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Keeping Putin’s Hands Off Argentina’s Oil

Keeping Putin’s Hands Off Argentina’s Oil thumbnail

The White House shouldn’t allow Argentina’s debt problems to impede U.S. energy security.

Just prior to the downing of Malaysia Airlines Flight 17, Russian President Vladimir Putin was wrapping up a six-day tour of Latin America, including a bilateral meeting with Argentine President Cristina Fernández de Kirchner on July 12.

Kirchner’s meeting with Putin, in conjunction with a July 18 meeting between Kirchner and Chinese President Xi Jinping, could have significant strategic repercussions for the United States if Argentina follows through on its threats to default on its sovereign debt on July 30.

An Argentine default would be the nadir of a rancorous 12-year-long dispute between Argentina and some of its creditors, who refused to take losses of over 70 percent following the country’s historic default on over $80 billion in 2001.

After years of legal battles, the U.S. Supreme Court issued the definitive ruling against Argentina on June 16 of this year. The Supreme Court declined to hear Argentina’s appeal of a lower-court ruling ordering it to pay creditors who did not participate in the restructuring at the same time it pays those who agreed to losses.

The lower-court judge has now ordered Argentina to negotiate with its holdout creditors, but it has so far refused. If Argentina does not find a way to settle with its holdout creditors by July 30, the country will default for the second time in 13 years. But according to news reports, Argentine leaders have still not met with creditors to negotiate a resolution, even though it has been over a month since the Supreme Court’s ruling.

This is where Putin’s recent visit becomes important: A focus of discussion between Kirchner and Putin was reported to be Russia’s role in helping develop Argentina’s vast unconventional oil reserves, the Vaca Muerta. Kirchner announced that members of the Russian delegation would visit the field in Patagonia.

According to the International Energy Agency, the 20,000-square-mile, 3,000-foot-deep Vaca Muerta shale field — estimated to be the largest oil field in the Western Hemisphere and one of the top two or three in the world — likely contains more than 20 billion barrels of oil equivalent.

The U.S. Energy Information Administration ranks Argentina second and fourth worldwide in deposits of recoverable shale gas and oil, respectively. If exploited, these reserves could make Argentina a net energy exporter, a capacity it lost in 2012 as a result of mismanagement, ideologically driven economic policies, and a failure to abide by international law. Argentina is currently importing energy at a cost of nearly $10 billion annually, something Kirchner would be happy to reverse. And to make this happen, the Argentines are looking for partners.

According to Argentine estimates, the full development of the Vaca Muerta unconventional reserves will cost upwards of $250 billion and, just as essential, will require foreign engineering expertise. Since re-nationalizing its national oil company, YPF, from Spain’s Repsol in May 2012, Argentina has aggressively sought global investors and partnerships, among them Russian state oil company Gazprom (whose financing arm was hit by the latest round of U.S. sanctions) and Chinese state oil company Sinopec.

Several U.S. companies, including Exxon Mobil, have been active in the Vaca Muerta, and others are looking to get involved. This year, Chevron signed an investment agreement with YPF under which it will invest $1.6 billion in 170 wells with future investments of up to $15 billion. But this agreement was brokered prior to the current crisis.

If Argentina’s leadership takes the country into default, the deal with Chevron could be a casualty.

If Argentina’s leadership takes the country into default, the deal with Chevron could be a casualty. Furthermore, opportunities for other U.S. companies would likely diminish or evaporate, as none would be able to afford the heightened country risk that another default would create.

Argentina can ill afford a second default in 13 years. Its economy is in recession, inflation is at double-digit levels, and its trade deficit is widening. Furthermore, a second default would close the door to international capital markets, which the country desperately needs and has had only limited access to since 2001.

But another Argentine default wouldn’t only be a problem for Argentina. It would also be a strategic loss for the United States. A default would almost certainly forestall U.S. energy companies’ investment in Argentina’s energy industry — the sector that offers the most promising growth potential. Lead investor Chevron is likely to have second thoughts about its commitment to Argentina if the country appears, once again, to be an untrustworthy business partner. Others are likely to pull back or demand more favorable terms to offset risk.

