Spanish oil giant Repsol vowed April 17 to fight for at least $10 billion in compensation for Argentina's decision to expropriate its subsidiary Repsol-YPF (IW 1000/41).
Spain's government backed the company, angrily pledging to take a range of measures against Argentina after its president, Cristina Kirchner, announced she would nationalize the firm in defiance of Madrid's demands.
The European Union, too, warned Buenos Aires that it was sending the wrong signal to investors.
Investors hammered Repsol shares, sending them 6.06% lower to close at 16.42 euros on the Madrid stock market, where other top shares were up more than two%.
Fitch Rating warned it could downgrade Repsol's credit rating by up to two notches if its balance sheet suffered serious harm.
"These acts will not remain unpunished," promised Repsol executive chairman Antonio Brufau after Argentina's decision to take over 51% of YPF, in which Repsol has a 57.4-percent stake.
Repsol would seek an amount at least equal to the value of its stake in YPF, which the firm estimates at $10.5 billion, the Repsol chief told a news conference.
"Repsol will launch all legal actions that are within its reach," Brufau vowed, saying he had a wide range of options including constitutional, commercial and civil actions.
Spain's government summoned Argentina's ambassador, Carlos Bettini, for the second time in five days to ask why Buenos Aires had ignored warnings against intervening in the Repsol subsidiary.
"Argentina has shot itself in the foot in a serious way," Foreign Minister Jose Manuel Garcia-Margallo told reporters.
"What worries me is that this means a cut, or at least distrust, in relations that have been really fraternal for a very long time," he said.
European Union Foreign Affairs Chief Catherine Ashton said in Strasbourg that Argentina's move sent a "very negative signal" to global investors and was a cause of grave concern.
Repsol denied Argentine accusations that it had failed to invest enough in YPF, saying that it had poured $20 billion into YPF in addition to $15 billion it paid to buy the subsidiary in 1999.
The Repsol boss accused Kirchner of taking the decision "as a way of hiding the economic and social crisis which Argentina is suffering."
Brufau blamed that crisis in part on "a mistaken energy policy".
Argentina had run a campaign of "harassment" over the past weeks so as to make the group's shares fall and ease the expropriation at a bargain price, the Repsol chairman charged.
"It is not appropriate for a modern country, Argentina does not deserve this," he said of the takeover, which Repsol has described as "manifestly illegal and gravely discriminatory".
Brufau said YPF accounted for 25.6% of the group's operating profit, 21% of its net profit and 33.7% of its investments, adding that: "These are big figures but we can withstand them."
Prime Minister Mariano Rajoy is expected to rally support for Spain in the dispute as he attends an economic forum on Latin America in Mexico.
Front page headlines in Spain lambasted the Argentine takeover, many of them splashing a photograph of Kirchner announcing her decision with a picture of Evita Peron, the populist first lady of Argentina in the 1940s and 50s, in the background.
"Pillaging," headlined an editorial by the leading daily El Pais.
"The expropriation of 51% of YPF opens a conflict that will have grave consequences for Argentina," it said.
"It is not hard to predict that a YPF run by the group that governs Argentina will lose any possibility of making profits," the paper said, arguing that it would end up squandering the country's natural resources.
Copyright Agence France-Presse, 2012
"Spain Scolds Agentina in Repsol Oil Row"