Argentine President Cristina Fernandez de Kirchner, angry at a rising national oil bill and emboldened by her own populist fervor, has relieved Spain's Repsol of most of its shares of YPF, the country's biggest oil company. Repsol, which since 1999 has owned 57.4 percent of YPF, will now have about 6 percent.
Spain has lashed out, rating agencies are reconsidering political risk in Argentina, and analysts generally seemed to regard it as a bad move. Repsol has not said so since yesterday, but it naturally would be unhappy with Fernandez (pictured above).
Wherever the balance of fault lies, the biggest hit will be to Argentina's place in the global surge in oil production. Along South America's east coast, Brazil is already on the cusp of being among the world's premier oil producers, and, just to the north, crude has been found in French Guiana. Repsol itself is drilling in both Guyana and Cuba, both of which could become oil exporters.
As for Argentina, it currently produces about 570,000 barrels of oil a day. But industry experts say Argentina has the potential for much more since it has among the world's largest reserves of shale oil and shale gas -- the equivalent of 23 billion barrels of oil in a formation called Vaca Muerta. YPF has said that it will cost $25 billion to develop Vaca Muerta, reports Bloomberg BusinessWeek. YPF controls more than half the total - the equivalent of 13 billion barrels of oil.
The development estimate seems sure to be larger. Until the expropriation, ExxonMobil and France's Total had been among companies examining Argentina's shale. But it seems likely that their interest will be conflicted considering what happened to Repsol. The Argentines of course can hire oil service companies to produce the shale, but the state will be left with the entire pricetag.
Fernandez hopes to significantly increase Argentina's oil production, but that horizon looks long in the future.
Meanwhile, the Argentines will have to compensate Repsol. Analysts told the Financial Times that the stake may be worth $5 billion. Since the state is cash-poor, Repsol seems unlikely to obtain the price at which it itself, or the market, might value the oil assets.
Steve LeVine is the author of The Oil and the Glory and a longtime foreign correspondent.