If Argentina’s government does choose to default, and if it remains locked out of U.S. and European capital markets, then partnership with Russia’s Gazprom and China’s Sinopec will likely provide a much-needed alternative to U.S. investment, putting U.S. energy companies at a significant disadvantage.

Kirchner’s courtship of Russia has intensified visibly in recent months, most notably in her defense of Russia’s seizure of Crimea, which she compared to Argentina’s fight with Britain over the Falkland Islands. Similarly, in its rapprochement with China, Argentina has brokered new agreements with Sinopec to partner on energy development. Significantly, Argentina announced new investment pacts with China totaling $7.5 billion immediately following Xi’s meeting with Kirchner on July 18.

Argentina can take another path — one in which it respects the rule of international law, settles its debts, regains full access to the global financial markets, and consequently continues to attract energy investment from U.S.-based global companies that have the engineering experience and know-how to develop an unconventional oil field.

Energy security in the Western Hemisphere is of vital strategic importance to the United States. And thus helping to avert Argentina’s self-destructive path to default must be a top priority for Barack Obama’s administration as it signals to Argentina in the critical days ahead.

Administration officials can help by engaging with their counterparts in the Argentine government and explaining that a settlement with Argentina’s private creditors would finally clear the way for Argentina to regain access to numerous sources of external capital after more than a decade of relative economic isolation.

For one thing, a full economic normalization would open the way to a resumption of World Bank lending to Argentina, which the U.S. government has opposed since 2011 due to Argentina’s failure to pay its debts. But more importantly, the administration can and should make the case that U.S. energy companies are uniquely capable of helping Argentina fully develop and benefit from one of its most promising natural resources.

Above all, the administration needs to make sure that it does not through inattention allow Argentina to slip away. As we have seen in recent weeks, the United States’ geopolitical rivals stand ready to take advantage of such a strategic mistake.

40 Comments on "Keeping Putin’s Hands Off Argentina’s Oil"

  1. Plantagenet on Fri, 25th Jul 2014 5:10 pm 

    The Obama administration is already floundering trying to deal with crises over Afghanistan, Syria, Iraq, Libya, Ukraine, Russia, China, Israel, Iran etc. Its highly unlikely they will deal with Argentina in a competent manner, after bumbling into so many other international problems.

  2. J-Gav on Fri, 25th Jul 2014 5:57 pm 

    Argentina’s oil don’t mean shit to a blind goose. Much ado about nothing.

  3. bobinget on Fri, 25th Jul 2014 6:05 pm 

    Homage to ‘Democratic Presidential critic,’ Plantagent

    AMMAN, JORDAN—Arriving in the Middle East today for top-level negotiations with Palestinian and Israeli officials, a man who could not even devise a way to beat George W. Bush in a head-to-head vote will spend the next several days attempting to bring a peaceful resolution to the most intractable global conflict of the modern era, State Department sources confirmed. “We are confident that [this person who managed to win just 19 states against George W. Bush, even in the midst of two highly unpopular and costly foreign wars] will be able to establish a framework to bring about lasting peace in the Middle East,” said State Department spokesperson Jen Psaki, stating that the diplomat, who was actually deemed by the American populace to be a worse option than four more years of an administration led by a former baseball team owner and Dick Cheney, could provide the leadership necessary to resolve the bitter, bloody conflict that has raged for more than six decades. “[The individual whose sole goal for more than a year was to make the simple case that he would do a better job than one of the most disliked and poorly rated politicians of all time, and who decisively failed at this singular task] will lay out his bold vision for a road map to peace, and it’s one that we believe both Israelis and Palestinians will be very receptive to. Our best hope for a safe, prosperous Middle East lies with [a guy who came in second to a former substance abuser who nearly choked to death on a pretzel].” Sources throughout Israel and the Palestinian territories said they were optimistic about a peace deal, saying they were eager to hear the ideas of the husband of a powerful food-processing heiress. (the onion)

    As for Argentina. We, that is American Tax Payers need not take up a collection for Argentina, Exxon or Chevron or Asia or Russia. Foreign Policy doesn’t say it but Argentina is only on the hook for 1.5 billion. A princely sum for a few bond speculators but peanuts for XOM to gain further control of ‘Dead Cow’.

    Most other current and potential state shale producers
    haven’t the PROVEN reserves recipes, talent pools, equipment, potential funding that one US shadow government, Exxon, (market cap 445 Billion) holds.

