MEXICO CITY (AP) — The lowest oil prices in nearly six years couldn’t have come at a worse time for Mexico, which last year opened up oil-sector investment to private companies for the first time in decades.
The landmark energy reform aimed to boost revenue by enabling Mexico to tap undeveloped fields and adopt newer technology to reverse a decade-long slide in production.
Instead, the drop in oil prices has forced Mexico’s government to slash $8.4 billion from its 2015 budget, with most of the cutbacks expected to come in the energy sector. Analysts predict the energy partnerships made possible by the reform will attract initial bids lower than anticipated, some exploration projects will be delayed, and state oil company Pemex will see a cash crunch and slow job growth.
“If we continue for the next year in the scenario that we’re currently in today, it will have an impact because Pemex, i.e. Mexico, will not be getting the same revenues that it’s getting out of their current production,” said Jorge Pinon, an oil and energy analyst at the University of Texas. “That’s simple arithmetic.”
It all adds up to another political headache for President Enrique Pena Nieto and his Institutional Revolutionary Party, or PRI, as it heads into June’s midterm elections. The oil downturn comes as Mexicans protest the September disappearance of 43 college students, allegedly murdered by a drug gang in league with local police, and critics deride Pena Nieto, his wife and his finance minister for buying luxurious properties from government contractors.
“Given the very mediocre performance of the economy in the last two years, they were hoping for a better showing in order to arrive at the ballot box with something to show,” said Dwight Dyer, a senior analyst for Mexico and the Americas at Control Risks in Mexico City. “This puts significant pressure on the PRI electorally.”
After trading at a high of $115 a barrel last year, oil plummeted to around $44 a barrel in late January, the lowest since April 2009. US benchmark crude recovered somewhat to more than $50 a barrel this week, but some industry analysts say prices may not yet have found their floor with a worldwide glut still in place and global economic growth sluggish.