Kirchner, Obama Punish Industry for Rising Fuel Costs

The presidents of Argentina and the United States announce measures to penalize the oil industry.

American president Barack Obama listens to a briefing in the Situation Room of the White House in Washington DC, March 23
American president Barack Obama listens to a briefing in the Situation Room of the White House in Washington DC, March 23 (White House/Pete Souza)

The presidents of Argentina and the United States both announced measures to penalize the oil industry this week.

Argentina’s Cristina Fernández de Kirchner’s method is the most blatantly protectionist. She relieved Spain’s Repsol of its majority share in Yacimientos Petrolíferos Fiscales, Argentina’s largest oil company. From a president who has implemented dozens of policies that inhibit foreign trade and investment, the effective nationalization of the concern was almost to the expected.

“Companies that operate in Argentina, even when their shareholders are foreign, are Argentine companies. Don’t anyone forget that,” Kirchner said Monday. She felt it necessary to add, “I’m the head of state, not a thug,” even if her seizure of YPF suggests otherwise.

Kirchner’s Argentina ranks among the least economically free nations in Latin America. Regulations for businesses are burdensome and nontransparent. Tariffs, import and export controls, licensing provisions, restrictions on ports of entry and subsidies hugely distort commerce. Domestic preference in government procurement predated Kirchner’s administration but has not been repealed.

YPF stakes owned by Argentina’s Petersen Group will notably escape the expropriation.

Her American counterpart’s response to rising fuel prices has been timid in comparison to Kirchner’s brazen appropriation of a privately-owned company and it is still a proposal, one that is unlikely to get support from a divided Congress.

President Barack Obama urged lawmakers on Tuesday to raise penalties on individuals and businesses that are involved in manipulative practices.

“We can’t afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage, and driving prices higher, only to flip the oil for a quick profit,” he said.

Opposition Republicans, who control the lower chamber of Congress, have dismissed the call as a political gimmick and blame Obama’s tendency to vilify domestic oil and gas production while subsidizing green energy alternatives for the mounting costs of fuel.

Gasoline prices in the United States have surged nearly 50 cents since late January, as tensions in the Middle East and supply disruptions bolstered oil costs. Prices are up nearly 70 percent compared to when Obama took office.

Blaming “speculation” has been a common refrain with Democrats in America and leftists around the developed world. It refers to oil futures markets which can affect prices at the pump if investors anticipate higher prices in the future and temporarily keep oil off the market. The amount of oil that can be stored off market is limited however and storage is costly.

As the libertarian Cato Institute’s Jerry Taylor and Peter Van Doren explain in Forbes this month, “If this is going on, we would expect to see some sort of inventory buildup.” This is not the case. “Hence, there’s no evidence that speculators are reducing the supply of crude or gasoline through increased storage.”

Who needs proof that a policy is appropriate or effective when it is popular though? Kirchner’s popularity may have dropped in recent months but that has more to do with the economy slowing down than Argentinian voters recognizing that their president’s policies are responsible for it.

80 percent of Americans believe that speculation is at least partly responsible for driving up fuel prices. Rather than admitting that “going green” will inevitably drive up costs at the pump — as he did quite plainly in 2008 when then senator Obama predicted that electricity rates would “necessarily skyrocket” as a result of his energy plan — the president is putting the blame on private enterprise. As is sadly true for President Kirchner as well, that is hardly news anymore.

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