Argentina is the second-largest economy and country in South America, and it has aspired to become an important player in international diplomacy for decades. However, its long-standing financial troubles, debt default in 2001 and other above-ground issues such as its 2012 nationalization of a major Spanish energy investment have limited its energy sector development. Still, many analysts believe that Argentina has very large shale reserves that could someday be exploited, thanks to the diffusion of new oil and gas production technologies.
Argentina is the largest natural gas producer in South America and produced more than 500,000 barrels of crude oil per day in 2013. But since about 2001, Argentina’s oil production has been steadily declining, mainly because of heavy regulation in the oil and gas sector and restrictions on foreign investment. After its default in 2001, Argentina adopted a number of domestic policies aimed at stimulating economic revival, including ceilings on domestic energy prices.
The EIA estimates that Argentina holds about 27 billion barrels of shale oil, a potential that could turn the country into an exporter after years of declining production.1 However, Argentina’s energy policies (especially its price and export controls) remain the primary obstacle to further development of the country’s shale deposits. Additionally, Argentina would need to import key production equipment because its own oil service industry cannot support large-scale development.
Argentina’s 2001 debt default complicated the country’s relationship with the United States. In early 2014, a U.S. judge ordered Argentina to pay hedge funds the full value of bonds they purchased at huge discounts after the default. Following the decision, the judge blocked further Argentine payments to other creditors, provoking another default. Argentine President Cristina Fernandez de Kirchner accused the U.S. justice system of being an “accomplice” of the “vulture funds” destabilizing her country. Concurrent with these challenges to U.S.-Argentine ties, China has established a strong relationship with the Argentine president, though it seems driven more by ideological affinity and the availability of risk-tolerant Chinese capital for investment than by anything directly connected to the energy market.
Argentina’s relationship with the United Kingdom, one of the United States’ strongest allies, has long been strained by tensions over the disputed Falkland Islands. Argentina has taken action to discourage British oil exploration and production in the waters surrounding the Falkland Islands by suing the small British companies conducting drilling efforts for “criminal actions.” Argentina has also passed legislation that bans oil companies from drilling off the islands and blocks any offender from accessing the country’s gigantic Vaca Muerta shale play.2 Despite these deterrents, the United Kingdom began exporting oil from the Falkland Islands in 2010. It is possible that as new oil and gas technologies open up attractive drilling opportunities around the disputed islands, tensions in the Argentine-U.K. relationship could rise.