Reforming Mexico's Energy Sector to Enhance Stability
NAVAL WAR COLL NEWPORT RI JOINT MILITARY OPERATIONS DEPT
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An analysis of regulatory actions that will enhance stability in Mexico requires a framework to determine the relationship between these areas of governance and a method to isolate the industrial subsectors that pose the greatest threat. For the analysis to have any merit, it must address structural and enduring problems rather than the minor contours of a particular period or government administration. Using this approach, the Mexican oil industry emerges as the most heavily regulated sector and the one posing the greatest risk to stability. Reforming the nations energy sector is the most effective regulatory action Mexico can take to enhance stability. Petroleos Mexico Pemex is the second largest company in Latin America and the seventh largest producer of oil in the world. The government of Mexico owns the company, and oil sales account for 32 of all government revenues annually. In 2004, production of oil in Mexico began to decline due to a severe reduction in output from the nations most prolific oil field, and the failure of Pemex to develop additional reserves to compensate. Since that time, the crisis in Mexicos oil industry has emerged as an escalating threat to the government and the stability it provides through domestic spending. However, the failure of Pemex to manage Mexicos oil resources competently is directly attributable to its ownership by the government. While the government regulates some aspects of other Mexican industries, it regulates every aspect of the oil industry. This regulation includes extraction of nearly all Pemex profits for government use, leaving little remaining for business development or reinvestment. Ironically, by attempting to manage Mexicos oil wealth for the public good through Pemex, the government has instead brought the industry to the point of near collapse. Left uncorrected, the resultant loss of government revenue and increased unemployment will have a destabilizing effect on the country for years to come.
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