It’s the Oil, Stupid !

It’s the oil, stupid!

Even as popular pressure grows around Latin America for a stronger state hand in developing natural resources such as oil and gas, Mexico’s president-elect Felipe Calderón may be forced to consider putting more power in private hands.

The country’s flagship oil company Pemex, has been a point of pride since the industry was wrenched from foreign hands and nationalized in 1938. Its revenues alone cover one-third of Mexico’s budget.

But prosperity from years of record oil prices has allowed Mexico to postpone what most agree are much-needed reforms. And now, as production at Pemex’s top oil field declines, pressure to find new fields is mounting. But industry analysts say Mexico’s constitutional restriction on foreign direct investment will hamstring costly exploration efforts, and possibly disrupt the flow of oil, 80 percent of which heads to the US.

Indeed, with his fragile political mandate, Mr. Calderón may find that oil becomes the issue that will define his presidency.

Translation: If he doesn’t co-operate with the privateers, he’s gonna find a horse’s head on his pillow and a replacement in his chair.

This is an important first battle,” says Benito Nacif, a political scientist at the Center for Research and Teaching in Economics (CRTE), a Mexico City think tank. “In the industry sector, there is a consensus that this reform is necessary, that you have to open it up [to the private sector]. The question is: ‘Will [Calderón] be able to build sufficient [political] consensus?’ “

Many industry analysts had hoped that outgoing President Vicente Fox would be able to push through energy-sector reforms to open up Pemex to more private direct investment, in order to boost exploration and production.

Mexico is the second-biggest supplier of oil to the US, favored because of its proximity and relative political stability.

For “relative political stability”, read stolen elections favorable to US-backed candidates.

In the end, Mr. Fox didn’t push through a consitutional change, largely because trying to privative Pemex, even partially, is so politically unpopular.