Who's afraid of Kirchner's oil
nationalization? By Cyrus Bina
Argentina's President Cristina Fernandez
de Kirchner at a press conference on April 16
announced the seizure of a 51% control in oil
company YPF and reasserted Argentina's control
over its oil deposits.
The key phrase in
this spectacular act was "recovery of sovereignty
and control". YPF was Argentina's longtime
national oil company, whose assets, including oil
deposits, were owned by the Argentinian public
until 1993. In 1999, YPF was taken over by Repsol,
Spain's once national oil company. The YPF oil
reserves amounted to two-thirds of Repsol's
ownership of oil reserves before
re-nationalization.
On April 26,
Argentina's Senate voted 63 to 3 confirming the
takeover. The expropriation bill was taken up by
the lower house
of Argentina's Congress and
passed by 207 to 32 on May 3. This bill is the
latest in the carefully considered series of
socioeconomic reversals against the 1990s'
happy-go-lucky privatizations, known as
neoliberalism, in Latin America and elsewhere in
the world.
The brunt of the Thatcherite
period of transvestite politics and war, dubbed as
the Iron Lady Era, and the recklessness of the
generals in charge in the 1980s and assorted
civilian governments, hostage to neoliberal
economic policies throughout the 1990s, made
Argentina a basket-case between cannibalistic
policies on the one hand, and the plight of
capital flight on the other.
Argentina's
economic default of the early 2000s was indeed a
mixed blessing: it painfully revealed the tip of
the neoliberal economic orthodoxy - long before
the crisis of neoliberalism (and this malicious
economic philosophy) tended to suffocate the world
- and, at the same time, created wisdom for
emerging from this mess by 2003 with the election
of Nestor Kirchner.
By the mid-2000s,
Argentina had fulfilled a negotiated settlement
with private credit holders (ie, the transnational
banks) and paid its US$8.9 billion obligation, in
full, to the International Monetary Fund (IMF).
Today, Argentina has no obligation to dance with
the wolves of trickle-down "structural
adjustments", required by the Fund.
This
takeover amounted to the expropriation of all YPF
oil reserves, which amounted to two-thirds of
Repsol's oil reserves before re-nationalization.
The fact that Repsol earns only one-third of its
profits from YPF's oil reserves illustrates that
the company was probably "sitting on the
concession" - analogous to old colonial practices
by the International Petroleum Cartel, known as
the "Seven Sisters", of keeping certain oil
concessions inactive and away from production.
To view another sign for
sitting-on-the-concession, one needs to track the
repatriation of profits through augmentation of
dividends to shareholders, while maintaining the
diminishing production of more than 20% between
2000 and 2010, despite the surging domestic demand
in the same period.
This new move allows
the country to increase its petroleum production
in response to heightened domestic demand and to
save on reserves of foreign currency that were
needlessly spent on the imports of energy.
I recently returned from a week-long trip
to Argentina, along with a team of eminent
economists from around the world. We delivered
lectures, exchanged ideas, and critically
considered some of the issues associated with the
current economic dilemmas facing the world (and
Argentina).
I dissected the oil and energy
sector along its evolutionary transformation: from
cartelization to de-cartelization and subsequent
competitive globalization. Included were the
assessment of the nationalization of oil and the
role of national oil companies in the era of
competitive globalization.
During this
visit, contrary to blowback of the austerity
policies in the European Union and the United
States, I found Argentina's economy vibrant, and
despite the beleaguering worldwide economic
crisis, and contrary to standard neoliberal
recommendations by the International Monetary
Fund, the country's anti-austerity policies had
paid off.
Argentina's economy is now among
the fastest growing economies in Latin America -
with a more than 9% growth rate in 2010.
The upshot of my argument was that today's
world economy cannot be chopped off or stretched
out according to Procrustean fiat of "perfect
competition" embedded in much of the mainstream
economic analysis.
Globalization of oil is
demonstrably rooted in the process of de facto
nationalization of oil deposits in the aftermath
of the collapse of the International Petroleum
Cartel (1928-1972) in the early 1970s.
Capitalist competition (and incentive for
capital investment on the competitive leases) and
nationalization of oil deposits are theoretically
and empirically compatible. Nationalizing oil
deposits (that is, identifying differential oil
rent from competitive profit) may not hinder
private capital from earning competitive profit
from investment on the exploration and development
of oil.
To be sure, competitive return on
public ownership of the oil-in-place is regulated
by the magnitude of differential oil rents
(commensurate with differential productivities of
the various oilfields), whereas competitive return
on capital is formed through investments by
capitalists who hold the oil leases.
The
legal ownership of the oil-in-place has scarcely
been a serious proposition even during the heyday
of the colonial oil concessions held by the Seven
Sisters - except in the case of the "rule of
capture" in the US oil region. The rule of capture
refers to the right of land ownership together
with the ownership of the sub-surface deposits.
Contrary to the illusion of "perfect
and/or imperfect competition" in mainstream
theory, genuine competition is neither perfect nor
imperfect; it is rather a struggle of capital
against contending capital, which in actual
markets renders differential oil rents
price-determined - not price-determining.
So, in reality, we have oil rents along
with competitive pricing - an anomaly in textbook
economics. That's why I contend that the 1993
wholesale privatization of publicly owned oil
deposits in Argentina was ill-advised, if not
downright stupid.
It recklessly
surrendered what belonged to Argentina's citizenry
to a private outfit, which later predictably
transferred to distant absentee owners who proved
to be indifferent to the national interest of the
public in Argentina. And on top of the competitive
profit on capital, Argentina's differential oil
rent senselessly moved to the coffer of foreign
capital.
