A dispute over oil-drilling in Argentina by Repsol escalated into a diplomatic row April 13 after reports that Buenos Aires planned to seize control of the Spanish firm's subsidiary there.
Spain's government warned Argentina against taking aggressive action, following reports that it plans to nationalize Repsol-YPF (IW 1000/41), the Repsol subsidiary which is the biggest oil producer in Argentina and operates half of its refineries.
"Any aggression that violates the principle of legal safeguards will be taken by the Spanish government as aggression," Foreign Minister Jose Manuel Garcia Margallo told reporters in Madrid.
"It will react as it considers appropriate and will seek whatever support it considers necessary from its partners and allies," he added, after meeting with Argentina's ambassador in Madrid, Carlos Bettini.
There was no immediate response from Argentine president Cristina Kirchner, who reportedly met with provincial governors about the issue on April 12.
Argentine authorities accuse Repsol-YPF of failing to meet commitments linked to oil-drilling in the country.
The governor of the oil-producing province Neuquen, Jorge Sapag, said the meeting with Kirchner was to discuss transforming Repsol-YPF into a joint state and private venture.
But Repsol "has received no notification from the Argentine authorities with regard to their shareholding in its subsidiary YPF," the company said April 13 in a statement filed to the Madrid stock exchange.
Some foreign analysts say Argentina is casting around for backstops as its economy slides.
"Virtually every activity indicator we monitor now shows that GDP growth is slowing sharply" in Argentina, wrote economists of financial giant Citigroup in a report this week.
They said the action against Repsol-YPF exemplified a trend of "hostility towards foreign investment" by Argentina, accompanied by exchange controls and trade protectionism.
"The anti-market posturing of the government in response to the slowdown... does not help to improve investors' perception that the sovereign credit is going south," Citigroup said.
The European Union on April 13 sided with Spain in the dispute. The European Commission, the EU's executive arm, said its delegation in Buenos Aires had expressed its concerns directly to the Argentine government.
"We hope that Argentina respects its international commitments on the protection of foreign investments on its soil and we are on Spain's side in this situation," commission spokesman Olivier Bailly told a news briefing.
Argentina accuses Repsol YPF of not producing enough nor investing enough in Argentina.
Governors in 16 provinces of Argentina have revoked petroleum concessions held by Repsol-YPF in recent weeks, including some of the largest oil fields in the country, accounting for about 88 percent of national production.
Repsol-YPF has presented provincial authorities with a plan to invest more than $4 billion in 2012-2017, including the drilling of 2,249 new wells and the upgrading of 2,664 existing ones.
Argentina spent more than $9.0 billion on petroleum imports in 2011. Its oil production stood at 796,000 barrels per day in 2011, virtually unchanged since 2009.
"A breakdown of relations between Spain and Argentina would be not only a breakdown in economic terms, it would also be a breakdown of a long fraternal relationship," Margallo said.
"A breakdown is the worst scenario we can imagine."
Copyright Agence France-Presse, 2012