    At this point, Argentine/US relations, unlike four fifths of the world are not strained. One high card Argentina holds; Oil workers are not being bombed or kidnapped, or shot at. Pipelines won’t be tapped every
    ten miles by starving, insane Boko Harams or ISIS or
    a dozen other pirate for profit ‘terrorist’ outfits.

    BTW, US State pulled all Peace Corps workers from Kenya today. Out of fear of violence and Ebola virus now loose in Western Africa. Nigeria had it first (known) Ebola death today. How virus spread are poorly understood in Africa. Spread easier then AIDS
    it won’t belong before thousands, millions, fall ill.

  4. Plantagenet on Fri, 25th Jul 2014 6:23 pm 


    FYI—There are 26 billion barrels of oil in Argentina in the Vaca Muerte tight oil shale play. Chevron and Exxon are partners with Repsol in the exploration play. They just drilled their first test well—it was successful.

    Next question please.

  5. JuanP on Fri, 25th Jul 2014 8:04 pm 

    JGav, Plant is right. Argentina has some of the largest potential shale oil resources outside the USA in the Patagonian region of Vaca Muerta. Whether any oil will ever be produced there is another question, but I think there will be a few attempts to develop that play in time.

  6. JuanP on Fri, 25th Jul 2014 8:26 pm 

    I will correct myself. After checking for news on Vaca Muerta, I read the Wiki that says it has been producing small amounts of shale oil since 2011, and that the US EIA considers some of it reserves, not resources.

  7. Makati1 on Fri, 25th Jul 2014 8:50 pm 

    I’m sure China is on the way, with a boatload of USDs to trade for their resources. A few billion is less than one week’s interest on the USTs they are holding. So, thanks Americans, for paying your taxes so your government can send China the money to build their country while yours falls apart.

    Have you noticed how often Putin or Russia is in the headlines of articles that are unimportant or don’t even pertain to them? It’s called propaganda most places. Keep planting false ideas in people’s heads and soon they will believe them. Trouble is, the West (US) has too many “axis of evil” to promote now and the kiddies are getting Confused.

    What should we Americans be concerned about? China? Russia? Ukraine? Libya? Syria? Egypt? Bahrain? Yemen? Iraq? Lebanon? Somalia? Nigeria? Venezuela? North Korea? Turkey? Iran? Pakistan? Or all those “terrorist” alphabet organizations?

    How about drought? Illegal immigration? NGO foods? Climate Change? Peak oil? Ebola? Black Plague? Disappearing glacier? The 47 million in the soup lines? The $17.6+ trillion national debt? The crippling of the USD? The inability to win a war with the most powerful military ever? The lack of anyone competent in our leadership? …

    What? Me worry? I’ve got my I-toys and selfies to keep me busy and distracted.


  8. James on Fri, 25th Jul 2014 9:19 pm 

    Since when does the U.S.Supreme Court order other countries to do something? The Supreme Court does not have jurisdiction over the whole world. Just within the territorial boundaries of the U.S.

  9. Plantagenet on Fri, 25th Jul 2014 9:26 pm 


    The government of Argentina borrowed money from private US banks and then failed to pay it back. Those loans and the contractual obligations that Argentina agreed to when they took out the loans are subject to US law. You are right that the SCOTUS can’t force Argentina to pay the money back. On the other, the people who hold those loans today may be entitled to seize Argentinian assets in the US to satisfy the unpaid debts.

  10. dissident on Fri, 25th Jul 2014 10:59 pm 

    Planted-agent, your beloved Kiev regime hasn’t paid $5 billion for natural gas delivered. I don’t see you agitating for Russia to have special rights to tell the regime what to do. So sod off you hypocrite wanker. Argentina is not your colony.

  11. Arthur on Sat, 26th Jul 2014 12:51 am 

    Don’t agree with you J-Gav., 20B is no small change. FP does not mention the fact that Argentina is being courted by the Brics:

    Whatever happened to the Monroe doctrine?

  12. Makati1 on Sat, 26th Jul 2014 2:17 am 

    I doubt that Argentinians have $20B worth of anything in the US to take. The elite know that the US is no longer a safe place to play. Most are moving their resources as fast as possible. No Western country is safe from the clutches of the US these days.

