Mexico has taken one more important step to breaking up the monopoly of Petroleos Mexicanos, or Pemex, the grossly inefficient government-owned producer and retailer of oil and gasoline. That’s good news for everybody. Soon the signs of happier motoring will go up on Mexican roadsides. Gulf de Mexico will be the first.
The world’s 10th largest economy has been growing at 4 to 5 percent over the past few years, well below its potential. The World Bank reckons fewer than 2 percent of the 126 million Mexicans live below the international poverty line, but that may underestimate the reality. The Mexican government estimates that a third of the population lives in moderate poverty, and 10 percent of that lives in extreme poverty.
Competing with Brazil as Latin America’s largest economy, the country has vast disparities of income. The most prosperous states border the Rio Grande or Mexico City. Remittances, largely from the United States, are an important part of Mexico’s national income. More than $22 billion went south in 2012. The Mexican economy produces tax revenues of less than 20 percent of its gross domestic product.
Mexico is the sixth largest oil producer in the world, but its exports have fallen dramatically over the past quarter of a century, from more than half of all exports in 1980 to just 7 percent by the year 2000. Most analysts agree that this is largely the result of the inefficient monopoly over its oil resources and distribution. Although it produces 60 percent of the nation’s revenues, Pemex has neither the capital nor the technology to meet demand. But Pemex has long been the holy of holies for Mexico’s left, which has fought against opening the market to competition and collaboration with foreign oil companies. Finally, in 2014, Pemex privatized parts of the monopoly.
Private companies will be allowed to import gasoline for the first time since the late 1930s. That will permit the 11,400 independently owned gasoline stations, now bound to Pemex, to sell other brands of oil and gasoline. The government had earlier permitted Pemex to form joint ventures with foreign companies to explore for more oil. Given the sleepy Mexican bureaucracy, with its talent for getting in the way of progress, years may go by before the latest technology arrives.
Opening gasoline stations to other brands will be the most visible change, and should encourage a faster transition to private development. Competition always does. London-based Gulf Oil International will soon put its Gulf de Mexico brand on a few stations in the largest cities, and expects to expand a national network of stations. Motorists will feel relief from the poor service at most Pemex stations; the Mexican consumer-protection agency fields frequent complaints that stations shortchange customers at the pump.
Mexico imports more than half of its daily consumption of gasoline from the United States because there are only six refineries in the country. Pemex controls nearly all of the oil pipelines and storage facilities and the government encourages expansion of the infrastructure needed to supply oil and gasoline to the stations now freed from the Pemex monopoly.
With trade running at well over $530 billion in 2015, the United States has a special interest in seeing more rapid liberalization and growth of the Mexican economy. Mexico, whose free-trade pact with the United States produced a trade surplus of nearly $60 billion last year, can afford to import more from the United States. New technology would revive its dormant oil industry. Encouraging and exploiting this happy news would accomplish more for everyone than President Obama’s unrequited romance with the Castro brothers in Cuba.