Nationalization of Oil Industry Essay Example | Topics and Well Written Essays - 1750 words

Nationalization of Oil Industry - Essay Example Argentinean President Cristina Fernà ¡ndez 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 (Gaudà ­n, 2012). Until 1999 YPF was the largest oil company in 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 for 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 drop in energy output in Argentina.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).... 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