Untapped oil, overtapped politics

High pump prices can be traced to oil exporters such as Mexico that play politics with oil.

Americans need only look over the border to see a reason for geyserlike spurts in gasoline prices. Mexico, the third-biggest oil exporter to the US, saw crude production fall 7.8 percent over the past year. As in many oil exporting countries, the crux of the problem isn't below ground.

Mexico's state-run oil monopoly, Petróleos Mexicanos (Pemex), badly needs more foreign technical help, especially to drill in waters up to two miles deep in the Gulf of Mexico. But after President Felipe Calderón introduced such a politically explosive reform in April, leftist lawmakers shut down Congress for two weeks until last Friday, citing Pemex as the symbol of nationalist dignity.

Some dignity.

Mexico's oil exports could dry up, possibly within five to nine years, as domestic demand rises and output sags for lack of modern oil expertise. Even with the record prices for world oil, Pemex managed to lose money last year. The government, which relies on this monopoly for more than a third of its revenues, faces a coming spending crisis. And a resulting economic slump could push more Mexicans to migrate northward.

Despite all that, leftist protests against a foreign boost for Pemex continue in the streets, with threats of illegal action in the offing.

In much of the oil-producing world, political temptations to control petroleum assets at the expense of market efficiency have helped slow new production.

Nationalist fears that foreign companies would earn too much profit are seen as reason to impose state bureaucracies on this resource. Bolivia and Venezuela, for example, have lately imposed more controls or taxes over petroleum production. And after Russia's recent grab of private oil assets, output is now stagnant there.

Mexico may yet escape such a fate under President Calderón, who has already achieved needed reform in areas such as the courts since taking office 16 months ago. The shutdown of Congress did achieve an agreement to lengthening the debate over the proposed Pemex reforms from 50 to 71 days, starting May 13.

That debate will be about more than oil. Mexicans see their country's 1938 takeover of US and British oil companies as a historic victory. Opening Pemex now to many foreign contractors would strike at that identity, which makes it easy for critics to cry treason.

But this issue also highlights the nation's rich-poor split, especially after the leftist opposition, the Party of the Democratic Revolution, barely lost the 2006 presidential election. To his credit, Mr. Calderón consulted opposition leaders in preparing his Pemex reforms, even deciding not to seek a change in the Constitution, which declares that oil belongs to the state and prevents "risk" contracts with foreign oil firms. Instead, he wants to provide only incentive payments for private ventures – a timid but initial step in the right direction.

With Mexico now providing 11 percent of US oil imports, Americans need to follow this debate – just as Mexicans are following the Democratic primary debate over how to revise NAFTA to favor US trade interests.

Calderón's first official act was to bravely go after Mexico's powerful drug cartels. Now he's in another fight just as critical to his nation's future.

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