Who will control Mexico’s oil?

April 25, 2008

Sarah Knopp argues that proposed legislation on Mexico's oil industry could create privatization, under another name.

IN A disaster scenario painted by Mexican politicians and pundits in the U.S., Mexico will run out of oil for export within 10 years. Then, according to David Luhnow of the Wall Street Journal, "If Mexico can't turn things around, U.S. dependence on Middle East oil will grow."

The problem, according to them? "Undercapitalization": Mexico lacks the capital to locate and drill for new oil in the Gulf of Mexico. Additionally, Mexico lacks refining capacity. There are only six oil refineries in Mexico, compared to 149 in the U.S.

The convenient solution, according to Mexican President Felipe Calderon of the ruling National Action Party (PAN), to Mexico's "undercapitalization" problem and the impending "disaster" that it could create for the U.S. is an "association of capitals"--privatization, by another name.

There's a reason why Calderon can't use the "p" word. The vast majority of Mexicans fervently support the nationalization of oil carried out in 1938. PEMEX, or Petrolios Mexicanos, the state-run oil company, controls the sole rights to the estimated fifth-largest oil reserves in the world.

Supporters of Mexican reform presidential  candidate Andrews Manuel Lopez Obrador at a rally against privatization of the state-owned oil company in March 2008
Mass rally against oil privatization in Mexico City's main square

Unfortunately, though, in addition to providing monies for state programs that all Mexicans can benefit from, PEMEX oil money is used to pay off the interest on large International Monetary Fund loans and to line the coffers of politicians' campaign funds, most recently that of the 2000 run of Francisco Labastida, the defeated candidate of the former ruling party, the Institutional Revolution Party (PRI).

Though many citizens may not know it, Halliburton already has subcontracted with PEMEX for drilling wells and maintaining pipelines. This is part of Calderon's plan: to maintain the official structure of PEMEX and avoid the word "privatization," but gut it from within by subcontracting all of the essential functions of the oil industry at exorbitant rates.

This is the essence of what Calderon means by the term "association" in the energy reform bill that he will bring before Mexico's congress. This bill was probably conceived a long time ago, when Calderon was energy secretary, and the government was busy privatizing less crucial industries, like the telephone services.

But Calderon seems not to have gotten the memo that the current moment may not be the best time to push for a neoliberal restructuring of this state industry. For one, the neoliberal agenda is being challenged in other Latin American countries, where there are calls for more re-nationalizations, as in Venezuela, and struggles against privatization, as in Bolivia.

Second, with the world economy entering a major recession in the wake of 30 years of free-market slash-and-burn policies in the developing world, the idea that free markets and private industry are the most efficient and stable way to manage a nation's resources has been severely discredited.

Most importantly, there seems to be a challenge from below in Mexico. Andrés Manuel López Obrador, the actual winner of the last presidential election in Mexico, and his National Democratic Assembly have promised to fight through mass actions and have even threatened a national strike if Calderon's energy bill passes, according to reporter John Ross. Shouts of "La patria no se vende! La patria se defiende!" have rung out on the streets of the Mexican capitol at recent protests.

Why privatize now? With oil at more than $110 a barrel, it may be partially a matter of actual personal greed. Interior Secretary and close Calderon aide Juan Camilo Maurino's family has reportedly benefited enormously from recent contracts given out by PEMEX.

Or it may be that Mexico's oil bosses have finally succeeded in bringing together their "evidence" that Mexico's oil will run out of oil in 10 years without the intervention of foreign capital.

A major clash between left political forces and the pro-privatization forces of the PAN and PRI ruling bureaucracies may be brewing.

Or there could be a third way. President Luis Inácio Lula da Silva of Brazil has offered to forge a deal between Petrobras, the Brazilian state oil company, and PEMEX. This would still be a deal that gives foreign capital entry into Mexico's oil and a major step toward privatization.

However, because of Lula's left credentials, it may be an easier pill for Mexicans to swallow. Such a deal could, therefore, mute the protests that we can otherwise hope to see over control of the future of Mexico's energy resources.

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