Triumph for Nationalism

First Peru struck at foreign oilmen, and now it was Argentina's turn. After a week of indecision, newly inaugurated President Arturo Illia finally bowed to nationalist pressure and signed a series of decrees annulling as illegal 13 contracts with private companies in Argentina -- nine from the U.S.* For Argentina's noisy nationalists, the cancellation was a rousing triumph; for the U.S., whose oilmen have $237 million in vested in the country's oil development, it was a setback that could seriously impair U.S. relations with Argentina's new government.

Too Much Oil. The contracts, signed between 1958 and 1960 by President Arturo Frondizi's government, made good economic sense -- at first. Hampered by featherbedding and outmoded equipment, Argentina's 56-year-old state oil company, called Y.P.F., has never been able to meet the country's demand. By 1958, Y.P.F. was producing only 35% of the country's needs, and the rest -- roughly $250 million worth -- had to be imported, which caused a severe drain on the nation's balance of payments. Determined to make Argentina self-sufficient, Frondizi ordered Y.P.F. to expand, and invited foreign oilmen to Argentina on taxfree, 20-to-40-year exploration and development contracts.

Today Argentina has almost all the oil it can use. By 1961 foreign oilmen had drilled 1,900 wells. The oilmen now produce 80,000 bbl. a day, for which they get a guaranteed price. Meantime, Y.P.F. also doubled its own production to 180,000 bbl. daily. Therein lay the rub. Because it was obligated to buy the companies' oil, Y.P.F. had to cap many of its own wells, complained angrily that the total cost of the oil to the government oil company was now more than it once paid to import oil. This the private companies denied, and in the conflicting figures no one could be sure who was right, but the nationalists talked loudest.

Brick Wall. In Argentina's recent election campaign, Illia's People's Radicals called for annulment of the contracts, arguing that they were signed without congressional approval, and therefore illegal. Private oilmen contended that the contracts were signed in good faith, felt that they deserved a chance to renegotiate, or at least make a fair settlement.

As matters came to a head, Under Secretary of State W. Averell Harriman flew to Buenos Aires to see Illia, and later told U.S. oilmen: "I ran into the same thing you fellows did--a brick wall." At week's end Illia signed the blanket decrees. In them there was only a slight hint of renegotiation or indemnification, and in fact, it was asserted that the companies owed some $80 million in back taxes.

Washington reacted with dismay--and anger. There was Congressional talk of suspending all aid to Argentina if the companies were not compensated. Buenos Aires sounded a little surprised at the outrage in the U.S., and a government official pointed out that somewhere in all the nationalistic verbiage annulling the contracts was the phrase: "the rights of the oil companies will be protected."

* Union Oil, Esso Argentina, Pan American Argentina (Standard Oil of Indiana), Continental Oil, Cities Service Development Co., Kerr McGee, Marathon Petroleum, Tennessee Argentina (Tennessee Gas Transmission Co.), Southeastern Drilling Co.

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