    Putin is even smiling at the US doing his work by forcing the Russian money to come home as being the safest place now. HE knows that the Western sanctions only makes this happen even faster.

    BTW: Russia has zero interest in Venezuelan oil. They have all they need. The West, on the other hand…

  13. J-Gav on Sat, 26th Jul 2014 4:29 am 

    You guys are right to point out that 20 bn barrels is no small chunk of goo. Remember though, that this is “equivalent,” i.e. ‘not’ oil, requiring very expensive technology and major infrastructure build-out.

    The “upwards of $250 billion” estimate can probably be doubled – and this at a time when trillions in investment capital is no longer sloshing around looking for a place to go. A lot of it is tied up in junk derivatives. That’s why I think much of this Argentinian ‘unconventional’ is likely to stay right where it is, forever.

  14. Davy on Sat, 26th Jul 2014 4:36 am 

    Gav, not to mention all the economic uncertainty associated with Argentina. I doubt the necessary investment will be made to realize much production there. No offence Juan I know your country could use a shot in the arm of some oil production juice.

  15. Davy on Sat, 26th Jul 2014 4:48 am 

    Makster said – It’s called propaganda most places. Keep planting false ideas in people’s heads and soon they will believe them

    Wow, Mak, subconscious admission of guilt.

    The problem here is westerners here on this forum are weary of your worn out clichés and daily propaganda dump. You got nothing better to do then sit in that Manila condo broadcasting your nausea? Why don’t you go do some prep work on your 6 acre commune with the across the bay or wherever? Talk is cheap Mak. You talk about survival preparations but I see no evidence you are walking the walk.

  16. Dredd on Sat, 26th Jul 2014 7:15 am 

    The Bush II Obama Next Administration is already will be floundering trying to deal with crises over Afghanistan, Syria, Iraq, Libya, Ukraine, Russia, China, Israel, Iran etc. Its highly unlikely they will deal with Argentina in a competent manner, after bumbling into so many other international problems.

  17. Dredd on Sat, 26th Jul 2014 7:17 am 

    The Fleets and Terrorism follow the oil.

  18. JuanP on Sat, 26th Jul 2014 7:22 am 

    Davy, Not my country and I was the first to point out that not much would come of it. I spent a total of more than two years of my life in Argentina spread over 15 years, and I doubt there are many people here that know that place better than I do. In spite of the fact that they have some of the highest resources per capita in the whole world and it is an incredibly beautiful country, Argentina will never amount to much, I am afraid, because of the rampant corruption that rules life down there.

  19. Davy on Sat, 26th Jul 2014 7:34 am 

    Juan said – Argentina will never amount to much

    Juan, my kind of country maybe the developers won’t rape it before POD hits with a vengeance. Argentina is on my bucket list along with New Zealand.

  20. JuanP on Sat, 26th Jul 2014 7:36 am 

    I just thought maybe JGav wasn’t aware of the fact that Argentina has some of the largest shale oil reserves and resources outside the USA. I am keeping an open mind on whether any non USA shale oil will ever become relevant on a global basis in the future, but I doubt it. It will be too little too late, probably.

  21. Nony on Sat, 26th Jul 2014 7:44 am 


    You have different politics than me, but I really think you are fair and are cool. Respect.

  22. JuanP on Sat, 26th Jul 2014 7:45 am 

    Davy, I agree that the Argentina is worth visiting and might be a good place to face collapse on the farms. As a free range cattle man, Argentina would be quite a wonderful experience for you. I never saw more grass than in the Argentinean Pampas, growing taller than us for hundreds of miles in every direction. It is not unlike being at sea, you could easily get lost there. I have a first cousin, who is an Argentinean agronomical engineer and raises Aberdeen Angus cattle down there.

  23. JuanP on Sat, 26th Jul 2014 7:46 am 

    Nony, I try to be apolitical and never take sides. Try being the key word there. 😉

  24. rockman on Sat, 26th Jul 2014 9:41 am 

    About 7 years ago a local in Houston with close relations with the Argentinian El President made a pitch about the biz potential in the country. It went well beyond oil resources. I’ll skip the details. The funniest part of his pitch was the necessity to monetize our gains and get it out of the country before the next national election: we may have adequately greased the current PTB but the new gov’t would surely strip us of all our assets.

