The answer to the question of whether Argentina become a petroleum power as a result of Argentine President Javier Milei’s reforms will undoubtedly shape both the country and the continent for many decades to come.
Argentine President Javier Milei is trying to reverse his country’s decades-long decline through an aggressive program of fiscal discipline and reduction of the size of the state. While the difficulty of this task should not be underrated, he may enjoy a crucial advantage: Argentina’s emergence as an oil producer may provide a financial cushion that could allow him to pursue his bold plans.
Six hundred miles southwest of Buenos Aires, against the Andes mountains, lies the Vaca Muerta (“dead cow”) geological formation, an area the size of Belgium spreading over lightly populated Neuquén Province. This area holds vast quantities of so-called “tight” or “shale” oil and associated natural gas which is trapped in layers of rock and can only be accessed through hydraulic fracturing, which involves breaking the rock up with explosives and then forcing the hydrocarbons to the surface by injecting water, sand and chemicals.
Vaca Muerta has attracted international and local firms who are willing to assume the risks that investing in Argentina has historically entailed. Production is ramping up and pipelines are being built across Argentina’s vast pampas, making it the first location where shale oil and gas has been extracted in commercial quantities outside of the United States — where this technique has transformed it into the world’s largest oil and gas producer.
While credit must be given to his predecessors for beginning the process of opening up Vaca Muerta for investment and developing the needed infrastructure, Milei has sought to supercharge foreign engagement in the sector through a new investor-friendly investment code. The money from Vaca Muerta could be crucial to his economic plans, which have recently been boosted by a massive loan from the International Monetary Fund that will eventually have to be paid back.
Vaca Muerta may reshuffle the energy geopolitics of Latin America, bringing Argentina into the first rank of producing countries. But real risks exist. While Vaca Muerta may yield big dividends for both investors and for Argentina itself, globally, the long-term future of hydrocarbons is in doubt in the face of climate change concerns. And Latin American natural resource booms have often ended badly, with the earnings spent rapidly by profligate governments and foreign investments seized. Nonetheless, Argentina’s rise as a producer may give it breathing space which, if used wisely, could make a difference as it struggles to get back on track.
The Race Is On
Serious development of Vaca Muerta was begun by Argentine oil producer YPF in 2010. The firm had been created as a state-owned enterprise, but after being privatized in 1993, it was at the time majority-owned by Spain’s Repsol. The Peronist government of Cristina Kirchner, with a strong preference for state-led development, re-nationalized YPF in 2012, but ultimately allowed it to partner with U.S. oil giant Chevron, in addition to undertaking its own drilling, as the large amount of capital Vaca Muerta required was beyond its reach. Over time, multiple firms have entered, usually in the form of consortia in which several companies participate.
Among the big “supermajors,” in addition to Chevron, UK/Netherlands-based Shell is making a large bet, while ExxonMobil has sold off its interests, apparently preferring to make Guyana its principal western hemisphere investment. Its properties have been sold to Pluspetrol (Argentina) which has a long history of developing the country’s conventional oil deposits. Other firms active in Vaca Muerta include Vista Energy (Mexico-headquartered with Argentine and international investors) and Pan American Energy, a joint venture of BP (UK) and Bridas (China/Argentina). As a result, Argentine crude oil production, which stood at 479,000 barrels per day (bpd) in 2017, reached 757,000 bpd in 2024, and should hit 830,000 bpd in 2025. It could reach 1,000,000 bpd by 2030.
Existing transportation capacity has been sufficient for current oil production levels, aided by the reactivation of a previously closed pipeline over the Andes to Chile and thus to markets across the Pacific. And there are big plans to expand the network, as Chevron, Shell, and YPF have agreed to build a 271-mile-long pipeline to the Atlantic. It is expected that the pipeline, which will cost $3 billion to construct, will initially transport 180,000 bpd when it begins functioning in 2026, rising to 550,000 bpd in 2027 and possibly 700,000 bpd after 2028. (Argentina is also increasing its natural gas pipeline capacity to allow gas from Vaca Muerta to replace imports from Bolivia for domestic consumption and to sell gas to Brazil and elsewhere.)
Pipelines and other Vaca Muerta-related investments will benefit from the Milei administration’s “Incentive Regime for Large Investments” (Spanish initials RIGI). RIGI, passed as part of a package of reforms at the beginning of the Milei administration, provides tax and customs exemptions, assured access to foreign exchange, regulatory incentives, and a guarantee that the benefits provided will last for thirty years and be considered property rights.
The hydrocarbon sector is especially privileged in that the minimum investment required to qualify for RIGI benefits is lower than for most other types of investment. RIGI has not been without its controversies. Those on the political left have accused the government of selling out the country’s natural wealth to foreign interests, while smaller domestic firms object to the fact that they do not receive the same benefits.
A New Player in the Region
Argentina’s emergence as an oil and gas producer has implications both globally and domestically. Its new production constitutes a meaningful if modest contribution to the global energy balance, as total world oil production is 82.35 million bpd, to which the United States, powered by its own shale oil production, is the world’s largest single contributor, at 14.84 million bpd, followed Saudi Arabia at 12.40 million bpd and by Russia at 11.26 million bpd.
But within Latin America, Argentina’s role has greater importance and forms part of a reordering that is going on among producers within the region. For decades, the dominant producers were Venezuela and Mexico, giving these states extra political and economic clout. In Venezuela, rule by Hugo Chavez and his successor Nicolas Maduro has devastated the sector, which now produces less than a third of what it did at its peak. Foreign capital is desperately needed for any recovery, but with the Trump administration committed to tough sanctions, it remains a pariah for most foreign investors.
