Argentina's energy boom masks deepening recession fears as risk premium surges

Argentina's country risk climbed more than 100 basis points in August to close Thursday at 532 units, its highest level since mid-May, in a divergence that sets Argentina apart from the rest of emerging markets in eloquent fashion: while the Latin American sovereign spread barely budged over the period, Buenos Aires has accumulated a correction of more than 30% from the early-July lows. That gap is the central story of the week, and it does not lend itself to a simple explanation.

The external backdrop contributes, but does not suffice to justify the magnitude of the deterioration. Mills Capital analysts pinpoint the phenomenon with precision: the U.S. 30-year Treasury yield climbed to 5.3%, levels not seen since before the subprime crisis, and the 10-year returned to 4.70% after the relief generated by the U.S. Treasury's "Operation Twist" lasted barely 24 hours. President Trump's threat of an "economic war" against Iran pushed oil up another 2%, reheating global inflation expectations. In that environment, high-risk assets suffer. But since July 7, Argentine bonds have fallen more than 6%, well above the 1.7% pullback in the rest of emerging debt, according to GMA Capital. The idiosyncratic explanation weighs more than the global one.

Within that explanation coexist factors the market can no longer ignore. The economy is growing, but at an insufficient pace and with a composition that generates political tension: the June EMAE showed a 0.8% monthly rise and 2.7% year-on-year, driven almost exclusively by mining and agriculture. Mining and quarrying advanced 15.6% year-on-year in the month and was the sector with the greatest positive contribution to the index. Fishing rose 247.6%, from a low base. Industry, by contrast, contracted 1.9% in the first half. The sectoral picture describes a two-speed economy that President Milei himself acknowledged in his speech before the Council of the Americas, though from an opposite reading: for the president, the dynamic sectors —energy, mining, agriculture— are proof that the model works. For Cocos strategist Alan Versalli, they are an insufficient engine to pull the rest, given that they represent only 13% of GDP.

Formal employment is the data point that most unsettles the government as the electoral cycle approaches. Since December 2023, Argentina has lost 241,000 registered private-sector jobs and 73,000 in the public sector, according to official figures. Pablo Goldberg, emerging markets portfolio manager at BlackRock, put it with surgical precision: "What is becoming increasingly important is job creation, since surveys show it is turning into a key factor for consumer confidence. Given that this correlates with votes, the market will pay attention to this indicator." Universidad Di Tella's Consumer Confidence Index fell 1.1% in August, to 40.2 points, and has accumulated a 15% decline from its January 2025 peak. The recession probability according to the same research center's Leading Index stands at 81%, the lowest reading of the year but still in maximum-alert territory.

Facing that picture, the government confronts an economic policy tension that operators perceive clearly. The decision to keep the wholesale exchange rate near $1,500, as an inflation anchor, requires sustaining elevated peso interest rates —repos touched 30% nominal annual during Wednesday's session— and this restrains the credit needed to reactivate the real economy. Deputy Minister Daza, who replaced an ailing Caputo at the Council of the Americas, assured that "inflation is no longer an issue" and that Argentina's economic change "is permanent." BCRA president Santiago Bausili confirmed at FIEL that monetary policy will maintain "a contractionary bias until inflation converges with international levels." Household delinquency is at two-decade highs, with more than five million people in irregular status. Axel Kicillof's Buenos Aires provincial government opened a formal investigation against Mercado Pago and other digital wallets, with 2,240 complaints received in the first half. The Cámara Fintech counters that its firms handle only 16.3% of total delinquency, versus 63.3% for traditional banks.

What is working with clarity is the energy sector, and on that front the week's news is of international caliber. Fuel and energy exports nearly doubled in July from a year earlier, reaching USD 1.506 billion with a year-on-year variation of 97.8%, leaving a monthly energy surplus of USD 892 million versus just USD 12 million in July 2025. In the January-July cumulative, that surplus already exceeds USD 6.850 billion. Crude oil displaced soybeans as the country's top export product. And Harold Hamm, the Texan magnate known as the "king of fracking" and a Trump ally, signed a preliminary agreement to acquire 50% of Phoenix Global Resources, an operator with presence in six Vaca Muerta blocks, with planned capital deployment exceeding USD 4 billion over five years. The intent is to lift Phoenix's current production from 28,000 to more than 100,000 barrels of oil equivalent per day. Simultaneously, the government approved RIGI status for Tecpetrol's Los Toldos II Este project, the oil company of Grupo Techint, with an investment of USD 6.4 billion and a production target of 70,000 barrels per day in 2027. The Belgrano Cargas tender —a 50-year concession of more than 7,500 kilometers of track, with an anti-China clause and RIGI access for investments over USD 200 million— drew confirmed interest from Grupo México and a consortium of leading grain exporters.

What the market is weighing at this moment is whether the dollar flow from Vaca Muerta and agriculture is enough to sustain the currency dynamics while the domestic economy suffers. BCRA gross reserves touched USD 50.342 billion, a Milei-era high and the highest level in seven years, with 16 consecutive sessions of net purchases. Multinationals remitted USD 3.4 billion in dividends abroad this year, a level comparable to 2016. The Mercosur-European Union free trade agreement still has not distributed export quotas among the partners, with Paraguay insisting on an equitable 25% share for each member country. The minimum wage meeting called for August 28 and the negotiation of the automotive agreement with Mexico are the next domestic policy catalysts. The October 2027 presidential elections have already begun to dominate the conversation in the corridors of the Council of the Americas: "Which side are you going to be on?" was the question Chamber of Commerce head Mario Grinman left hanging among energy and mining executives. The market's answer, for now, is that the premium demanded to lend to Argentina has just become significantly more expensive.

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**Continental Resources / Phoenix Global Resources** — Continental Resources, the private oil company of magnate Harold Hamm, signed a preliminary agreement to acquire 50% of Phoenix Global Resources, with assets in six Vaca Muerta blocks and current production exceeding 28,000 barrels of oil equivalent per day; the joint platform with Mercuria Energy Group envisions capital deployment of more than USD 4 billion over five years with the goal of surpassing 100,000 barrels per day.

**Tecpetrol (Grupo Techint)** — The government approved the entry into RIGI of the Los Toldos II Este project, with an investment of USD 6.4 billion that represents the largest single commitment in the company's history; the plan contemplates reaching 70,000 barrels per day of production in 2027 and bringing Tecpetrol's total output in the Neuquén Basin to close to 100,000 barrels per day.

**Pampa Energía (NYSE: PAM)** — The energy company controlled by Marcelo Mindlin placed Class 28 notes for USD 138.4 million at a 5.5% annual rate and a four-year term, allocating the funds to finance Vaca Muerta investments and the construction of a granulated urea plant in Bahía Blanca valued at USD 2.7 billion, a project the government has already approved under the RIGI regime.