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Incensed Spain threatens Argentina after YPF seizure

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MADRID – An incensed Spain threatened swift economic retaliation against Argentina on Tuesday after it announced plans to seize YPF, the South American nation’s biggest oil company, in a move which pushed down shares in Spanish energy giant Repsol, the controlling shareholder.

Madrid called in the Argentine ambassador in a rapidly escalating row over the nationalization order by Argentina’s populist and increasingly assertive president, Cristina Fernandez, a move which delighted many of her compatriots but alarmed some foreign governments and investors.

Promising action in the coming days, Spanish industry minister Jose Manuel Soria said: “With this attitude, this hostility from the Argentine authorities, there will be consequences that we’ll see over the next few days. They will be in the diplomatic field, the industrial field, and on energy.”

“Argentina has shot itself in the foot,” said Foreign Minister Jose Manual Garcia-Margallo.

Despite the rhetoric, Spain appeared to have little leverage over Buenos Aires – any action to be taken will be determined at a cabinet meeting on Friday – and Argentina has proven impervious to such pressure in the past.

Repsol said YPF was worth $18 billion as a whole and it would be seeking compensation on that basis, but the Spanish oil major’s shares fell by 7.5 percent in Madrid on Tuesday. The company said it could raise money in the bond market and sell some assets to help its cash flow.

Repsol described Argentina’s move as “clearly unlawful and seriously discriminatory” and said it would take legal action.

“This battle is not over,” Repsol Chairman Antonio Brufau said. “The expropriation is nothing more than a way of covering over the social and economic crisis facing Argentina right now.”

But Fernandez dismissed the risk of reprisals. “This president isn’t going to respond to any threats … because I represent the Argentine people. I’m the head of state, not a thug,” she said.

European Commission President Jose Manuel Barroso said he expected Argentina to uphold international agreements on business protection with Spain. “I am seriously disappointed about yesterday’s announcement,” he said in Brussels.

But action against Argentina appeared limited in scope. The EU Trade Commissioner would write to Argentina’s trade minister to “reiterate our serious concerns” while an EU-Argentine meeting this week would be postponed.

“It’s absolutely shameful considering everything that Spain has done for Argentina,” said a woman called Domi, who was filling her tank at a Repsol petrol station in Madrid.

“I hope the government takes measures and does something serious. They’ve pulled our leg long enough!”

Spanish media condemned the Argentine action, believed to be the biggest nationalization in the natural resources field since the seizure of Russia’s Yukos oil giant a decade ago.

La Razon newspaper carried a photograph of Fernandez on its front page in a pool of oil with the headline: “Kirchner’s Dirty War”, referring to her full name. The business newspaper La Gaceta de los Negocios called the takeover “an act of pillage”.

El Periodico spoke of “The New Evita”, pointing out that Fernandez had announced the nationalization in a room decorated with a large portrait of Eva Peron, the actress who was married to a president and revered by many Argentines as a populist mother of the nation and champion of the poor.

Repsol’s Brufau said he suspected nationalization of YPF was imminent when he tried to contact Fernandez last Friday and was told that the president “was angry” and did not want to speak.

YPF has been under pressure from Fernandez’s centre-left government to boost oil production, and its share price has plunged in recent months on speculation about a state takeover.

Spanish investment in Argentina may now be at risk after the move on YPF. In the “reconquista” or reconquest, of the 1990s, newly privatized Spanish businesses bought Latin American banks, telephone companies and utilities, much as their armor-clad ancestors had conquered the region 500 years earlier.

Through its latest nationalization move, Argentina runs the risk of frightening off foreign investors, key to contributing money to help develop one of the world’s largest reserves of shale oil and gas recently discovered in the Vaca Muerta area.

ACE UP ITS SLEEVE?

This led some analysts to question whether Argentina might have an ace up its sleeve in the form of a new partner such as China Petrochemical Corp (Sinopec Group).

Repsol has, however, identified Vaca Muerta as “the cause of the pillage”, or the reason Argentina went after its YPF share.

