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Kirchner Joins the Resource Wars

Posted: 05/29/2012 12:38 pm

Argentina, Bolivia, Egypt: Countries around the world embrace resource nationalism and pursue the nationalization of oil and gas companies. Even in the age of globalization, nationalistic mercantilism still lurks deep in the shadows of geopolitics.

The Argentinean president Cristina Fernández de Kirchner's nationalization of the Spanish oil company Repsol might not be as shocking as the Argentinean re-conquest of the Malavinas in 1982, but any dispute between Argentina and a European state (especially if it involves a prominent female head of state) certainly invite comparisons to the Falkland Islands war, which occurred just over 30 years ago when Margaret Thatcher was prime minister in London.

In in a fiery speech to note the anniversary of that war, Kirchner demanded that "[Britain] stop usurping our environment, our natural resources, our oil." Just as the outbreak of the Falkland Islands war was intimately tied to Argentinean domestic politics, domestic concerns and rising energy prices have now prompted the re-nationalization of Repsol. It is likely that the growing demand for energy and commodities in emerging markets will prompt similar nationalizations of goods that were once destined for international markets.

Following World War II, Egyptian president Nasser's nationalization of the Suez Canal inspired Arab leaders. But it was Mexico that became the first nation to nationalize its oil resources in 1938. The successor to the Mexican nationalization, a company called Pemex, now holds a 10 percent stake in Repsol. Not surprisingly, Mexican representatives thus joined their Spanish counterparts in deploring the move by the Argentinean government.

Resource nationalism will continue

Outside of the Middle East and North Africa, the Americas have the world's second largest petroleum reserves. In Argentina, the emphasis in the future will be in shale gas, the commercialization of which has transformed energy policy in North America. A U.S. Government study noted that Argentina's 774.000 billion cubic feet of recoverable shale gas constitute the third largest reserves in the world.

Resource nationalism -- particularly for energy resources -- will continue to be one of the driving realities of this century. Instead of being driven solely by the interests to profit from trade, the nationalizations are often meant to both mollify angry citizens and also to meet rising energy demands at home. According to one study, Argentinean demand for oil rose 40 percent between 2000 and 2010. Argentina spends billions of dollars each year providing its citizens with fuel at prices five times lower than in Uruguay or Brazil.

Traditionally, nationalization would scare off foreign investors and sources of foreign direct investment. But today, global growth is so strongly driven by emerging markets that even if investors from one country are scared off, there are others waiting to take a risk. Secondly, cheap access to energy resources will be necessary for emerging markets to continue growing while keeping their populations content.

Traditional measures become more difficult

Finally, the global educational gap has closed significantly. When Iran's oil industry was nationalized in 1953, the country lacked the technical know-how to run its own industry. In many emerging countries, knowledge is no longer a impediment.

This means that traditional measures of potential resource nationalism may become more difficult. Maplecroft's Resource Nationalism Index did not forecast a high risk of nationalization in Argentina before the Rapsol developments. And 44 percent of global oil production takes place in countries which Maplecroft's index rates as "high risk." Bolivia has already announced the nationalization of the Red Electrica corporation, and Egypt might soon have to scrap gas exports altogether, as domestic energy consumption in Egypt has grown at thrice the global average for the past decade. Not all moves will be so bold: A tariff on exports could be just as effective and less likely to grab global headlines.

Argentina's nationalization of Repsol might foreshadow the things to come as many countries around the world adopt their own forms of resource nationalism. Evidently, globalization has its fragile moments. The lesson is that mercantilism still lurks in the shadows.

By Joseph Hammond, The European

 

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