Mexican Oil Privatization Finds Support in U.S.

by Maggie Ervin

Petróleos Mexicanos logo found
in every gas station in Mexico

$32,600,000,000. $21,400,000,000. (You might have to count the zeros carefully to make sense of these numbers. That's 3.26 billion and 2.14 billion.) These were the earnings of ExxonMobile and Chevron in 2013, respectively. If this news didn’t already have them giddy, the Energy Reform passed last week in Mexico just might. In fact, Chevron’s CEO reacted to it with a “Congratulations,” while his counterpart at ExxonMobile had already expressed interest in the Reform: “If the next step provides an avenue for ExxonMobil to participate, we will.” 

Indeed it has. On August 12th, President Enrique Peña Nieto signed the Energy Reform into law, opening the doors to privatization of Mexican oil. With the Reform, PEMEX - or Petróleos Mexicanos - will retain its name, but its nature will change significantly.

Celebration in Mexico City in 1938
following the nationalization of oil.

Petroleum is the single most important element of the Mexican economy, accounting for about 10% of GDP and over 30% of the federal revenue. In 1938, Mexican oil was nationalized and transnational oil companies kicked out. The president at the time was Lázaro Cardenas, who justified his position with these words:  “…oil companies have enjoyed great privileges…including customs and tax exemptions and innumerable prerogatives,” as well as “miserably underpaid native labor; tax exemptions; economic privileges; governmental tolerance." Cardenas’ decision enjoyed overwhelming popular support in Mexico. Perhaps it’s not surprising then, that Peña Nieto’s does not. 

Here in Oaxaca, shopkeeper Norberto Lopez Santos articulated the prevailing skepticism: "It's another excuse to deceive the people. They're always lying to us. But it's the same thing: the rich always getting richer and the poor always getting poorer." A group of social justice organizations called Colectivo Oaxaqueño en Defensa de los Territorios (Oaxacan Land Defense Collective) denounced the Energy Reform as a "legalized land grab," referring to the electricity infrastructure projects included in the law. "An example of displacement can be seen in other projects in Oaxaca state," it wrote, and went on to cite dam projects and mines which have displaced entire communities.

Pena Nieto’s promises of what the Energy Reform will bring sound a lot like President Salinas’ (and Bill Clinton’s, for that matter) when he signed NAFTA: Better jobs, cheaper products (in this case, electricity and gas), and increased wealth thanks to foreign investment. But as NAFTA has shown Mexico over the last 20 years, the jobs won’t necessarily get better (oil companies will have no obligation to hire Mexican workers); electricity won’t get cheaper (past privatization has rarely meant cheaper prices for consumers, i.e., Enron in California. Indeed, just before the reforms passed, Governor Jerry Brown warned Mexico to regulate private energy companies or "they will eat you alive"). Lastly, foreign investment may increase, but again as with NAFTA, it will likely mean worse distribution of wealth. In fact, despite increased foreign investment, NAFTA only helped 10% of Mexicans increase their standard of living, while 45% of Mexicans remain poor, and an estimated 6 million small farmers have had no choice but to migrate. 

Jerry Brown warning Mexican lawmakers to enact a strict regulatory
 policy on foreign oil and gas companies or "they will eat you alive."

While many Mexican elites and politicians back the Energy Reform, it also enjoys plenty of support from both energy companies and politicians across the border. Republican Senator Richard Lugar - who before losing his seat in 2012 elections was on the Senate Foreign Relations Committee - was focused on the issue, and  in one of his final reports wrote: “Failing to implement the deal…would be a major setback for U.S.-Mexico energy relations.” During Obama’s visit to Mexico in February of this year, he congratulated Peña Nieto for the “outstanding efforts that he’s made…on a whole range of reforms that promise to make Mexico more competitive and increase opportunity for the people of Mexico.”  John Kerry has framed the issue as "energy security": "We

Obama's visit to Toluca,
Mexico State in February 2014

believe in this future of energy policy for this hemisphere…and that’s exactly the idea behind a program that we have created called Connecting the Americas 2022.” This is is a regional initiative that encourages exactly the type of private sector investment embedded in the new Mexican law. But the U.S.’s interest in oil goes beyond praise and policies. As revealed through the Snowden leaks, it turns out that NSA spied on PEMEX. According to Glenn Greenwald, more than issues of terrorism or the drug trade, the NSA's interest in Mexico actually lay more in the realm of energy. 

Like NAFTA, the Energy Reform will have far-reaching consequences in Mexico, a continuation of an agenda where privatization is not only a touchstone, but held up as a savior. The question is -  like the free trade agreement before it - who will it save?

Enrique Peña Nieto on the cover of TIME, Feburary 24, 2014. 
The cover was widely mocked throughout Mexico, 
and sparked an unprecedented number of memes.