A Chinese website said Sinopec was in talks with Repsol to buy YPF for more than $15 billion, although other sources said the nationalization move would probably get in the way of such a deal. Sinopec dismissed the report as a rumor.

Fernandez said the government would ask Congress, which she controls, to approve a bill to expropriate a controlling 51 percent stake in YPF by seizing shares held exclusively by Repsol, saying energy was a “vital resource”.

“If this policy continues – draining fields dry, no exploration and practically no investment – the country will end up having no viable future, not because of a lack of resources but because of business policies,” she said.

YPF’s market value is $10.6 billion, although an Argentine tribunal will be responsible for valuing the company as part of the takeover. Central bank reserves or state pension funds could be used for compensation.

Fernandez, who still wears the black of mourning 18 months after the death of her husband and predecessor as president Nestor Kirchner, stunned investors in 2008 when she nationalized private pension funds. She has also renationalized the country’s flagship airline, Aerolineas Argentinas.

Such measures are popular with ordinary Argentines, many of whom blame free-market policies such as the privatizations of the 1990s for the economic crisis and debt default of 2001/02.

Her announcement of the YPF takeover plan, however, drew strong warnings from Spain, Mexico and the European Union, a key market for Argentina’s soymeal exports.

Mexico’s President Felipe Calderon said Fernandez’s plan would damage chances for future foreign investment in Argentina and hurt Repsol, in which Mexico’s state oil monopoly Pemex holds a 10-percent stake.

Venezuela, where socialist President Hugo Chavez has nationalized almost all the oil industry, applauded her move.

The row over YPF comes as Fernandez heaps pressure on Britain over oil exploration off the Falkland Islands, over which Argentina claims sovereignty.

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U.S.-China tensions risk spilling over into Asia summit

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By Caren Bohan and Laura MacInnis
NUSA DUA, Indonesia | Fri Nov 18, 2011 6:12am IST

(Reuters) – Tensions between the United States and China threaten to spill over into meetings of Asia-Pacific leaders from Friday, with U.S. President Barack Obama declaring his intention on the eve of the gathering to assert U.S. influence in the region.

Obama said in Australia on Thursday, on his last stop before jetting to the meetings in neighboring Indonesia, that the U.S. military would expand its Asia-Pacific role despite budget cuts, declaring America was “here to stay” as a Pacific power.

And days earlier, as host of the Asia Pacific Economic Co-Operation forum in Hawaii, Obama had voiced growing frustration at China’s trade practices and pushed for a new Asia-Pacific trade deal with some of Beijing’s neighbors.

The Indonesia meetings, on the resort island of Bali, bring together the 10-member Association of South-East Asian Nations (ASEAN) and eight dialogue partners, including the United States, China, Russia and Japan. Bilateral meetings are held on Friday before a full East Asia summit on Saturday.

Earlier this week, U.S. Secretary of State Hillary Clinton urged claimants to the South China Sea not to resort to intimidation to push their cause in the potentially rich waters, an indirect reference to China ahead of the Bali summit.

China and several ASEAN countries have clashed over sovereignty of the waters, believed to be rich in natural resources and straddling vital trade lanes.

Clinton called for candid discussion of the maritime dispute at the summit, which could embolden some Southeast Asian countries with maritime claims, though China says it does not want such talks to take place and that the issue should be resolved via bilateral negotiations.

“Introducing a contentious subject into the meeting would only affect the atmosphere of cooperation and mutual trust, damaging the hard-won setting of healthy development in the region,” Chinese Foreign Ministry spokesman Liu Weimin said on Wednesday. “That’s is beyond any doubt.”

Obama has declared that U.S. engagement in the Asia-Pacific region was “absolutely critical”, feeding China’s longstanding fears of being encircled by the United States and its allies.

“As we end today’s wars, I have directed my national security team to make our presence and missions in the Asia Pacific a top priority,” Obama said on Thursday in a major speech on Washington’s vision for the Asia-Pacific region.

“As a result, reductions in U.S. defence spending will not — I repeat, will not — come at the expense of the Asia Pacific.”

