chinese energy concern, probably Sinopec, which already owns 40 percent of Repsol’s Brazilian operation. The corporate bylaws granted Argentina a veto on the sale. But the news of a Chinese connection does put the nationalization of YPF in a different light.
Thirteen years ago, when Repsol took control of YPF, the argument for privatization was that government runs things inefficiently because it does not compete in the marketplace. Fine, but Repsol didn’t do much competing; it controlled over 90 percent of oil production in Argentina. What it did offer was the dependability that used to characterize government industries. It could be bargained with. Look at that dividend deal with the Eskenazis. The indignation with which Repsol is trying to rally the European Union against Argentina is that of one who has lain down with dogs and woken up with fleas. “Private” multinationals often operate in cahoots with government. South American leftists have figured this out. When Chávez unilaterally repudiated certain oil contracts in the Orinoco basin in 2007, Exxon fought Venezuela for compensation, but Chevron and several other companies accommodated themselves to Chávez’s new rules.
The world looks awfully different today than it did 13 years ago, when Repsol took over YPF. Who knows what it will look like 13 years from now? China might have a fleet of warships in the South Atlantic. Had Repsol sold its controlling stake to the Chinese, what then? If you believe most Chinese business is beholden to the Chinese government—a reasonable belief—then the fiction of YPF’s total independence from the state would grow less plausible. You’d again have a government-run energy sector in Argentina, just as you did before 1993, except that the government doing the running would be a foreign one. To many Argentines, Repsol’s profits would then look like a fee for taking a colossal energy resource and transferring it from the Argentine government to the Chinese one. Maybe it should not surprise us if Argentines are happy Señora Kirchner said no thanks, whatever her reasons.
Christopher Caldwell is a senior editor at The Weekly Standard.
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