1. Mexican Oil “curse”: an analytic overview of the Mexican oil industry
Introduction
“The oil is ours”. Mexicans have adamantly proclaimed this in 1938, when the production of
hydrocarbons was expropriated as a result of the political struggle between foreign oil companies
and President Lazaro Cardenas. The government and the people were so united that the latter
chipped in from their own pockets to help the government pay the indemnification to the foreign
companies. Since then, Mexicans have cherished oil as a monolith of socioeconomic progress and
national pride.
The rising demand for oil in the world has transformed various countries that have enormous
reserves of oil and other energy commodities. Some have been categorized as “Petro-States”
because they solely depend on oil production as the primary source of export income. Luong and
Weinthal devised a particular theoretical framework for Central Asian Petro-States to inspect the
institutional, economic and political arrangements that determined the adoption of energy policies
for each country.
The goal of this paper is to see if the Mexican oil case can fit with the classifications proposed by
the Luong & Weinthal model for the adoption of oil policies. It should be noted that Mexico cannot
be considered a Petro State because oil is not the main export of the nation, but it does hold a
significant role when it comes to national stability. The selected time line for this paper starts from
the 1970´s oil bonanza to the late 2000´s. In the end, I will draw some conclusions and refer to the
renewal of the Mexican oil industry as the result of recent economic reforms.
Overview of Luong and Weinthal´s framework
The inquiry line brought forth by Luong and Weinthal begins by tracing the reasons for countries
to either nationalize or privatize their hydrocarbon resources. Two categories were analyzed to
determine the socioeconomic leverage the authorities had to enact such policies: a) the availability
of alternate sources of export revenue and b) the level of political domestic contestation.

2. Henceforth, if the authorities have a high access to alternative resource development and low
political contestation, the State chooses to have a nationalized oil scheme, N1, that blocks direct
Foreign Direct Investment (FDI). The N2 setting is distinguished for having scarce export diversity
capability, low political contestation and openness to foreign investment. In contrast, the
government would privatize to a P1 setting with the exclusion of direct FDI if complex assortment
of exports existed and high political contestation was present. Lastly, a P2 regime would permit
direct FDI and would be distinguished by low diversity of exports and high political contestation.
The authors infer that privatization models are better in the long run due to the polarized political
environment that is nurtured by oil state companies. The consequences of the latter scenario
permeate in corruption, misappropriation of public resources, attenuated political scuffles and
instability.
Analysis of the Mexican Case
Export diversity
The Mexican oil sector underwent several transformations due to the production inconsistencies
that permeated from the 1950´s until the early 1970´s (Morales, 1992: 233). The most profitable
products that were being exported out of Mexico between 1971 and 1974 were coffee grains and
headstock. It wasn´t until 1975 that oil became the main exportable good in Mexico. The
breakthrough came in the discovery of new oil fields and the soaring demand for oil. As Table 1.1
shows how oil became the most traded export from 1975 to 1979.
This massive flow of resources prompted many plans for strengthening the country´s infrastructure
through investment in public companies to further economic heterogeneity with national capital.
Nevertheless, Székely (1992) outlines that the new high dependency on oil delayed the proposal
of liberalizing economic reforms that were drafted by the Lopez Portillo administration. Pressure

3. came from powerful labor unions that were a core element of the PRI1. Hence, more necessities
had to be covered and more foreign debt was acquired. The reliance on oil added to the
protectionist economic agenda, the dip in the prices of oil, the high appreciation of the peso and
the raising of interest rates on debt set the scenario for the 1982 economic crisis. The authorities
induced more protectionist measures to improve the scanty economic situation in the country.
Pemex´s profits kept rising during the first five years of the 1980´s. In 1982, over 75% of Mexican
exports were oil. Oil production rose from 0.8 million barrels per day in 1975 to 1.8 in 1986
(Székely, 1992: 265). Thereafter, the formidable oil epoch came to an end when the government
adopted the much awaited liberalized policies that favored diversity in the exports sector. Chart
1.1 exemplifies how the exporting trends in Mexico began to switch to other product categories
such as textiles, machinery, automobiles, food and beverages from 1987.
The following decade was defined by an enormous torrent of foreign capital and investment that
incentivized the upheaval of industries. The government accommodated a private enterprise
environment by eliminating state owned companies, getting rid of onerous labor unions,
(re)privatizing the banking system and deregulating markets. The private-sector economy took
1 The ruling party from 1929 until the year 2000.

4. over the command of the economy and the role of oil has decreased gradually due to decreasing
oil output. In Chart 1.2 it can be appreciated that after the decline of 1985, production has lagged
ever since.
In sum, the dependency on oil in the 1970´s did limit the diversification of the economy. But after
this sector lagged, a new economic arrangement was devised through the coordination of pro-
market policies and the interest of keen multinational corporations. Foreign investors saw the
economic potential in Mexico and invested heavily to spring new industrial ventures at low labor
costs. Mexican entrepreneurs did not have the investment capability to undertake a neoliberal
transformation, so foreign capital was the key to implant a new economic structure. Oil had the
potential to break increment wealth and capital accumulation, but the dearth of investment in
drilling and refining combined with the allocation of earnings to the public sector limited the full
potential profitability of selling oil to other nations.
Political Cleavage
The Mexican political scene of the 1970´s was dominated by a hegemonic political power that was
unchallenged until the beginning of the 2000´s: the PRI. The strength of the political order was
consolidated by corporatists clusters, farmer associations, wealthy business men and populist
groups. The political cleavage was exceedingly centralized at that time so the room for real
opposition at a national level was narrow. Oil was a complementary political resource that was a
perfect outlet for nationalism and an emblem where citizens could express their loyalty to the
government (Baker, 1992: 281). In this sense, it was in the best interest of the government to fully
exploit oil because it reinforced the base of the political powers all the way to the late 1980´s.