Today, examples of an amicable
coexistence between national oil companies and
transnational capital abound. National oil
companies in Abu Dhabi, China, Brazil, Emirates,
India, Iran, Iraq, Italy, Kuwait, Malaysia,
Nigeria, Norway, Oman, Paraguay, Russia, Saudi
Arabia and Venezuela are all testimonial to a
compelling theory that holds them together since
the globalization of oil in the 1970s.
Even in the US, where the "rule of
capture" prevails, there are public lands managed
by the Bureau of Land Management of the US
Department of the Interior. The oil deposits under
these lands (and deposits in the Outer Continental
Shelf) are leased rather routinely by the US
government on behalf of real owners - the American
public.
This sobering reality check would
assure the amicability of coexistence between
nationalization of oil and privatization through
the application of competitive leases.
It
is in this context that the government of
Argentina should beware that Repsol's alleged
claim of compensation for market value of
Argentina's nationalized oil deposits is
frivolous. Claims that contradict sovereign rights
of the rightful owner, in this case, the
inalienable rights of Argentina's citizens over
their oil deposits, are a contradiction in terms,
which negate the original cause of national
sovereignty.
Therefore, any legitimate
claim by Repsol must be limited to the
pre-nationalization portion of fair value of oil
facilities and structures that were allegedly
owned by the company in YPF by means of neural
arbitration.
However, to safeguard the
interest of the public fully, Argentina's
government needs to reexamine the Nationalization
Act by allowing for complete control (rather than
51% control) overall petroleum resources that are
in private hands. This, of course, should exclude
the assets that belong to the company in
facilities and structure.
Therefore, I
propose that, by preparing an addendum to that
effect, the government should without further ado
revisit the bill and complete the task of genuine
nationalization of oil in Argentina.
Against all this, a senior oil analyst at
Oppenheimer & Company in New York was quick to
say: "The oil industry in Argentina is just
getting ready to take off, but this may be a way
to kill it in its infancy."
I don't know
whether I should be astonished by the paucity of
economic knowledge or by the audacity of
fear-mongering in this statement. But then, as the
saying goes, for Chicken Little the sky is
falling. This also goes for sheer hypocrisy on the
part of Brazilians who tend to admonish Mrs
Kirchner for re-nationalizing Argentina's oil,
calling her "crazy queen", while holding fast to
their own "crazy" nationalized oil company -
Petrobras. What is good for the goose is good for
the gander - isn't it?
In Europe, the
Spanish government appears to have come to
Repsol's defense by initiating a war of words
against Argentina, while playing padre to a
private outfit that at the end of the day may not
have any choice but to settle for the market value
of its pre-nationalized facilities alone.
The Spanish government, however, gives the
impression that by harping on the "beggar thy
neighbor" remedies through Repsol may obtain
extra-judicial compensation.
For those
familiar with nationalization of oil in Iran and
expropriation of the Anglo-Iranian Oil Company
(AIOC, now BP) in 1951, this case may be one of
deja vu. Soon after the nationalization in Iran,
the British government under Winston Churchill
condemned the Iranian government. Churchill then
entered into the fray by playing godparent to AIOC
- a colonial outfit and, in the eyes of Iranians,
a Trojan horse at the service of Britain's
meddling in Iran's internal affair.
First,
by sending HMS Gambia (along with two
frigates) to the upper Persian Gulf close to the
Abadan refinery, Britain engaged in a show of
force against the newly formed Iranian government
by a Swiss-educated lawyer, named Mossadegh.
Her Majesty's government then filed a
frivolous claim at the International Court of
Justice in The Hague - shamelessly insinuating
that this nationalization was a violation of
international treaty - and went on to perpetrate
further sabotage and intrusion in the domestic
affairs of Iran.
And if that was not
enough, Churchill unremittingly hard-pressed the
Americans to break international law and do the
unthinkable. Soon after, the 1953 CIA Coup d'etat
was placed on the drawing board.
In the
case of treatment of Argentina's nationalization,
tragedy turns to farce. Catherine Ashton, the
European Union's high representative for foreign
affairs, reportedly warns that "the measure [that
is, Argentine's oil nationalization] creates legal
insecurity for all European Union and foreign
firms in the country."
Ashton should be
reminded that her broad-brush phrases, "all
European Union" and "foreign firms in the country"
have less to do with the specifics of Mrs
Kirchner's re-nationalization of oil in Argentina
and more to do with the abrogation of Argentina's
sovereignty.
Ashton also should be
encouraged to leaf through the not-so-distant
history of her own country, if I may say, with a
trace of graceful blushing. A suitable start, may
I suggest, is to thumb through incriminating
documents buried in AIOC's illustrious history and
to hold off uttering any panoramic public
statements against Argentina.
Finally,
while the ideologically charged corporate media,
with very few exceptions, are habitually echoing
the backing of private absentee-owners of Repsol's
claim on Argentina's oil and gas deposits, we need
to educate ourselves on the reality of the
de-cartelization and competitive globalization of
oil, without prejudice.
This needs a
critical understanding of the fact that neither
the fairy-tale price theory espoused by many
mainstream economists nor blindsided,
self-destructive, cannibalistic, crisis-ridden,
and ultimately stupid neoliberal policies will
work.
Yet, as we can see, the debate over
Argentina's oil nationalization is already laden
with malign ideology rather than objective
economic thinking. As William Shakespeare may have
said on this occasion: "Let each eye negotiate for
itself."
Cyrus Bina is
Distinguished Professor of Economics at the
University of Minnesota (Morris Campus), USA. He
has written several books and numerous articles on
all aspects of oil and energy industry worldwide.
His most recent book is Oil:
A Time Machine - Journey Beyond Fanciful Economics
and Frightful Politics, 2nd Edition,
(2011). Bina is also a coeditor of forthcoming
Alternative Theories of Competition:
Challenges to the Orthodoxy, Routledge 2012.
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Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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