    The one piece of leverage everyone assumed we still had over A was their need to go back to the IMF for more funding. But if you missed it Russia (with Putin leading the photo op) and several other countries are organizing a new international funding agency to compete against the IMF. And the plan is to focus on developing and distressed economies. I doubt it’s a coincidence for Putin to show up in A days after the announcement of the new fund. I also suspect any loans, like to A, will have some serious poison pills in case of default. And the loans will require more then interest payments: perhaps exclusive rights for resource and business development for the funding countries.

    At least that’s how I would set the trade up. And I doubt Putin’s humanitarian spirit is dragging him into this plan. LOL.

  25. Makati1 on Sat, 26th Jul 2014 10:44 am 

    Davy, is pointing out reality too much for your ‘patriotic’, flag waving, heart? If so, just stop reading the posts that start with Makati1. lol.

  26. JuanP on Sat, 26th Jul 2014 10:46 am 

    Rock, It is no coincidence that Putin stopped by Argentina before going to the BRICS meeting. I have seen reports that the BRICS countries were already in agreement that Argentina is the first country to receive a loan from the new fund. Who in the right mind would loan money to Argentina? If that loan goes through, it will never be repaid, IMO.
    The reason I think the BRICS are doing this is because the USA has been resisting the new quotas at the IMF. Every other country in the world has signed the agreement. This is a very hard thing to do for the US government because it would lose some of the power it has over the institution. I wonder how this will play out.

  27. Davy on Sat, 26th Jul 2014 10:53 am 

    Makie, we meet on the great battle field. I will fight you until my last dying breath. As a matter of fact I am proud of being patriotic. Look at you posting things like Russian 1st strikes wiping the US off the map. Do yo even give a shit about your family here in the US. Patriotic means accepting your family, friends, and community for what they are no matter how bad of shape. Standing up for them and ready to die for them. Would you die for your family Makie? I doubt it. Have you ever even helped the poor in Manila. I doubt it. You sit on your lazy ass in that 37th story condo looking over the poor like a king. Sick Mak just sick.

  28. Makati1 on Sat, 26th Jul 2014 10:57 am 

    JuanP, I suspect that the funds will continue and grow as time passes. Russia just wrote off $35 billion that Cuba owed the USSR since forever. Although, I suspect that it was to get a new spy/military base close to the US borders.

    The rest of the world is growing tired of US dominance and it would be worth a few billion a year from them to take the US down a few levels. The US voice is getting fainter and fainter as time passes. The world knows that they will never be repaid the trillions they have loaned the USSA. So, what if it costs a trillion to downgrade the US to 2nd or 3rd world levels? What price can you put on a destroyed country like Iraq or Afghanistan? Libya or Syria? Or the Ukraine, to mention a few of the latest US meddling/wars. As the people who lost family or friends…

    That is how I see the current situation, based on my readings and world trends.

  29. Davy on Sat, 26th Jul 2014 11:16 am 

    Mak, like you the Brics are nothing but talk. I have not seen one concrete result from all their talk-a-thons. All your discussions are likewise fantasy what if’s. You are not grounded in reality.

  30. JuanP on Sat, 26th Jul 2014 11:35 am 

    Mak, I agree this new fund will last a while, don’t know how long, and I expect it will be doubled on its first anniversary, and then added to as possible and necessary. Even if the USA signs the IMF agreement, as I believe they will in time, this fund will remain and grow for as long as BAU lasts.
    My understanding of Russia forgiving the Cuban debt is a little different from yours. Here it comes. 😉
    Russia forgave 90% of the debt outright and reached an agreement with the Cuban government that Cuba would pay back the remaining 10% over the next decade and Russia would reinvest this money in the Cuban economy as it got its hands on it. This deal ended the main remaining dispute from the Soviet era between these countries and gives them a fresh start politically. All these is happening because Putin wants it to happen. This deal took decades to close. Putin is being realistic, Cuba couldn’t pay back the debt and, right now, he desperately needs friends and allies. He just got Cuba back, after 25 years, for $32 billion. A political and strategic deal, not an economic one. From an economic point of view there is not much in it for Russia.

