Another pot hole for the Spanish economy

The nationalization of the oil company YPF (Fiscal Oilfields) by the Argentinian government put Spain in the cross-hairs once again at a time when the benchmark index of the Spanish stock exchange (IBEX 35) has toppled more than 2%.

The expropriation of the shares owned by the Spanish subsidiary Repsol has taken place due to a “Decree of Necessity and Urgency”, according to Argentina's President Cristina Fernandez de Kirchner. This action has mangled the relationships between the two countries. The Spanish Industry Minister, José Manuel Soria described the measure to expropriate 51% of company shares as “hostility against interests and against Spain”.

Antoni Brufau, chairman of Spanish oil company Repsol, a company that owns a 57.43 percent stake in YPF will call for compensation in international arbitration. He also said that the expropriation of YPF is illegal and announced he is willing to sue Buenos Aires in a hearing to settle the dispute in the World Bank (WB).

The Argentine government´s decision has caused Repsol YPF stocks to take a sharp downturn due to the uncertainty of the situation as a result of the Argentine´s government cutting subsidies and the call for the expropriation of the 51% shares held in IPF. The Argentine government's plans are spurring stock volatility both in New York and Madrid Stock Exchange. Argentina has splintered the “trust with Spain and the international community”, according to Foreign Minister Jose Manuel Garcia Margallo. Speculators allude to an area in the south-west of Argentina called “Dead cows” region, where a new stockpile of oil was found, as one of the reasons this law was decreed.

The Argentinian oil company IPF has a long and diverse history since its creation in 1922. In 1992 during the administration of President Carlos Menem (1989-1999) Repsol bought out $15bn worth of shares saving the company from bankruptcy.

The new Argentinian President Kirchner refuses to pay $10bn to the Spanish company Repsol arguing that expropriation is a measure “according to the law and guidelines established by the Constitution of Argentina”. The confrontation amid Respol IPF´s nationalization and Kirchner´s government could necessitate intervention from the international finance community and could be a setback in the Argentina´s economic situation. As Wall Street shows YPF stocks topped the list of biggest percentage price decliners among common stocks on the New York Stock Exchange at the close of April, 18th with a -11.16% ADS.

The Spanish population is highly torn from the latest labor reforms put into place by the new right-wing government coupled with civil unrest in the society. Accompanied with the underlying weakness of Spain´s Banks, it is hard to wonder if Argentina has not just hammered another nail into Spain´s coffin.