Oil Flowing Freely
In Mexico’s energy sector, a welcome revolution


Mexico City – “Although the neoliberal dogma was already forgotten in other countries, including those that imposed it decades ago,” writes Jesús Ortega, editor of a prominent Mexican left-wing magazine, “in our country the current leaders continue using it.” The observation is worth pondering, because it is so wrong-headed — and so true.

The countries that “imposed” the neoliberal free-market “dogma” — an obvious allusion to the United States — do indeed seem to be forgetting it. The statist policies of the Obama administration belie what little free-market rhetoric remains in its pronouncements. In Mexico, strangely enough, rather the opposite has been true. Since the terrible Revolution of 1910, Mexican governments have stopped far short of their populist left-wing rhetoric.

The key campaign slogan of the current government in its push for energy reforms is a case in point: “No to privatization! Yes to reform!” In fact, the country’s energy sector is being privatized — in spades — and the consequences could go far beyond making Mexico a strategically powerful oil producer. In just a decade, North America could eclipse the Middle East as the world’s leading energy-producing region. Under the aegis of NAFTA, this in turn could lead to a new North American century — and to a historic global victory for the neoliberal model. Indeed, if Mexico does it right, it could become a compelling model even for the United States, where a suffocating and unpredictable regulatory regime spells big trouble ahead.

Mexico’s decision to lay its energy industry wide open to foreign investment represents a dramatic leap forward in its political culture, and it’s particularly surprising given the country’s problematic history with the United States. The turbulence and misery of 19th-century Mexico were greatly worsened by the loss of Texas and the ensuing loss of half the country’s territory in the Mexican–American War of 1846. In 50 years, 50 different governments ruled, ending finally in the dictatorship of Porfirio Díaz, whose famous lament was “Poor Mexico, so far from God, and so close to the United States.”

America’s heavy-handed interventions during the Revolution of 1910, which left one of every ten Mexicans dead, carved deep and lasting scars in Mexico’s psyche. The United States invaded twice during the seven years of the Revolution, deposed a president who was subsequently murdered, and generally left the perception that Americans were stealing the country’s natural resources. By the time President Lázaro Cárdenas came to power in 1934, Mexico had become the world’s second-largest oil producer, after the United States — owing largely to the fact that Americans had invested heavily in Mexico’s oil sector and owned most of its oil wells.

Lázaro Cárdenas remains among the most revered leaders in Mexican history. A former teacher with a genius for the common touch, Cárdenas not only redistributed land to poor peasants on a massive scale but also traveled widely through the countryside, visiting remote villages on horseback and even on foot, usually with no security detail and often with just one or two friends and a handful of aides at his side.

This beloved figure has greatly complicated the effort to reform Mexico’s oil sector, because, by a tragic coincidence, he also happens to be the one who in 1938 shocked governments around the world by expropriating all foreign oil assets, forming the world’s first national oil company and to this day one of its largest — namely, Pemex. According to Juan Pardinas of the Mexican Institute for Competitiveness, the 1938 nationalization was one of Mexico’s “greatest moments of national dignity.”

In this epic arc of revolution, humiliation, and redemption, oil played a major role, with the United States more often than not cast in the part of chief villain. Hence the gravity with which one Pemex official said to me, lowering his voice and slowing his cadence, “Oil is the most delicate subject in Mexico.”

From the reign of Lázaro Cárdenas until the very last year of the 20th century, Mexico was ruled by the Institutional Revolutionary Party. The PRI, as it is known, brought political stability and economic progress only at the expense of democratic participation. Predictably, the benefits didn’t reach the masses. Despite the party’s populist and often socialist rhetoric, economic policy consistently favored companies. Inflation padded corporate profits, and real income fell persistently.

The PRI had organized poor peasants, labor unions, and the petite bourgeoisie, in order, so it was believed, to represent their interests. In reality, the PRI was controlled by a political elite that had not just captured the government but even taken control of the very constituents it was supposed to represent. To this day, for example, the heads of major labor unions are appointed by the government. 

By the 1970s, this political arrangement was losing popular support, and as the country’s economic fundamentals worsened, the PRI embraced the same state-heavy policies that had become depressingly familiar among post-colonial states. Government control of formerly private companies expanded dramatically, from 80 enterprises in 1970 to 1,155 by 1982. The PRI was finally embracing policies that matched its left-wing rhetoric. Disaster was not far behind.