Mexican Oil

September 25, 2007

The Mexican oil bonanza began in 1976 when the new President, Jose L6pez Portillo, went exploring with nothing more than his foun- tain pen. Mexico was laboring under a huge $28 billion public foreign debt, and facing three years of austerity under the stern eye of the International Monetary Fund. In order to procure ransom, L6pez Portillo commanded PEMEX, the state oil monopoly, to break out reserves which the staunchly nationalist agency had long concealed from foreign eyes, and to redouble exploration. The results were spectacular. Proven petroleum reserves, now at 40.1 billion barrels, have in- creased by 600% in just over two years, advancing Mexico to sixth in the world in holdings. Billions of barrels of petroleum ooze under the surface of its southeastern region and out into the Gulf of Mexico, while its northern deserts are honeycombed with natural gas pockets. The new crude is light and clear, and the new wells give remarkable yields. Mexico's credit-rating rose as its oil reserves did. Today, in spite of a trade deficit which increased 60% in 1978 (to $2.1 billion), foreign banks which balked in 1976 are oversubscribing loans to Mexico-worth a projected $9 billion this year alone. PETROPRESSURE ON But ventilating big oil reserves to take off the financial heat may only subject the Mexican Govern- ment to a new blast of foreign pressure. Now, particularly with the crude shortages following the revolution in Iran, our non-OPEC neighbor is a prime candidate to become a strategic oil supplier for the United States. The debate in the Carter Administration is whether to press the advantage of power (the United States buys 71% of Mexico's exports, pro- vides about 60% of its foreign loans and is Mexico's only large proximate market for petroleum sales) in an attempt to drive down Mexican petroleum prices, or to grant concessions on trade and immigration to shore up the long- term friendliness and political stability of the southern neighbor. While Mexico is economically dependent on the United States and therefore vulnerable to U.S. pressure, it does control a sophis- ticated oil industry that is vertically integrated from the well-head to the pump. So when Jimmy Carter visited Mexico on February 14th, L6pez Portillo could boldly warn him to try no "surprise moves and sudden deceit or abuse"; the Mex- ican President also dodged any hard negotiations on petroleum sales. NEW DEAL But the diplomatic sparring con- cealed the large and lucrative oil deal already falling into place be- tween PEMEX and the U.S. petro- leum industry: *HOW MUCH? After the CIA estimated that Mexico could pro- 43 MEXICAN OIL SOLD OUT GAMEupdate * update . update * update Migrant Laborers: Mere spectators in Mexico's oil boom? duce 10 million barrels per day by the late 1980s, it appeared a dis- appointment when L6pez Portillo confirmed in January that Mexico will stick to its originally projected 2.25 million barrels through 1982. In fact, Mexican exports will have increased twelvefold in four years. PEMEX refining plants are strained to capacity with the push to corner part of the U.S. demand. *WHO BUYS? PEMEX prom- ised to diversify its customers, and widely publicized a recent agree- ment to sell 100,000 barrels of crude per day to France. But a simultaneous deal to provide Dow Chemical 180,000 barrels per day for its Texas refineries went unmentioned. *WHAT PRICE? On April 1, Mexico temporarily raised its crude price 23% to $17.10 per barrel, or about 30c above the price for comparable OPEC crude. Though apparently a gesture of defiance against U.S. pressure, the effect will be to drive off non- American buyers who have to pay 44 additional transportation costs. Continued privileged access to Mexican oil will simply cost the U.S. a little more. *WHO GETS GAS? Late in 1977, Department of Energy Secretary James Schlesinger vetoed a proposed sale by PEMEX to six U.S. companies of natural gas worth $1.9 billion a year, because the Mexican product was 44c higher than a similar Canadian import. The gas was to be deliv- ered through an 830-mile, $1 billion pipeline, under construction by PEMEX, from southern Mexico to the border with Texas. PEMEX has said it can sell at home or "flare" (burn off) the gas indefinitely. But PEMEX is stuck with a huge pipeline investment, selling gas to a glutted domestic market for under 50c. Negotia- tions over gas have now re- opened, and will probably end in Mexico winning a slightly higher, face-saving price which would soon be matched by the world market due to inflation. *WHAT EQUIPMENT? Most of the new Mexican petroleum infra- structure is being built by U.S. firms. PEMEX's rush to export left Mexican industry unable to meet its demand for capital goods (though in the past coordination with Mexican industry was a strict PEMEX policy). In 1979, PEMEX will import 75% of its equipment, almost entirely from the U.S. Last January, the Texas Industrial Com- mission revealed that four Texas drilling contractors could earn $5 billion in ten years putting up 120 rigs for PEMEX. The notorious Mexican prestanombre, a Mex- ican partner who lends his name to a venture created and con- trolled by foreign capital is today a highly solicited figure in the petroleum sector. PLAN FOR PROFITS In addition to exposing Mexican petroleum to a degree of U.S. in- fluence unknown since the 1938 NACLA Reportupdate * update update * update nationalization, L6pez Portillo has also announced plans for the util- ization of petropeso earnings that will extend the bonanza principally to foreign and Mexican industrial investors with little transfer of resources to peasant and working class Mexicans. The strategy is contained in an 11-year Industrial Plan published in mid-March. It calls for massive government in- centives to encourage private in- vestment in basic capital goods in- dustries, like petrochemicals, steel and automobiles, which are to be spread out in eleven new, decen- tralized industrial zones. The big loser in the plan is agri- culture. Production of basic food- stuffs in Mexico hasn't significantly improved since 1971; last year it barely matched the population growth of 3.4%. In 1979, the land of the corn tortilla will spend $900 million to import maize and other cereals. Huddling behind these trade figures are the peasants who make up 48% of Mexico's 66 million people. In recent years, millions have been squeezed out of farming into unemployment, due to the lack of state aid for Agrarian Reform lands to increase productivity. Since food imports are directed to the cities, two- thirds of the rural population suf- fers chronic malnutrition. Former- ly, L6pez Portillo had proclaimed self-sufficiency in both fuel and food to be the priorities of his Presidency. But now he has ad- ministered the last rites to the Agrarian Reform, and will put petropesos to buying imported food. Although starving agriculture of funds, the Plan provides little cure for the epidemic of subemploy- ment which now affects 4 7% of MayMJune 1979 the Mexican workforce. Even as the bonanza goes into full swing new jobs in 1979 will fall 200,000 short of the 800,000 needed an- nually just to match population growth. The jobs are to be created in heavy industry and in new man- ufacturing expected to spring up as Mexican exports grow; the Plan thus replicates the essential development formula operative in Mexico for four decades. In the past, though business was good, private investment tended to employ more machines than Mex- icans and exports competed weakly on world markets. As a result, Mexico today hosts among the richest rich and the poorest poor in Latin America. TRAVELING ROOM ONLY For the next decade at least, many Mexican workers will have little choice but to continue their forced marches into the cities and northward into the United States in search of a livelihood. And the oil bonanza promises to replace Mex- ico's Institutionalized Revolution as the national spectator sport, where few play and many look on.

Tags: Mexico, oil reserves, PEMEX, US trade

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