What is 'Nationalization'

Nationalization refers to the process of a government taking control of a company or industry, which generally occurs without compensation for the loss of the net worth of seized assets and potential income. The action may be the result of a nation's attempt to consolidate power, resentment of foreign ownership of industries representing significant importance to local economies or to prop up failing industries.

BREAKING DOWN 'Nationalization'

Nationalization is more common in developing countries. Privatization, which is the transfer of government-run operations into the private business sector, occurs more frequently in developed countries.

Nationalization is one of the primary risks for companies doing business in foreign countries due to the potential of having significant assets seized without compensation. This risk is magnified in countries with unstable political leadership and stagnant or contracting economies. The key outcome of nationalization is the redirection of revenues to the country’s government instead of private operators who may export funds with no benefit to the host country.

Nationalization and Oil

The oil industry has experienced nationalization actions for decades, dating back to Mexico’s nationalization of the assets of foreign producers such as Royal Dutch and Standard Oil in 1938 and Iran's nationalization of the assets of Anglo-Iranian 1951. The result of Mexico's nationalization of foreigners’ oil assets was the creation of PEMEX, which is one of the largest oil producers in the world. After the nationalization of Anglo-Iranian, Iran's economy fell into disarray and Britain was allowed back in as a 50% partner a few years later. In 1954, Anglo-Iranian was renamed the British Petroleum Company.

In 2007, Venezuela nationalized Exxon Mobil’s Cerro Negro Project and other assets. Seeking $16.6 billion in compensation, Exxon Mobil was awarded approximately 10% of that amount by a World Bank arbitration panel in 2014.

Nationalization in the United States

The United States has technically nationalized several companies, usually in the form of a bailout in which the government owns a controlling interest. The bailouts of AIG in 2008 and General Motors Company in 2009 amounted to nationalization, but the U.S. government exerted very little control over these companies. The government also nationalized the failing Continental Illinois Bank and Trust in 1982, finally selling it to Bank of America in 1994.

Despite the temporary nature of most nationalization actions in the United States, there are exceptions. Amtrak was transferred to government ownership after several railroad companies failed in 1971. After the terror attacks of Sept. 11, 2001, the airport security industry was nationalized under the Transportation Security Administration (TSA).

  1. National Bank

    In the United States a national bank is a commercial bank, while ...
  2. National Currency

    The currency or legal tender issued by a nation's central bank ...
  3. Government Paper

    Debt securities that are issued or guaranteed by a sovereign ...
  4. Capital Outflow

    Capital outflow is the movement of assets out of a country often ...
  5. Direct Investment

    1. The purchase or acquisition of a controlling interest in a ...
  6. Foreign Investment

    Flows of capital from one nation to another in exchange for significant ...
Related Articles
  1. Investing

    Who is Most Affected by Lower Oil Prices?

    With low oil prices affecting just about everyone, from citizens to corporations to entire nations, we look at who wins and who loses with the price drop.
  2. Insights

    The National Debt Explained

    We know it's growing, but we don't know exactly how. An in-depth look why the U.S. Government's debt continues to balloon and what it all means for you.
  3. Financial Advisor

    The Biggest Oil Producers in Latin America

    Find out which countries produce the most oil in Latin America, and learn about some of the biggest oil companies operating in each country.
  4. Financial Advisor

    The Biggest Oil Producers in the Middle East

    Discover which countries produce the most oil in the Middle East, a region long known for its influence on international petroleum markets.
  5. Investing

    The World’s Biggest State Owned Oil Companies

    Read about eight of the biggest government-controlled oil producers in the world, and learn more about how they are organized and how much oil they produce.
  6. Insights

    What The National Debt Means To You

    The U.S. deficit seems to grow every year. But how does it actually affect you?
  7. Investing

    Impact of Low Oil Prices on Oil Sellers and Buyers

    The impact of the fall in oil prices globally is nuanced due to the complex economies of some countries --some of which are both oil producers and buyers.
  8. Investing

    What We Learned From The Last Oil Shock

    The last oil shock in the 1970s carries some valuable lessons for consumers facing a repeat today.
  9. Insights

    How Governments Influence Markets

    The government, the biggest influence in the markets today, can create some unintended consequences.
  10. Trading

    Weakest Currencies against the U.S. Dollar in 2015

    The U.S. dollar has been pummeling other currencies, largely due to falling global commodity prices. Here are the worst performing currencies of 2015.
  1. What developed countries have the largest proportion of industrial companies?

    Examine the industrial sector in developed countries, and learn about the shift in manufacturing production to emerging market ... Read Answer >>
  2. How does the price of oil affect Venezuela's economy?

    Learn how the price of oil has a direct relationship with Venezuela's economy. High oil prices result in good times for the ... Read Answer >>
  3. What can a multinational company do to minimize exposure to political risk?

    Political risk is the risk that a country will make political decisions that have adverse effects on corporate profits. Learn ... Read Answer >>
  4. Which developed country has the most debt?

    Discover the nations that have the largest net government debt, viewed in terms of absolute dollar amount or as a percentage ... Read Answer >>
  5. What does it mean when a country has little activity in its capital account?

    Know what a country's capital account represents and understand what the implications are if a country has little activity ... Read Answer >>
Hot Definitions
  1. Liquidity

    Liquidity is the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset's ...
  2. Federal Funds Rate

    The federal funds rate is the interest rate at which a depository institution lends funds maintained at the Federal Reserve ...
  3. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  4. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  5. Entrepreneur

    An entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture.
  6. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
Trading Center