Chile announced July 14 that the price it pays for natural gas purchased from Argentina has increased 100 percent, from $7.80 to $15.90 per million British thermal units (Btu), including transportation costs. Chile will be paying $29 per million Btu. The move is an attempt by Argentina to shore up its declining natural gas sector by passing on the costs to Chile. The costs for Chile are high, since Argentina is its only source of natural gas, and Chile is already feeling the pinch of high global commodity prices. Argentina’s decline in natural gas production has ended a 10-year honeymoon as an energy exporter. With natural gas making up 54 percent of Argentina’s energy mix, the country is extremely vulnerable to shortages. With declining production and declining exports from Bolivia, Argentina is struggling to pay for its natural gas imports. Chile is one of Latin America’s most stable countries, with well-developed trade linkages to the rest of the world, fiscally sound policies and relatively stable growth. But Chile is a sliver of a country precariously balanced between the Andes Mountains and the Pacific Ocean, and it lacks important resources such as agricultural land and energy reserves. As a net importer of oil, wheat, corn and rice, Chile is deeply hurt by soaring commodity prices worldwide. As commodity prices soar, however, Chile has one huge advantage: It is the world’s largest exporter of copper. But its copper industry is dependent on the approximately 2.38 billion cubic meters of natural gas and electricity it receives from Argentina, and Argentina has been an increasingly unreliable partner. The price increase announced July 14 will bring total payments to Argentina to around $25 million per year, up from $18 million per year in 2007. In the long term, Chile has plans to diversify its sources of natural gas by developing the ability to import liquefied natural gas from the global market. In the short term, however, the country will continue to be subject to Argentine price hikes and supply shortages. Rising fuel prices have caused civic unrest across Chile. Truckers unions have held nationwide strikes to protest the rising cost of gasoline, and rising food costs are hitting Chile’s poor at a time when other political pressures are mounting against the government of Chilean President Michelle Bachelet. For the time being, Chile can likely weather the storm of increasing commodity prices. The copper industry provides a cushion that will ameliorate the fiscal impact of rising commodity prices across the board. The real danger, however, is the rising discontent from the masses as the poor continue to suffer from inflation and rising costs. For Argentina’s part, it will continue to pawn its energy crisis off on its neighbor while failing to find long-term solutions.