Argentina before the Law

MADRID – Argentine President Cristina Fernández de Kirchner’s decision to renationalize the energy company YPF has raised a virtual tsunami of political diatribes, threats from unexpected places and players, heated commentary from journalists worldwide, and public outrage in Argentina, Spain, and many other countries. But Fernández is not likely to care about the complaints; renationalization is playing very well with her Peronist supporters at home.

So now Argentina will face international law. In addition to Repsol, the Spanish energy company that held a majority stake in YPF, Spain and the European Union (which, under the Lisbon Treaty, has acquired authority regarding investment matters in third countries) will fight the seizure with every legal tool that they can muster.

Argentina stands to lose economically by its actions as well. Given Fernández’s contempt for her country’s largest foreign investor, the renationalized YPF will find it difficult to find a new partner in international markets. Indeed, given Fernández’s arbitrary action, the Chinese firms that were negotiating with Repsol for a stake in YPF are likely to have second thoughts.

In the end, a solution must be found that is acceptable to all. So allowing tempers to cool and rhetoric to soften is now a high priority, and there is no better way to do that than by switching on the legal machinery. Repsol’s announcement that it will seek international arbitration before the International Center for Settlement of Investment Disputes (ICSID) is a useful first step.