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On March 18, 1938 the Mexican government nationalized all the U.S. oil companies operating in Mexico. The U.S. was too busy preparing for a war in Europe to invade Mexico and steal back our oil fields.

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Battle brews over future of Mexican oil

by Chris Hawley - Apr. 8, 2008 12:00 AM

Republic Mexico City Bureau

MEXICO CITY - The cartoon in a recent newspaper said it all: A sinking ship labeled "Mexico" hangs underwater, tied to a floating oil barrel, as a hand holding scissors prepares to cut the cord.

Mexico is in an uproar over President Felipe Calderón's effort to reform the state oil monopoly, whose sales have long kept the government budget afloat as well as supplying a big chunk of the United States' energy needs.

Protesters are threatening to seize oil refineries, block highways and shut down airports. The Popular Revolutionary Army, a guerrilla group known for bomb attacks, has vowed to cripple the company if the government opens it to foreign investment. About 28,000 activists have joined "brigades" to carry out civil disobedience.

Any disruption of oil exports could be a big blow to Americans already reeling from high fuel prices. Mexico is the United States' third-biggest supplier of oil after Canada and Saudi Arabia.

The opposition is also the most serious challenge yet to Calderón, who had been on a roll since taking office in December 2006. He has coaxed opposition lawmakers into supporting overhauls of Mexico's tax code, legal system and government retirement plan. But energy reform is an even bigger powder keg.

The Calderón administration says Petroleos Mexicanos, or Pemex, as the company is known, is rapidly running out of oil and needs private investment and know-how to drill deeper in the Gulf of Mexico. His National Action Party, or PAN, plans to introduce a bill this week in Mexico's Congress to loosen the rules against private ventures.

"We have to act now before it's too late," Calderón said in a speech Thursday.

But Pemex is more than just an oil company. For 70 years, it has been a symbol of Mexico's independence. Calderón's opponents fear the changes will allow U.S. oil companies to subjugate Mexico.

"If we open the door to the large foreign companies, it is going to be very difficult to recuperate our sovereignty and control over the nation's resources," Andrés Manuel López Obrador, a leftist politician and leader of the National Movement for the Defense of Petroleum, said in a radio interview on Wednesday.

The two sides are duking it out in television ads and talk shows, satirical shorts on YouTube.com and cartoons like the one that ran in the Reforma newspaper this week.

The government has even tried to get the Catholic Church on its side, showing a presentation on Pemex to Mexico's council of bishops last week.

Emotional issue

The battle over Pemex has its roots in the early 1900s, when Mexican dictator Porfirio Diaz welcomed foreign oil companies eager to tap the oil reserves of eastern Mexico.

Soon, Mexico's oil industry was controlled by the Standard Oil Co., Sinclair Pierce Oil Co., London Trust Oil-Shell and other foreign firms. They became notorious for evading Mexican taxes and paying meager salaries.

On March 18, 1938, in the midst of a strike by oil workers, President Lazaro Cardenas nationalized all the oil companies' operations in Mexico. The United States, distracted by an impending World War II, did not retaliate.

The takeover is a major historic event marked by monuments nationwide. Every March 18, the president gives a speech celebrating the nationalization.

In Mexico City alone, there are 38 streets named March 18 Street, 13 Pemex Streets and two Petroleos Mexicanos streets.

There is a March 18 Sports Complex, a neighborhood named Pemex and a Petroleum Fountain, which shoots water, not oil.

"There's a lot of nationalism involved in this issue because it cost a lot of blood, sweat and tears to get what we have," said Samuel Aguilar, a congressman from the opposition Institutional Revolutionary Party, or PRI.

Life under a fuel monopoly can seem strange for American visitors. The green-and-red signs of Pemex service stations are everywhere, but there are no big signs showing prices like at U.S. gas stations. There's no need: Customers have nowhere else to go.

Gasoline prices don't yo-yo like in the United States. The government sets the price of gasoline, currently $2.48 a gallon in most of the country.

In exchange for its monopoly, Pemex pays about 90 percent of its profits in taxes. The money accounts for 40 percent of the federal government's budget.

Going dry

Calderón, who briefly served as energy minister in 2003-04, has been trying to wean the government off oil income.

That's partly because Pemex's proven reserves are dwindling. Its main Cantarell oil field will likely go dry within nine years, the government says.

"What would be a catastrophe is to ignore these numbers out of fear, or political interests or the interests of groups," Calderón said in Thursday's speech. "The time to act is today."

The United States may also be poaching Mexican oil because of Mexico's inability to tap its deep-water reserves, the Energy Ministry said in a March 30 report on Pemex's problems.

The United States has five wells within 6 miles of Mexican territory in the Gulf, and they are tapping oil pockets believed to extend across the border, the report said.

The PAN has not released the details of its reform bill yet, but lawmakers have said it would likely lower Pemex's taxes, allow the company to outsource more work and permit Pemex to partner with other companies to drill in the Gulf.

Opposition parties say Pemex would be perfectly capable of doing the work itself if the government were not siphoning off so much of its earnings. They are proposing a program to root out corruption that they claim inflates Pemex's operating costs.

They point to the case of Calderón's own interior minister, Juan Camilo Mourino, who signed contracts between Pemex and his family's trucking firm while serving in Congress and later working as an aide in the Energy Ministry.

Mourino has acknowledged signing the contracts but says he broke no laws.

It all adds up to Calderón's biggest hurdle yet.

"It's obvious that (Pemex) is lagging in technology, in resources for exploration and in research," Aguilar said. "But the energy reform is sinking in deep water."