A Second Mexican Revolution?

Energy Reform and North American Energy Independence

A demonstrator wears a helmet with a sticker that reads "Pemex is not for sale."
A demonstrator wears a helmet with a sticker that reads "Pemex is not for sale" during a protest against the privatization of the state oil monopoly Pemex in Mexico City, July 1, 2013. (Tomas Bravo / Courtesy Reuters)

Since the December 2012 inauguration of President Enrique Peña Nieto, Mexico has implemented a series of reforms that could forever change Mexican governance and its economy’s competitiveness. These include new rules to enhance government transparency, reform primary education, expand access to credit, and encourage market-based competition by promoting investment and strengthening regulatory authorities. But the undisputed centerpiece of the legislation is energy reform.

It is not an exaggeration to call Mexico’s energy reform revolutionary. It will break the monopoly of Pemex, the state-owned petroleum company, and for the first time in over half a century, allow foreign private investment in almost every corner of the Mexican energy market. Such a reform promises to revive the Mexican oil industry, likely leading to lower-cost energy production and significant economic growth. And that is only the beginning. The energy reform package also contains three key elements -- generally overlooked in recent commentary -- that may well signal changes in the Mexican economy every bit as transformative as the Mexican Revolution of almost a century ago.

The restructured energy sector, despite its openness, will still be very much in line with the spirit of the Mexican Revolution: The state will continue to manage key aspects of the energy market, and Pemex will still be the dominant player in the sector. But Mexico’s willingness to embark on a profound restructuring of its energy sector reveals that the country is continuing its transformation into an increasingly self-confident and important player in the global economy. And, reform means that energy will soon become a central part of the NAFTA-driven economic integration of North America and a source of North American energy security. As a result, Mexico’s energy reform will deepen and strengthen its economic partnership with the United States.

NATIONAL CHAMPION

The most significant -- and controversial -- elements of Mexico’s energy reform are those that will end Pemex’s monopoly on petroleum exploration and production and open the sector to private (including foreign) investment. The Mexican government will still own Pemex, but it will operate the firm as a “state productive enterprise,” which will have to compete with international energy companies in the Mexican market. This is a stunning change.

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