Argentine and Venezuelan oil partnership sets up potential conflicts with Europe

The partnership between state-owned oil companies makes Venezuela a key third party in Argentina's ongoing dispute with a Spanish energy firm.

• A version of this post ran on the author's blog, bloggingsbyboz.com. The views expressed are the author's own.

Presidents [Hugo] Chavez and [Christina] Fernandez de Kirchner signed an agreement for an energy partnership between their two state oil companies. The move sets up two conflicts with Europe.

UK: The two companies have pledged to explore the possibility of deep water drilling off the coast of Argentina, including into waters claimed by the UK via the Falkland/Malvinas islands. Any actual drilling would occur many years in the future, but even the initial planning could upset the UK and increase tensions.

Spain: The more immediate and interesting conflict is against Spain. Repsol, the previous owner of YPF before Argentina's nationalization, has warned Venezuela that partnerships with YPF could create legal and financial problems for PDVSA. Venezuela, meanwhile, has warned Repsol that it may pressure the Spanish company and threaten its operations in Venezuela if it is too tough on Argentina in trying to recoup its lost investments. The dueling threats along with the new PDVSA-YPF agreement make Venezuela a key third party in the Argentina-Repsol dispute.

– James Bosworth is a freelance writer and consultant based in Managua, Nicaragua, who runs Bloggings by Boz.