  31. JuanP on Sat, 26th Jul 2014 11:42 am 

    To understand how small an economic deal that is it is important to understand that this deal will only transfer ownership of about $320 million of cuban assets to Russia, but these assets all remain in Cuba. That is peanuts in today’s world. I believe the big deal was the pollitical rapprochement.

  32. rockman on Sat, 26th Jul 2014 2:02 pm 

    Juan – “Who in the right mind would loan money to Argentina?” Such trades can be structured very differently then a home mortgage. Not my area so I won’t try to detail the mechanisms that can almost always guarantee repayment. These trades are typically very difficult for the borrower to swallow. But when they don’t have a choice…they don’t have a choice. LOL.

    And sovereigns don’t always get away with playing loose with the rules. I’m sworn to secrecy so I can only tease you with generalities. One of the legal eagles representing this particular Big Oil is an in-law of mine. So a certain S American country thought they could confiscate the Big Oil’s production with impunity. They were very wrong. Took several years to work it out but said country had to wire transfer $850 MILLION to said Big Oil. Not all said Big Oil deserved but a significant chunk of it. And again unfortunately I can’t divulge the leverage used to collect those monies. And don’t bother searching the web for the story. None of the various parties involved wanted the public to know anything about the settlement. Another big chunk of change would be forfeited is someone released the details.

  33. Northwest Resident on Sat, 26th Jul 2014 3:38 pm 

    rockman — Let me guess. Hostage exchange?

  34. rockman on Sun, 27th Jul 2014 9:50 am 

    NR – No…much nastier business then that. LOL. Let’s just say there are very powerful organizations in the world connected to the global banking system that many sovereign leaders are more frightened of then an armed coup.

    And there are darker forces out there. Here’s a real story from about 20 years. I met a guy, Rick, in Houston who had cut a deal with corrupt Russian official who had ready access to many millions of pounds on bagged Portland cement. All Rick had to do was wire $X to the Russkie, arrange for a freighter and he had the PC for pennies on the $. His problem: he didn’t have $X so he came to me and any other potential money source he could find. And he couldn’t hook up with anyon. But he was given the name of a guy in Zürich that dealt in the PC market. Rick called and started to explain the deal. The guy stopped Rick and told him he knew of Rick, the Russian and the PC deal. He told Rick that the folks who dominated the global PC market knew about it also. And that if Rick ever got the funding he and the Russian would be dead in a matter of days. He was serious. Rick decided to pursue other opportunities.

    There are approaches dealing with such situations that are much more effective the filing a lawsuit. LOL.

  35. Nony on Sun, 27th Jul 2014 10:07 am 

    I saw this movie with Octonal and Quadcarbon and hostages last night. The good guys win.

  36. Northwest Resident on Sun, 27th Jul 2014 10:49 am 

    rockman — Wow — that’s all I can say. But we all know it was true, or strongly suspected it. What American president was it that explained how some of the large industry businessmen he met with were afraid of powers that could not be discussed, and that when he had dealings with these businessmen he knew that they were taking orders from those powers and could not negotiate away from the orders that they had been given — that’s a really crappy paraphrase, but you get the idea. It wouldn’t surprise me to learn that the mafia took over the world long ago and have been running it as their private casino ever since.

  37. Davy on Sun, 27th Jul 2014 11:01 am 

    NR, mafia is a catch word describing organize control. No difference between these groups. I see an alliance of many mafias under an umbrella of world domination by a few. Complexity and centralization of power are a mechanization of evil.

  38. JuanP on Sun, 27th Jul 2014 11:27 am 

    Organized crime and big business pushing governments around. History is full of this type of incidents, so that’s a great point.
    When the son of former President Menem of Argentina died in an helicopter accident there was a lot of speculation on the MSM that it was a payback professional hit by some powerful people who lost too much money dealing with him. These incidents are part of the calculation in very big deals, I believe.

  39. Northwest Resident on Sun, 27th Jul 2014 11:47 am 

    Davy, JuanP — The predatory and parasitical nature of humanity — when taken as a whole — is what has driven us to the rapidly approaching tragedy on an epic scale that we are about to witness.

  40. Arthur on Sun, 27th Jul 2014 3:19 pm 

    Not sure if stop driving cars and jetting to places you don’t belong, is such a tragedy.

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