Spain has summoned Argentina's ambassador in Madrid for talks as tensions rise in a dispute over control of a Spanish-owned oil company.
The move on Tuesday came a day after Argentine President Cristina Fernandez de Kirchner unveiled plans to seize control of the country's biggest oil company YPF, owned by Spain's Repsol.
Repsol shares fell sharply during trading on Tuesday, sinking by more than eight per cent in Madrid.
Antonio Brufau, the Repsol YPF SA president, told reporters that the company would mount a legal fight against the plan to seize control of YPF. He also accused the Argentine government of launching the move in a bid to to quell rising unrest at home.
Kirchner had "carried out an unlawful act and made unlawful charges after a campaign aimed at knocking down YPF shares and allowing expropriation at a bargain price," Brufau said, adding "This battle is not over."
European Commission 'disappointed'
Kirchner's announcement also drew swift warnings from key trade partners who said that relations with Buenos Aires would be damaged by the move.
"If this policy continues - draining fields dry, no exploration and practically no investment - the country will end up having no viable future, not because of a lack of resources but because of business policies"
- Argentine President Kirchner
Jose Manuel Barroso, the European Commission president, said on Tuesday he expected Argentina to uphold international agreements on business protection with Spain.
"We emphasise the need for mutually agreed solutions which do not harm the business environment," Barroso told reporters.
"Thus I am seriously disappointed about yesterday's announcement."
YPF has been under intense pressure from Kirchner's centre-left government to boost production, and its share price has plunged due to months of speculation about a state takeover.
Kirchner said the government would ask Argentina's senate, where her party controls a majority, to approve a bill to expropriate a controlling 51 per cent stake in the company by seizing shares held exclusively by Repsol, saying energy was a "vital resource".
"If this policy continues - draining fields dry, no exploration and practically no investment - the country will end up having no viable future, not because of a lack of resources but because of business policies," she said.
Spain denounced the "hostile" move and warned that it would take "clear and forceful measures" in response.
Argentina's decision had "broken the climate of friendship" between the two countries, said Jose Manuel Garcia Margallo, Spain's foreign minister, speaking after a crisis cabinet meeting called by Mariano Rajoy, the prime minister.
"It's a hostile decision against Repsol, thus against a Spanish business, and thus against Spain," said Jose Manuel Soria, the Spanish industry minister, speaking at the same news conference.
"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.
Repsol bought Yacimientos Petroliferos Fiscales in 1999 for $15bn in what was the biggest operation of the privatisation programme of former Argentine President Carlos Menem.
The unit remains the largest oil firm in the South American nation, as the leader in fuel sales and 54 per cent of refining capacity.
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