Argentina says it will not pay the equivalent of around seven billion euros to buy a majority stake in Spanish controlled oil company YPF.
The new development comes following the announcement by Buenos Aires on Monday that it would seize control and nationalise the firm, infuriating Spain. Energy giant Repsol currently owns 60 per cent of YPF.
Repsol maintains that YPF is worth the equivalent of 14 billion euros and said it would seek compensation on that basis. But some analysts doubt whether the firm would ever recover the monies owed.
Madrid said the nationalisation of YPF would have “consequences” for diplomatic and economic relations with Argentina.
“It’s a decision that breaks the good understanding that has always characterised relations between our two countries and also damages both Spain and Argentina,” said Spanish Prime Minister Mariano Rajoy.
Argentina, which faces surging costs from fuel imports, is keen to boost domestic oil production.
President Cristina Fernandez remained defiant about her decision despite the international outrage: “I’m not going to respond to any threats or outbursts, or echo the lack of respect or insolent comments some have made. Because first I represent the Argentine people, and second I’m a head of state, not a bully.”