Paul White, Associated Press
MADRID — Argentina's hostile takeover of its top energy company from Spain's Repsol marks a turning point in traditionally cordial relations between two countries that have built strong ties over a century. As the spat escalates, some fear the damage may be lasting.
Argentine President Cristina Fernandez has defended the move to re-nationalization of YPF as part of a drive to restore her country's sovereignty, increase oil production and rely less on hydrocarbon imports.
Repsol and Spain deride it as outright "pillaging" and an attack on their interests.
In both countries, the citizenry is behind the respective governments. In Spain, for instance, 90 percent of people polled condemn the expropriation of YPF, the Argentine unit of Repsol, according to a survey released Wednesday by the Elcano Royal Institute, a Madrid think tank. Repsol acquired a majority stake in YPF in 1999.
With Argentina seemingly unwilling to backtrack on the announcement despite protests from Spain, the European Union and elsewhere, Spain made clear it is preparing to hit back hard with support from its European partners. Spanish Industry Minister Jose Manuel Soria said the reprisal will be diplomatic and commercial in nature.
The U.S. State Department has said the YPF expropriation could have a negative effect for Argentina's economy and investment in that country.
The question is how far the two countries will bring the spat.
"I think that there will be a before and after in Spanish-Argentina relations because of the expropriation of YPF," said Carlos Malamud, Elcano's chief researcher on Latin America. "This might continue to escalate, if the outbursts and tough messages in both directions continue."
In economic terms, Spain has more to lose, mainly because many Spanish companies operate in Argentina — from banks like Banco Santander S.A. to Banco Bilbao Vizcaya Argentaria S.A. and Telefonica S.A.'s mobile phone unit Movistar.
Many arrived in 2001, when an economic and banking crisis in Argentina coincided with a period of peak expansion in the Spanish economy.
But a decade later, it is Spain which is enduring its worst economic crisis in 30 years. And Spanish companies have failed to achieve a good image in Argentina in particular and Latin America in general, studies show.
Repsol's shares continued to tumble Thursday, shedding 4.8 percent to close at €14.7 ($19.2) on Spain's Ibex 35 index. They fell 6 percent on Tuesday — the first day of trading after the Argentine announcement — and dropped a further 6.2 percent on Wednesday. To add to the company's woes, rating agency Standard & Poor's downgraded its long-term corporate credit score for the company to BBB- — one notch above junk — with a warning that it could lower that score in the future.
Spain is the top foreign investor in Argentina, ahead of the United States. Spanish direct investment in Argentina totaled $23 billion in 2010. That was 26.3 percent of the total invested in that country, compared with 16.8 percent for the United States, according to the Argentine central bank.
Argentine investment in Spain totals just $60 million.
The trade balance also favors Argentina and has not stopped growing since Fernandez became president in 2007.
In 2011, the worst year yet in Spain's economic crisis, Spanish imports from Argentina totaled €2.1 billion ($2.7 billion). This was practically double the amount of Spanish exports to Argentina — €1 billion ($1.31 billion), according to figures from the Spanish Economy Ministry.
However, Spanish imports from Argentina — mainly foodstuffs and chemicals — account for just 0.8 percent of its total imports. So the Spanish government could have room to maneuver in response to possible sanctions from Argentina without Spain's overall trade balance being effected.
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