Mexico’s oil sector, although not damaged to the extent of Venezuela and still an important producer, has suffered from corruption in parastatal concern Pemex and from nationalist policies which have reversed a promising opening to private firms; production has dropped to barely above half of what it was at its peak as a result of declines at maturing fields which may be difficult to replace. The new government of President Claudia Sheinbaum has begun to reform the country’s hydrocarbon regime to provide more centralized oversight of Pemex; however, there does not appear to be any opening for the private sector to provide needed investment.
The new regional leader is Brazil, where state producer Petrobras, together with foreign partners, has successfully developed offshore deposits buried under a thick layer of salt. It has now become the largest oil producer in Latin America and the seventh-largest globally. And, although not yet in the first rank of producers, Guyana also is gaining importance, as ExxonMobil and other foreign producers are taking advantage of its reserves, which are essentially an extension of Venezuela’s geology. (Venezuela, apparently coveting these deposits, has revived a long-dormant border dispute with its smaller neighbor.)
With Vaca Muerta, Argentina has overtaken Colombia, which had been the region’s third-largest oil producer. Columbian production is stalling out under the leadership of President Gustavo Petro, whose commitment to the environment has included a ban on further exploration. And as Argentina pushes forward with Vaca Muerta, it may benefit in the future from several shale formations in other parts of the country. Also, its lengthy coast provides opportunities for offshore exploration, which is only beginning to be examined.
Given climate change concerns, the long-term future of oil and gas is, of course, a matter for debate. While a transition away from hydrocarbons is being discussed, the world’s oil companies (as evidenced by analyses made by ExxonMobil and BP) seemingly are proceeding on the basis that, while there may be some decline, demand will remain significant for several decades more at a minimum.
In any event, Milei, for his part, has little time for worries on that score, and has dismissed the idea of human activity causing climate change as a “socialist lie.” And environmental concerns within Argentina also are being given short shrift, even though opponents of hydraulic fracturing have pointed to earthquakes and contamination, as well as to the social consequences of the sector’s rapid development, such as at the boomtown of Añelo — the main base for the development of Vaca Muerta.
Risk and Return
But while Argentina has a government that is committed to developing this resource, it is by no means a risk-free environment. Milei has been in office for less than a year and a half. It is true that he can claim some major successes: the imposition of strict spending discipline, which has eliminated chronic deficits and led to a sharp reduction in inflation, the creation of a favorable investment regime, and a privatization and deregulation campaign which is gaining momentum.
As he has moved forward with this program, he has been buttressed by the support that hydrocarbon production has provided to Argentina’s national accounts. It now constitutes
3.4 percent of Argentina’s gross domestic product, and its share will likely increase during the next decade. As a result, in 2024 Argentina enjoyed a $5.67 billion energy trade surplus. The sector’s increasing contribution to Argentina’s economy was doubtless a comfort to the International Monetary Fund, which has recently granted it a massive new loan to enable it to abolish exchange controls.
But while Milei enjoys support from the Argentine public, which views his program as a chance to break away from decades of decay, it is unquestionable that unemployment and reduced standards of living have been the price that it has paid. Still, there have been some signs of recovery, and Milei has had some success in regional votes — notably the recent legislative elections in the city of Buenos Aires, where a list headed by his former spokesman has led Milei’s party to victory. Next will be the race for governor of Buenos Aires province, which extends from the capital’s outskirts to include several other important cities and is currently led by a major Peronist figure. And in late 2026, Argentina will have elections for Congress.
While the continued strong interest on the part of international oil companies in Vaca Muerta may be seen in part as a vote of confidence in Milei’s administration, nobody can say that Argentina’s future is secure and that a return to statist anti-investment policies after his current term ends in late 2027 is impossible. Latin American commodity booms have a depressing history, often leading to overvalued currencies and populist spending sprees, followed by crashes when international prices drop or the resource is exhausted. In many cases, investors found their properties ended up being nationalized as governments sought to keep all of the bonanza for themselves.
Milei seems determined to avoid this pattern, although his success is by no means certain. That said, the risk of any nationalization seems minimal for the present. And investors in Vaca Muerta may benefit from the nature of wells drilled into shale deposits, which are highly productive initially but often taper off within three to five years. This means that new wells have to be drilled—or not if the investment climate has deteriorated—thus limiting their exposure to some degree. (This is not to underestimate the cost of some assets, such as pipelines and associated pumping stations and refineries, which would have to be abandoned should the investment climate deteriorate.)
The rise of Vaca Muerta as an oil province—coming on top of the increased production from Brazil and Guyana—means that Latin America will continue to be an important contributor to global energy needs. This is taking place even though Venezuela (which has the world’s largest proven oil reserves) remains trapped by its disastrous governance and the resulting sanctions, while any reform of Mexico’s oil regime is incipient at best. From the US’s perspective, the presence of a friendly government in Argentina, and of an important American company, Chevron, in a leading role, bodes well for future relations, if this welcoming environment can be sustained.
Calculating risk is the business of international oil companies, and for now, the lights are glowing green in Argentina. So, we can expect continued investment in Vaca Muerta. For Milei’s government, the revenue that it will supply will be a welcome cushion as he seeks to keep Argentina on the path of zero deficits. And perhaps this will allow the country to enjoy sufficient economic recovery to allow him to continue moving forward with his program.
About the Author: Richard M. Sanders
Richard M. Sanders is Senior Fellow, Western Hemisphere at the Center for the National Interest. A former member of the Senior Foreign Service of the U.S. Department of State, he served as Argentina desk officer, 1997-1999 and as Director of the Office of Brazilian and Southern Cone Affairs, 2010-13.
Image: Shutterstock/NOWAK LUKASZ