Nervous about China’s growing clout, U.S. allies such as Japan and South Korea have sought assurances from the United States that it would be a strong counterweight in the region.

A first step in extending the U.S. military reach into Southeast Asia will see U.S. Marines, naval ships and aircraft deployed to northern Australia from 2012.

That deployment to Australia, which by 2016 will reach a taskforce of 2,500 U.S. troops, is small compared with the 28,000 troops stationed in South Korea and 50,000 in Japan.

But the presence in Darwin, only 820 km (500 miles) from Indonesia, will allow the United States to quickly reach into Southeast Asia and the Indian Ocean.

Obama acknowledged China’s unease at what it sees as attempts by Washington to encircle it, pledging to seek greater cooperation with Beijing.

He added: “We’ll seek more opportunities for cooperation with Beijing, including greater communication between our militaries to promote understanding and avoid miscalculation.”

The new de facto U.S. base in Australia expands the direct U.S. military presence in Asia beyond South Korea and Japan and into Southeast Asia, an area where China has growing economic and strategic interests.

It will also put more U.S. troops, ships and aircraft much closer to the South China Sea.

CHINA QUESTIONS U.S. DEPLOYMENT TO AUSTRALIA

China has questioned the new U.S. deployment, with a foreign ministry spokesman raising doubts about whether strengthening such alliances helped the region pull together at a time of economic gloom.

But overall its official reaction has been restrained, with an impending leadership succession preoccupying the ruling Communist Party and leaving Beijing anxious to avoid diplomatic fireworks.

Reaction from some state media was harsher.

“It wouldn’t come as a surprise if the United States is trying to seek hegemony in the region, which would be in line with its aspirations as a global superpower,” China’s state news agency Xinhua said in a commentary.

Obama said the increased focus on the Asia-Pacific region was essential for America’s economic future.

“As the world’s fastest-growing region – and home to more than half the global economy – the Asia Pacific is critical to achieving my highest priority: creating jobs and opportunity for the American people,” he said.

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Here’s Why You Need To Watch The Burgeoning Relationship Between China And Greenland

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by Adam Taylor

Greenland‘s Premier has spoken warmly of embracing Chinese investment in an interview with Chinese news agency Xinhau.

“I think that China together with other nations is taking a huge interest in the Arctic area in general and specifically in Greenland, and we have seen quite a number of visitors from China over the last couple of years,” Prime Minister Kuupik Kleist said this week. “We don’t really have that much co-operation for the time being, but I know that Chinese companies are showing an interest in Greenland.”

“Greenland is also showing an interest in China: my minister for minerals (and industry) and labor is going to China today on an official visit. I would see a future co-operation as a very positive one and we welcome the Chinese interest,” he continued.

There’s a few reasons why this is interesting:

  1. We are already seeing a huge grab for land in the Arctic. The reason? It’s believed that there might be a huge amount of untapped natural oil and gas reserves under the surface.
  2. The key players so far have been Russia and Canada — both countries that actually border the Arctic region. Russia’s push has been particularly notable, with talks of even building an “Arctic city” to house scientists and workers in the region.
  3. Greenland gained self-rule from Denmark in 2009. Since then the country (population 56,534) has been trying to work out a new, more independent economic system. However, Denmark still controls Greenland’s foreign policy.
  4. It is thought that 10 percent of the world’s unproven oil reserves and 30 percent of its gas reserves might exist under the rapidly shrinking Greenland ice sheet.
  5. The Danish Ambassador to the United States Peter Taksoe-Jensen recently gave a talk at Dartmouth that showed Denmark would allow Greenland a lot of leway in making decisions (Foreign Affairs has a good summary of that here).
  6. China, unlike other key world powers in the debate, has no real claim to land in the Arctic circle. However, it has already performed a number of probes into the Arctic area, which are speculated to be because of interest in a new shipping route once ice melts in the area.
  7. A Chinese tycoon has already announced somewhat mysterious plans for a “hotel and golf course” on an island off the coast of Iceland. This island, of course, also has a unique strategic position.

We hadn’t really considered Russia a true player in the great Arctic land grab before — but maybe that needs reconsidering.

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