3 ‘Great Men’ of Mexico’s oil history all shared the same blind spot
We don’t know if President Joe Biden recognized the name of Lázaro Cárdenas. If he did not, he was at a disadvantage in his meeting Tuesday with Mexico’s President Andrés Manuel López Obrador (AMLO) when he discussed energy issues, including the plight of U.S. investors and contractors.
In the mid-20th century, it used to be said in academic circles, wryly, that “history is the story of dead, white men.” This narrow conception of history would soon expand to include social and economic issues and the status and treatment of minority groups. By the early 1970s, Chicano Studies was a college major.
Sooner or later, an investor seeking commercial opportunity in Mexico’s energy markets will need to form a view of Mexican history. In Mexico’s energy sector, the Great-Man Theory of history not only prevails, but is enforced by the power of the state.
The Great Man in this case is Lázaro Cárdenas, the late 1930s firebrand and president. It was his impulsive expropriation of the surface assets of the oil industry, coupled with the creation of a 100 percent stateowned oil company, that would form Mexico’s official narratives.
Toward the end of his presidency in 1940, Cárdenas realized that he had overreached. The oil law of November 9 — issued when he had just three weeks left in office — allowed the state to contract with oil companies to perform the services of exploration and extraction.
Seventy-three years later, this law would be resurrected by President Enrique Peña Nieto to form the legal and ideological foundation for his justly famous Energy Reforms of 2013-18.
His administration sought to convince a skeptical public and Congress that the crucial issue of allowing private oil companies to return to Mexico was supported by the authority of Lázaro Cárdenas in his oil law of 1940. The investor on the oil side would be right to feel indignant that, of the many arguments to support ditching state control of the energy industry, the authority of a man who had been dead for 43 years should have been invoked.
The first argument that should have been made in 2013 was that the Cárdenist experiment in oil statism had failed on all counts. The public should have been told that Pemex was a caricature of an oil company. As a state agency, Pemex could only operate in Mexico (while other national oil companies were operating in the U.S. Gulf of Mexico).
The public should have been told that Pemex professionals were being cheated out of global careers. The company was milked by oil field service companies for decades because Pemex, lacking international partners who would have brought their technology as part of a joint venture, had no choice but to pay double for second-hand technology.
The state, for its part, had milked Pemex during the same period. Loans made to Pemex were used to finance government operations rather modernize the company. As a result, oil production steadily declined, refineries fell into disrepair and shortages ensued.
It is believable that none of the $115 billion in Pemex debt was ever spent by Pemex for its own needs. It is more believable that Pemex was a moneylaundering agent for the government.
Pemex today has $5 billion in contractor debt, some of which the company is trying to resell as bonds. The Mexican press reports that Schlumberger and Halliburton each have $500 million in accounts receivable.
Pharaonic ideas
AMLO supports his pharaonic ideas by invoking the authority of Lázaro Cárdenas, while giving no credit to his predecessor for advertising the Cárdenas law of 1940 as the foundation for his energy reform. But, as AMLO sees it, the claimed Cárdenas bona fides were null, as the Peña people were corrupt.
Mexican oil history now comes down to the story of three men — Cárdenas, Peña Nieto and AMLO. All of them are alike in their failure to discern that no course correction in energy policy or Pemex governance will be adequate or sustainable as long as the president of Mexico at the helm.
AMLO’s spending on behalf of Pemex (and his legacy) is unchecked: $18 billion for a new refinery and $1.8 billion for a 100-year-old refinery plus billions more in opportunity costs from turning back from Peña’s reforms. The defense of this presidential prerogative is the Maginot Line of Mexico’s energy regime.