Mexico: An Oil Nation in Crisis

Mexico is currently facing one of the biggest economic recessions in the country’s two hundred-year history of independence. Some Mexican policy makers blame the economic crisis on this year’s decrease in tourism, while others attribute it to the continued dependence of the Mexican economy on the United States, pointing to its neighbor’s recession as a principal cause for the country’s woes. Nonetheless, Mexico’s plummet in oil production and the decline in the price of oil are two main contributors to its present economic downfall. While other countries have begun to pull out of the recession, it appears that the fall in oil production and prices have further led to an ongoing decline in Mexico’s economy, which the country’s planners are finding difficult to reverse.

Current Oil Situation
Oil is at the heart of the Mexican economy. Profits on its extraction are the country’s number one revenue, accounting for approximately 40 percent of Mexico’s total revenues. Due to the decline in the price of oil that began last year with the escalation of the global recession, Mexico’s oil-dependent economy has suffered grievously. Prior to the sag in oil prices, when other oil producing countries were taking advantage of the tremendous peak in prices, Mexico was hit particularly hard; government officials reported that last year’s drop in oil production cost the Mexican government an estimated US$20 billion in lost revenues. This year’s plunge in oil prices has resulted in oil export revenues being recorded at only $1.25 billion per month for the first seven months of 2009, a fall from an average of $1.44 billion per month in 2008. The falling prices and production rate continue to damage the economy, and many blame the Mexican government for its failure to channel new investments in to various oil-producing fields, along with its mismanagement of revenues. Mexico feels the pressure to convert its oil profits into public spending in order to generate immediate results and to keep a lid on the country’s mounting social tensions; instead it sometimes foolishly refuses to put aside some of the profits to ensure financial stability.

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