Spain has threatened to retaliate against Argentina for nationalising the Repsol-controlled local unit YPF, but Madrid will find it hard to put real pressure on a maverick nation that has been shut out of world debt markets and has ignored international fines in previous disputes.
"The threat really has very little credibility. What measures can they take?" Jose Ignacio Torreblanca, head of the Madrid office of the European Council on Foreign Relations, told Reuters.
He said Argentina has little investment in Spain, while Spanish companies with investments in Argentina's highly regulated telecommunications and utilities sectors could suffer if tensions escalate between the two countries.
Investors' dismay continued on Wednesday over the Argentine government's plans, announced Monday, to expropriate 51% of the firm.
The United States called the plan a "negative development" that could hurt the Latin American country's economy and investment climate.
State Department spokesman Mark Toner said the United States was very concerned and had raised its concerns with the highest levels of the Argentine government.
"Frankly, the more we look at this we view it as a negative development," Toner said according to the news wire.
Shares slumped 23% Wednesday morning after officials said the government would not pay majority holder Repsol the $9.8 billion it wants for a 51% stake in the firm.
Spain will ask the European Union to file a complaint with the World Trade Organization against Argentina, a high-ranking government source said on Wednesday, though it may find difficulty winning support from all 27 EU member nations.
Even if it did receive EU backing, such a complaint may not succeed with the WTO, which would want proof that Argentina was acting against public interest by taking control of YPF as laid out in a Spanish-Argentine bilateral investment treaty.
Under Fernandez and her husband and predecessor, the late Nestor Kirchner, Argentina has antagonised investors but still enjoyed strong economic growth and growing employment on the back of high prices for soy beans, its biggest export.
However, persistent investor jitters mean foreign investment in Argentina has fallen behind more business-friendly countries such as Brazil, Chile and Peru.
There is little leverage outsiders can put on Argentina except, perhaps, China, which buys 75 percent of Argentine soy beans and much of its processed soy as well.
Under the rules of the World Trade Organisation and the European Union, Spain cannot take unilateral trade action against Argentina, say by restricting imports of Argentine biodiesel or soymeal.
Its main recourse would be to take the Repsol-YPF case to the World Bank's International Centre for Settlement of Investment Disputes, known as the ICSID, to demand fair compensation for Repsol over the expropriation.
But Argentina could argue that it is in its public interest to expropriate YPF and a fight over the valuation of the firm is already on.
Argentina also has a very bad record at the ICSID. Fully one quarter of all global cases handled by the body have been brought against Argentina.
"Argentina is among the worst in terms of compliance with ICSID judgements, if not the very worst," said Ana Palacio, a former secretary general of the ICSID and former Spanish foreign minister.
Despite years of warnings that Argentina risks isolation, Fernandez has reinforced the country's reputation as a global rule-breaker, which began when it staged the biggest sovereign debt default in history in 2002.
And with the YPF move Fernandez has only cemented policies rooted in an ideology that has aligned Argentina with Venezuela's leftist President Hugo Chavez.
Argentina has repeatedly flouted world trade rules - drawing criticism from 40 countries earlier this year - by restricting all kinds of imports as it tries to reduce its trade deficit in order to increase foreign currency reserves to use to pay down debt, since it cannot access global credit markets.
Private companies, both domestic and foreign, have long been cowed by Fernandez and Kirchner, who have publicly called for boycotts or launched tax investigations against companies that got on the wrong side of their government.
The Argentinian government even has an enforcer, Domestic Commerce Secretary Guillermo Moreno, who personally calls company executives to warn them to keep down prices of products and to limit purchases of foreign currency.