Spanish oil company Repsol recently accepted Argentina’s offer to negotiate a settlement over the nationalization of the Argentine oil company YPF. Repsol long held a controlling share of YPF, which produces approximately 1/3 and ¼ of Argentina’s oil and gas respectively.
The nationalization occurred last year, after Argentina accused Repsol of not investing enough to improve output, a charge which Repsol denied, claiming that it had invested $20 billion in Argentina. Further complicating the issue is the fact that Pemex, Mexico’s national oil company, also holds a share in Repsol, which contributes to geopolitical tension. In addition, a US firm ostensibly affected by the nationalization also participated in the suit against Argentina, while the EU is also engaged in a lawsuit against Argentina regarding import policy.
One of the greatest fears associated with international investment is nationalization. The willingness of Argentina to negotiate with Repsol seems in large part to be related to the tremendous international pressure placed on Argentina by Spain, Mexico, and the United States. Given that nationalizations are often performed by regimes hostile to capitalism, many times compensation is nonexistent. From an Industrial Organizations standpoint, the question is to what extent does uncertainty of the future hamper foreign investment? With the hypothetical life of a company as infinite, the future status of a company’s operations means that many players may be unwilling to invest in countries that seem political unstable or anti-Western in nature.