5. The PRI 70-year dominance ended in the year 2000, when the PAN2 captured the presidency and
the confidence of the political classes of Mexico. This change of political factions occurred due to
mishandling of the liberalization policies enforced by the Salinas administration, the growing
distrustfulness from the Mexican elites towards the authorities, the faulty auction of the
nationalized banks in 1989, the political instability within the PRI in the 1990´s and the economic
crisis of 1994 (Sandoval, 2011). The latter debacle casted several doubts regarding the abilities of
the PRI because there was no foreseeable stability that could either protect the interest of the
private sector nor the security of the citizens. Furthermore, the over usage of Pemex as a political
monolith of progress shattered the government´s credibility and damaged the financial integrity of
Pemex. Unfortunately, the new governments could not gather the necessary congressional majority
to transform Pemex´s operations. As a result, Pemex has been operating at a loss since 1998 and
has accumulated substantial debts ever since3.
In summary, even though oil was not the main factor that elevated political disputes on the
Mexican political arena it did play a significant role in the demise of the long sustained rule of the
PRI during the 20th century. The 1970´s oil bump prompted a greater demand for more crude sales
income and this fueled the government to allocate more resources to the political factions. This
system collapsed after two economic crises and the surge of the private economic spheres, but it
did not diminish the corporate foundations of Pemex, nor its status as a national symbol of
autonomy. The archaic structure of the oil industry has stood as a symbol of political patronage
from the 20th century and it has withstood various political transitions that have rocked the Mexican
political system.
Conclusions
Luong and Weinthal´s framework is consistent with the projected position of the Mexican oil
sector in the N1 column. So far the entrenchment of “patronage networks” within the government
has damaged the integrity of the oil sector in Mexico and played a significant role in the during
the PRI years.
2 The main right wing political force in Mexico.
3 The company´s balance sheet in 2007 had a deficit of 7.7 billion dollars (Rivando et. al, 2015).

6. However, the original framework did not cover how the patronage entrenchments would develop
in a nationalized scheme. Some of the predicted patterns did show up but not how far oil could
transcend into politics. Oil became a national symbol that empowered Mexican heritage and it
became a monument of victory against foreign exploitation. Politicians, union workers and the
common citizens benefited from the sales of crude oil, which created a dependence linkage on oil
that has carried a paternalistic burden into the 21st century. In other words, Mexico has over
invested in Pemex in political terms and on the other hand it has underinvested in terms of physical
capital (Baker, 1992). The symbol of oil transcends boundaries in the Mexican political system
and it is hard to separate the business side of Pemex and its role as an integral political component
of autonomy against the foreign pressure.
Additionally, their model does not go over the transitions from one setting to another. The
patronage in this case is being destroyed by the reforms from the new PRI government that is
trying to shift the Mexican oil sector from a N1 to an N2. The authorities finally captured enough
political capital to incorporate foreign capital in oil drilling and extraction operations. This course
of action promises to fix the internal problems of Pemex´s finances. It was the lack of political
diversity in Mexican politics that allowed the inducement of a N2 setting. This breaks the
continuity of the theoretical framework because N2 is characterized by high export diversity and
high political contestation. The latest renewal of the oil sector was evoked in response to the ailing
health of Pemex and the discovery of new hydrocarbon niches. It is indeed a new day for petro-
politics in Mexico.
References:
 Baker, George (1992) “A Cost – Benefit Analysis of the Oil Sector in Mexican Society”
in The Mexican Petroleum Industry in the Twentieth Century, Symposium on Latin
America Series, University of Texas Press, Austin, 280 – 308.
 INEGI (2012) Estadísticas económicas 1950 – 2010, Aguascalientes, México.

7.  Jones Luong, P. & Weinthal, E., (2001) “Prelude to the Resource Curse. Explaining Oil
and Gas Development Strategies in the Soviet Successor States and Beyond.”,
Comparative Political Studies 34 (4), pp. 367-399.
 Morales, Isidro (1992) “Pemex during the 1960´s and the Crisis in Self – Sufficiency” in
The Mexican Petroleum Industry in the Twentieth Century, Symposium on Latin
America Series, University of Texas Press, Austin, 233 – 255.
 Ribando, Clare et. al. (2015) Mexico´s Oil and Gas Sector: Background Reform
Efforts, and Implications for the United States, Congressional Research Service,
Washington D.C.
 Sandoval, Irma (2011) Crisis, rentismo e intervencionismo neoliberal en la banca:
México (1982-1999), Centro de Estudios Espinosa Yglesias, México D.F.
 Székely, Gabriel (1992) “The Oil Industry and Mexico´s Relation with Industrial Powers”
in The Mexican Petroleum Industry in the Twentieth Century, Symposium on Latin
America Series, University of Texas Press, Austin, 256 – 279.