Pemex Declining Output On Heels of U.S. Report of Mexican Instability
Wednesday’s news about the Mexican oil industry won’t be good, and the implications are not merely to the Mexican economy.
According to reporting tonight from Bloomberg, Pemex, Mexico’s state-owned oil company will report on Wednesday historic declines in production.
This comes just days after a report by the U.S. Joint Operations Command which said that Pakistan and Mexico are in danger of sudden collapse. In my mind, this note from the Bloomberg article ties Mexico’s oil production to Mexico’s stability:
Mexico relies on Pemex for 40 percent of its budget. Falling sales may cut into funding for a 570 billion-peso ($41 billion)-a-year infrastructure plan President Felipe Calderon is counting on to keep the country out of recession this year, Schtulmann said.
Pemex is among the ten largest oil companies in the world and outside of Canada and Saudi Arabia, Mexico is the largest importer of oil into the U.S. It’s astounding that 40% of Mexican government revenue is dependent upon Pemex. Mexico faces all of the structural economic problems it always has. Recently, the government has been locked in what seems a death struggle with drug cartels who are buying out or killing anyone that gets in their way. In 2008, 5,000 murders were attributed to Mexico’s struggle with the cartels.
Oil prices fell below $33 per bbl today. U.S. and international inventories are high; world demand has lowered due to the recession – barring an insurrection in Saudi Arabia, prices aren’t going up soon. Mexico is screwed.
And, so are we if our little slice of the Third World goes Pakistan Northwest Tribal Areas on us any time soon.
Aside from the scary scenarios one may conjure over the breakdown of central authority in Mexico, there is yet another strategic question for the U.S. Where do we go to replace the lost Mexican barrels? When our economy takes off again and demand for crude goes back on the upward slope, from which international bad actor will we be purchasing more oil?
Mexico – Our Own Little Slice of Pakistan?
Can you imagine a collapse of the Mexican central government? Perhaps army units around the country would align themselves with regional leaders or drug lords. Next would come the potential for armed rivals fighting one another for central control. What we’re talking about is Afghanistan just after the Soviets departed where there weren’t two sides in a civil war, but several. What we might experience is hundreds of thousands of refugees on our southern border.
Our armed forces are currently stretched to the limit due to the Iraqi adventure. What’s available to secure our southern border or insert into Mexico to keep or restore the peace? China has spent the past several years working on its relations with Central and South America, primarily in places with oil, like Mexico. How soon could the Chinese have a division or two on the ground, in Mexico? When would they leave?
So, there’s a little bit of the nightmare scenario. Do I believe any of the above will happen – no. Could it? Yes.
