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.
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
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-
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.
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
*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
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.
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.
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
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.
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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