Mexico's decision day

Mexico goes to the polls Sunday to elect a new President. The race is reported to be too close to call. Should the leftist mayor of Mexico City, Andres Lopez Obrador, win, the consequences for the United States (and Mexico) could be profound. Obrador, like Pat Buchannan here, wants to put the brakes on NAFTA, and go for an industrial policy aimed in the direction of autarky.

Mexico is the second largest supplier of oil to the United States. Mexico's federal government gets 40% of its revenue from oil, via state—owned Pemex. Mexico permits no foreign investment in its petroleum business.

Put this all together, and you get the predictable consequence: Mexico's proven reserves of oil are rapidly declining. Instead of state—of—the—art exploration and recovery techniques, handily available across the border in Houston, Pemex, a bloated and inefficient bureaucracy, muddles through, with declining results.

Obrador wants to continue to block foreign investment, and instead wants to compensate for declining oil production with an emphasis on refining. This makes very little sense. Refining margins are not going to supply anything like the return of oil production. The government is never going to get comparable revenues.

Felipe Calderon, the more conservative candidate, wants to allow foreign investment in Mexico's production and exploration sector. That is the only way Mexico will reverse its declining production.

Thomas Lifson   6 30 06

Mexico goes to the polls Sunday to elect a new President. The race is reported to be too close to call. Should the leftist mayor of Mexico City, Andres Lopez Obrador, win, the consequences for the United States (and Mexico) could be profound. Obrador, like Pat Buchannan here, wants to put the brakes on NAFTA, and go for an industrial policy aimed in the direction of autarky.

Mexico is the second largest supplier of oil to the United States. Mexico's federal government gets 40% of its revenue from oil, via state—owned Pemex. Mexico permits no foreign investment in its petroleum business.

Put this all together, and you get the predictable consequence: Mexico's proven reserves of oil are rapidly declining. Instead of state—of—the—art exploration and recovery techniques, handily available across the border in Houston, Pemex, a bloated and inefficient bureaucracy, muddles through, with declining results.

Obrador wants to continue to block foreign investment, and instead wants to compensate for declining oil production with an emphasis on refining. This makes very little sense. Refining margins are not going to supply anything like the return of oil production. The government is never going to get comparable revenues.

Felipe Calderon, the more conservative candidate, wants to allow foreign investment in Mexico's production and exploration sector. That is the only way Mexico will reverse its declining production.

Thomas Lifson   6 30 06