Photo credit: White House by Tom Lohdan
A quick response by the U.S. government could mean American companies could access Mexico’s vast hydrocarbon resources, which look like they could be opening up thanks to reform proposals from Mexico’s governing Institutional Revolutionary Party (PRI).
Mexico, according to an article from the smartplanet.com website and other sources, owns “a gold mine of oil”; however, country’s state-owned hydrocarbon monopoly Petróleos Mexicanos (PEMEX) has a heavy tax burden, and doesn’t have the infrastructure or technology needed to extract it. President Enrique Peña Nieto’s proposed reforms, while keeping PEMEX a state-owned company, would allow foreign investment and limited participation in the oil industry but would still ensure that oil would remain in Mexican hands.
In April of 2012, then Secretary of State Hillary Clinton made an agreement with former president Felipe Calderón allowing joint oil exploration in the Gulf of Mexico, which would give the U.S. access to Mexico’s well-known oil riches. Interestingly, while the deal was approved with lightning speed in the Mexican Senate (where opposition to privatization is quite strong), the current Obama administration in the United States has delayed finalizing the off-shore drilling deal. According to Republican lawmakers and industry experts, a quick response is essential and foot-dragging could have disastrous consequences for Americans interested in accessing Mexican oil.
The reason why consequences could be disastrous according to industry experts is that Mexico could very easily change its mind and call off the deal: public opinion on any foreign investment in the country’s hydrocarbons sector generally tends to be negative and politicians could very well submit to the will of the populace.
Rep. Jeff Duncan (R-S.C.) spoke to The Hill recently after a House Foreign Relations committee hearing. Speaking about energy deals with Mexico, he said: “It’s time for the administration to act. All they have to do is send the enacting legislation over here and let us act on it, because we’re sitting on ‘go.’”
If action by the U.S. government is not prompt, as mentioned above, Mexico may cancel the deal. Mexico, for decades, has been totally closed to foreign investments and the Transboundary Hydrocarbons Agreement, which was negotiated by Clinton and Calderón last April, offers U.S. investors a foot in the door. According to experts, if action isn’t taken by June or July of this year, Americans could very well lose the opportunity to invest in Mexico’s oil industry forever if the proposed PEMEX reforms do not go through.
One of the reasons that my hinder a prompt response from the United States government is that the administration is deciding whether to consider the agreement as a treaty, which would require the approval of the Senate, or as a simple agreement, which would only need a courtesy approval in Congress.
In Mexico, policy makers and industry experts understand that the election which took place last year in the U.S. is partially responsible for the delay; however, they are hoping for a speedy resolution and are said to be growing impatient. Duncan Wood, who is an energy reform advisor to the Mexican government and director of the Mexico Institute summed up the issue by saying the finalization of the deal “will be seen as a very positive step forward and will encourage the process of energy reform in Mexico. Any further delay is risky. It will send exactly the wrong message. Those people who are opposed to opening the sector in Mexico would be able to look at this and to say, ‘see, the United States all they want is access to our oil – it’s not about what’s good for Mexico.’ ”