The fallout from the YPF seizure

The players are taking sides as Argentina consolidates the ground it has taken

The fallout from Argentina's seizure of 51 per cent of its former state oil company YPF continues today, both in diplomatic and financial sectors.

The most immediate impact is that a deal to sell the company has fallen through. The Financial Times reports that Repsol, the Spanish company that held 57 per cent of YPF, was negotiating a deal to sell the company to the Chinese firm Sinopec. Now that Repsol owns 6, rather than 57, per cent of the company, that deal is obviously unlikely to go through.

The sale was being negotiated in secret, according to the FT's sources, because the firms hoped to present it to the Argentine government in its finalised state. The government holds a golden share in YPF, which means that any sales have to be approved by it.

To what extent Argentina will feel concerned about this is debatable. On the one hand, they nationalised the company without knowing all the details, but on the other, even if the takeover had gone ahead, it seems unlikely it would have changed the state's rationale for action. Repsol was already investing more into YPF than it was getting from it, and there is no reason to believe that Sinopec would have behaved differently.

The impact of the move on Repsol itself has been a 6 per cent overnight fall in its share price, but where it goes from here depends on how many concessions it manages to extract from Argentina. The company is demanding $10bn compensation for the move, but the government seems unlikely to fork it over, with the deputy economic minsiter saying:

We are going to determine [YPF’s] real value. We are not going to pay what [Repsol] say.

Unless Argentina volunteers to enter arbitration, as Repsol is demanding, the real action looks to be diplomatic. Surprising nobody, Britain has entered the debate on the side of Spain. William Hague criticised the move, saying:

This is the latest in a series of trade and investment related actions taken by Argentina which are damaging to business interests, and will undermine Argentina’s economy. We will work with Spain and our EU partners to ensure the Argentine authorities uphold their international commitments.

The Spanish foreign minister, José Manuel García-Margallo, hinted at further problems which Argentina could face as a result, telling El Pais:

In my opinion Argentina has shot itself in the foot. Argentina needs 36 billion euros in funding and it could see itself cut off from credit by international investors after this measure.

An editorial in the paper is similarly damning, writing:

The fact of the expropriation, threatened for months with the intention of undermining Repsol’s resistance and cheapening YPF’s shares, goes beyond a mere breakdown of the legal security one expects in a democratic country; it is an intentional betrayal of the agreement on reciprocal protection of investments signed by Spain and Argentina in November 1991, and initiates a period of grave uncertainty for Spanish companies in Argentina, and for all foreign investors there.

But the dissenting voices have started to come out of the woodwork. In the Guardian, Mark Weisbrot writes that Argentina has made the correct decision:

Now the government is reversing another failed neoliberal policy of the 1990s: the privatisation of its oil and gas industry, which should never have happened in the first place.

There are sound reasons for this move, and the government will most likely be proved right once again. Repsol, the Spanish oil company that currently owns 57% of Argentina's YPF, hasn't produced enough to keep up with Argentina's rapidly growing economy. From 2004 to 2011, Argentina's oil production has actually declined by almost 20% and gas by 13%, with YPF accounting for much of this. And the company's proven reserves of oil and gas have also fallen substantially over the past few years.

Weisbrot seems likely to stay in the minority, however. Given the disastrous effects of price controls on oil, the massaging of inflation figures (thought to be at 18-20 per cent, rather than the official 9-10 per cent) and the aforementined high investment by Repsol into YPF, Argentina is hardly a paragon of economic rationality.

A woman jogs past a sign referencing YPF in Argentina. Credit: Getty

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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Zac Goldsmith has bitten off more than he can chew

In standing as an independent, Goldsmith may face the worst of both worlds. 

After just 48 years, we can announce the very late arrival of the third runway at Heathrow. Assuming, that is, that it makes its way past the legal challenge from five local councils and Greenpeace, the consultation with local residents, and the financial worries of the big airlines. And that's not counting the political struggles...

While the Times leads with the logistical headaches - "Heathrow runway may be built over motorway" is their splash, the political hurdles dominate most of this morning’s papers

"Tory rebels let fly on Heathrow" says the i's frontpage, while the FT goes for "Prominent Tories lead challenge to May on Heathrow expansion". Although Justine Greening, a May loyalist to her fingertips, has limited herself to a critical blogpost, Boris Johnson has said the project is "undeliverable" and will lead to London becoming "a city of planes". 

But May’s real headache is Zac Goldsmith, who has quit, triggering a by-election in his seat of Richmond Park, in which he will stand as an anti-Heathrow candidate.  "Heathrow forces May into Brexit by-election" is the Telegraph's splash. 

CCHQ has decided to duck out of the contest entirely, leaving Goldsmith running as the Conservative candidate in all but name, against the Liberal Democrat Sarah Olney. 

What are Goldsmith's chances? To win the seat, the Liberal Democrats would need a 19.3 per cent swing from the Conservatives - and in Witney, they got exactly that.

They will also find it easier to squeeze the third-placed Labour vote than they did in Witney, where they started the race in fourth place. They will find that task all the easier if the calls for Labour to stand aside are heeded by the party leadership. In any case, that Clive Lewis, Lisa Nandy and Jonathan Reynolds have all declared that they should will be a boost for Olney even if she does face a Labour candidate.  

The Liberal Democrats are fond of leaflets warning that their rivals “cannot win here” and thanks to Witney they have one ready made.  

Goldsmith risks having the worst of all worlds. I'm waiting to hear whether or not the Conservatives will make their resources freely available to Goldsmith, but it is hard to see how, without taking an axe to data protection laws, he can make use of Conservative VoterID or information gathered in his doomed mayoral campaign. 

But in any case, the Liberal Democrats will still be able to paint him as the Brexit candidate and the preferred choice of the pro-Heathrow Prime Minister, as he is. I think Goldsmith will find he has bitten more than he can chew this time.

This article originally appeared in today's Morning Call, your essential email covering everything you need to know about British politics and today's news. You can subscribe for free here.

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.