Argentina has vowed to take over a 51 percent stake in the country's biggest oil company, YPF, owned by Spain's Repsol, provoking a furious response from Madrid.
The move was announced to applause on Monday at a meeting between President Cristina Kirchner, her cabinet and Argentine governors, and came despite warnings from Madrid and EU officials.
Reading a statement at the meeting, an official said YPF-Repsol "is declared a public utility and subject to expropriation of 51 percent of its assets."
The stake will then be split up between the Buenos Aires government, which will get 51 percent of those shares, and the oil-producing provinces.
Spain denounced the "hostile" move and warned that it would take "clear and forceful measures" in response.
"It's a hostile decision against Repsol, thus against a Spanish business, and thus against Spain," said Spanish Industry Minister Jose Manuel Soria, speaking after a crisis cabinet meeting called by Prime Minister Mariano Rajoy.
"The government is announcing that it will take all the measures it considers appropriate to defend the legitimate interests of Repsol and of all Spanish businesses abroad," he added.
Kirchner fired back, saying she would "not respond to threats."
"I am a head of state, not a vegetable merchant. All companies present here, even if the shareholders are overseas, are Argentine companies," she said.
Spain and the European Union last week warned that Argentina would damage relations with them if it went ahead and nationalized YPF.
"Emerging countries still need the technology and the funding of international companies. This kind of action, which is anti-business, is not what they need," said Meeschaert analyst Gregori Volokhine, in New York.
Argentine provinces have revoked 16 YPF oil concessions on the grounds that the company was not meeting its investment obligations.
Kirchner has pressured oil firms operating to increase production after Argentina's bill for oil imports shot up 110 percent last year to $9.4 billion.
The president sent a bill to Congress, which was expected to approve the measure to take over YPF. It would call for a special tribunal to establish the price to paid to shareholders, including Repsol.
"We are not going to have nationalization. We are going to have a recovery" of the firm, which was state-controlled until 1999, Kirchner said, adding that it would operate "as a corporation, with professional directors."
She later named Planning Minister Julio De Vido as the government delegate to the company under an emergency order which allows the state to control the firm for 30 days.
In New York, YPF shares were suspended after plunging some 15 percent on the news. In the last trades, shares were down 11 percent at $19.50. Trading in YPF was also suspended in Buenos Aires.
Ratings agency Fitch quickly downgraded YPF's debt in Argentine pesos to "B" from "B+".
Repsol bought Yacimientos Petroliferos Fiscales in 1999 for $15 billion in what was the biggest operation of the privatization program of former Argentine president Carlos Menem.
The unit remains the largest oil firm in the South American nation, where it leads in fuel sales and has 54 percent of the country's refining capacity.
But the Argentine government had been increasingly critical of lower investment by YPF, which has meant a drop in production of oil and gas.
On Sunday, Repsol chairman Antonio Brufau -- who has been in Buenos Aires since last week seeking negotiations on the issue -- urged the government to reconsider.
"One has to talk, to talk, not impose or go around making remarks for politics' sake," he told Radio Mitre.
Asked about the case on a visit to Brazil, US Secretary of State Hillary Clinton said: "I think that competition and having an open market for energy and other commodities is a much preferable model."
The decision split Latin American leaders on mainly ideological lines, with Venezuela's leftwing firebrand Hugo Chavez hailing Argentina's move.
Venezuela "rejects the threat or attempted intimidation Europe has brought against the Republic of Argentina," he said in a statement read on state TV. Chavez has nationalized several major industries in recent years.
But President Felipe Calderon of Mexico -- where the state oil company Pemex owns a 9.5 percent share in Repsol -- called the decision "very regrettable."
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