The global energy industry is in an uproar today after Argentine President Cristina Fernández de Kirchner's announcement that her government plans to seize a majority stake in YPF, the country's largest oil company. The Spanish government has threatened retaliatory action -- Spanish energy giant Repsol is currently YPF's largest shareholder -- for what's being called the largest oil nationalization since the Russian government's takeover of Mikhail Khodorkovsky's Yukos in 2003. Repsol shares are down 7.2 percent today.
While the hostile state takeover of a $7.7 billion company is making waves, such nationalizations are hardly unprecedented, particularly in Latin America. Today, government-controlled oil companies, many of which acquired their holdings through takeovers like Argentina's, control 85 percent of the world's oil reserves and 55 percent of production. Here's a quick look at the anatomy of a government takeover:
Step 1: Choose your moment
Research has shown that oil nationalizations happen most typically while oil prices are high and political institutions are weak. Nationalizations in countries -- from Iraq to Libya -- relatively common during the 1970s, then nearly unheard of during the 1980s and 1990s. They then returned with a vengeance in the last decade, with major seizures in Bolivia, Ecuador, Venezuela, and Russia.
Oil has never just been a commodity; it's a strategic asset as well, and forced nationalizations are as old as the oil industry itself. In 1938, the Mexican government expropriated half a billion dollars worth of foreign oil assets after the companies failed to come to an agreement with labor unions over working conditions. The seizure set off a war of words with Standard Oil and many countries chose to boycott Mexican petroleum products, but the government stuck to its guns, creating what is now known as the state oil monopoly Pemex, the world's second-largest non-public company after Saudi Aramco, as of 2006.
Many recent post-Soviet and Latin American oil seizures have actually been "re-nationalizations," state takeovers of energy resources that had been privatized during the free-market reforms of the 1990s. This includes YPF, which was originally a state monopoly privatized in 1993.
Step 2: Build your case
It's usually wise to set up some kind of legal framework before you start seizing private property. In 2001, two years after he took power, Venezuelan President Hugo Chávez passed a new hydrocarbon law increasing the amount of royalties paid by foreign oil companies and increasing direct state control over the national oil company PdVSA, which had operated as relatively independent entity under previous administrations.
Over the next several years, Chavez built up his rhetorical case against the foreign oil companies until he finally began seizing their assets in 2007. As he put it at the time, "To God what is God's, and to Caesar what is Caesar's.... Today we also say: to the people what is the people's!"
Fernandez presented the YPF takeover in similar terms. "We are the only country in Latin America, and I would say in practically the entire world, that doesn't manage its own natural resources," she said.