Back to the 20th Century: AMLO’s Quest for Oil

Ian Granit

June 17, 2020

Mexico's President Andres Manuel Lopez Obrador (AMLO) (REUTERS/Henry Romero)

 

 

Mexico has a long history of vast oil production and heavy reliance on the resource. This trend started to diverge in the 21st century, with the growth of renewable energy and the great potential renewables have in Mexico. Mexico began to recognize the possibility of shifting towards a more diverse energy supply. Like the rest of the world, Mexico acknowledged the many disadvantages of oil, while renewable energy became increasingly cheaper and reliable. However, in the 2018 election, Mexico's prospects for renewable energy drastically changed.

During the 20th century, oil became Mexico's primary resource. Oil production led Mexico towards rapid economic growth, while the oil sector provided relatively high salaries and social security for workers. The oil sector hence became associated with both a good economy and social justice. In the 1980s, the state-owned oil company Pemex accounted for 44 per cent of the federal government's revenues. Towards the end of the century, increasing worries about relying too heavily on oil for economic growth and the adverse consequences the country would suffer from if the oil-market become more unstable started to emerge.

The dangers of relying to heavily on one resource combined with increasing environmental awareness made oil less attractive. Simultaneously, the prospects of renewable energy were growing. Renewable energy has tremendous potential in Mexico and would allow the country to diversify its economy. The distinct Mexican landscape creates great promises for wind, solar, and hydropower. The impact of this would create energy sovereignty for Mexico, while simultaneously making emission targets more feasible.

For the past years, Mexico's oil production has been decreasing at a steady state. The potential of renewable energy in Mexico created a larger emphasis on attracting renewable energy investments instead. The country's ideal location on the so-called solar belt, where some of the best solar energy conditions exist, makes Mexico an ideal location for renewable energy investments. In 2016, Mexico was the third most attractive country in the world for investments in solar projects. Furthermore, the diverse landscape allows for substantial wind and hydropower projects. Between 2015 and 2017, Mexico held large auctions to attract foreign and private investments for Mexico's renewable energy industry, receiving praise internationally. Mexico showcased how developing, and emerging economies could direct their resources and investments towards more sustainable business enterprises instead of falling into the resource-trap prevalent in many development contexts.

The 2018 Presidential election did, however, create substantial changes for Mexico's goal of sustainable development. Andrés Manuel López Obrador (AMLO), a left-wing politician promising an end to corruption, inequality, and crime, became the New Mexican leader. Since AMLO took office, his intentions have become more evident. AMLO claims that oil is the lever of development that Mexico needs. Instead of looking towards prospects and possibilities for Mexico, AMLO prefers to refer to the past. The Mexican President claims that oil is both a source of savings and an act of justice, often referring to the era during the 20th century when oil led Mexico towards development. Moreover, AMLO claims that oil will help Mexico reach national sovereignty. People opposing AMLO's oil-producing plans are often referred to as the corrupt national elite or the international elite, trying to undermine Mexican sovereignty.

AMLO claims that Mexico will increase its oil production from 1.7 million barrels of oil per day to 2.4 million barrels of oil per day towards the end of his term. During López Obrador's first year in office, Pemex received MEX $ 150 billion investments from the government. Even with substantial financial support, the Mexican Presidents' development plans have, however, failed. Mexico experienced an economic stagnation in 2019, achieving zero economic growth. The oil-producing plans failed as well, decreasing slightly to 1.661 million barrels of oil per day. This might indicate that AMLO would have changed his plan for Mexican development. On the contrary, his quest for oil increased.   

Mexico's 2020 budget aims to spend an additional US$ 4.4 billion on Pemex, with a total of 23.88 billion in the 2020 budget. To support the spending on Pemex, AMLO severely undermined many public institutions focusing on welfare, something he promised to support. Since he took office, the Mexican President has cut funding for NGOs, including women's shelters, groups working on health issues, and day-care facilities. At the same time, AMLO severely cuts government budgets, causing 20 000 public workers to lose their jobs. Moreover, health care spending was ten per cent less in May 2019 compared to May 2018. AMLO claims that these measures will make Pemex oil-production to reach 1.95 barrels of oil per day by the end of 2020, while the health care will reach the standard of Canada and the Nordic countries. In the first three months of 2020, before Covid-19 started to spread in Latin America, Pemex made a loss of US$ 23 billion.

AMLO's quest for increasing oil production undermines public institutions, economic growth, and public welfare. Moreover, the focus on oil severely threatens Mexico's renewable energy investments and projects. Sustainable development and the prospect of achieving the emission targets set out by Mexico are impaired. Mr. López Obrador cancelled the fourth auction for renewable energy investments right after he took office, while severely cutting budgets for many conservation programs and environmental plans. The Mexican President allows his ideological view to prevail while neglecting the advice of scientists and experts.

Since the Covid-19 pandemic, AMLO has neglected the recommendations and examples of other countries and international organizations. The President continued to hold rallies while hugging and shaking hands with his supporters long after Covid-19 started to spread in Mexico. The few lockdown measures AMLO eventually implemented, combined with a global stop in economic activities severely reduced energy demand. The need for oil thus decreased temporarily, indicating that Pemex will suffer even higher losses than ever before. As a result, AMLO released a new decree in May 2020, citing the Covid-19 pandemic. The decree aims to halt wind and solar projects in their final stages while suspending grid connections to wind and solar farms. Such measures will severely undermine Mexico's prospect of creating sustainable renewable energy, international environmental agreements, Mexican laws, and even the Mexican constitution.

Mr. López Obrador's obsession with oil as the lever for development in Mexico creates substantial problems for the country. Directing public resources towards Pemex undermines the Mexican people, the prospects of renewable energy development, and environmental agreements. Thus far, oil production failed to increase, creating an economic stagnation in Mexico in 2019, which is expected to worsen in 2020. The decree issued in May 2020 continues the threat AMLO proposes to sustainable development. Instead of looking towards the future of energy, the Mexican President seems to willing to go back to the era of the 20th century, neglecting expert and scientific advice from within and outside Mexico.

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