After Helping Oil-Producing Nations to Push Prices Up, Mexico Is Having Second Thoughts
By SAM DILLON
Feb. 18 -- For two years, Mexico has
worked with other oil producing nations to lift prices, and their
efforts have borne fruit. But in an about face, senior Mexican officials are
now trying to talk prices down.
The problem is
that lofty oil prices conflict with Mexico's new economy,
propelled by exports of cars, televisions and other manufactured goods.
"Mexico is now
so integrated into the U.S. economy that it's no longer in
Mexico's interest to rock the boat on oil prices," said Eduardo López, a
Mexican who is an analyst at the Petroleum Finance Corporation, a
consulting firm in Washington.
has put President Ernesto Zedillo's government in a ticklish
predicament. Leaders of the industrial world are glaring at Mexico,
complaining that petroleum prices are aggravating inflation. But the
Mexican left is accusing the government of relinquishing a bonanza and
giving in to the imperialists.
That is the incendiary
context for Energy Secretary Bill Richardson's visit
to Mexico on Saturday.
The Clinton administration
has promised to take a variety of actions to
alleviate a big increase in heating oil prices in the Northeast. Mr.
Richardson will discuss the higher oil prices with the man who helped
shape the trend, Energy Secretary Luis Téllez.
At an oil industry
convention today in Veracruz, on the gulf coast, Mr.
Téllez said he hoped that oil prices, now above $30 a barrel, would soon
drop below $25. And he paused to dwell on the new reality: that
manufacturing is a star performer and oil a bit player in his country.
"Mexico is mainly
an industrial producer and a provider of services," Mr.
Téllez said at a news conference. "We're not a petroleum country
The oil equation
for Mexico used to be simple: the higher the world price
the better. Oil production contributed nearly 6 percent to Mexico's total
economic output in 1983, but during 15 years of economic
modernization, including the passage of the North American Free Trade
Agreement, oil's contribution has withered to just 1.7 percent.
So although high
world petroleum prices mean that Mexico will receive
billions of dollars in unexpected revenues this year, they also threaten to
worsen inflation, drive up interest rates and slow world growth.
If that happens,
economists say, Mexico's losses from forfeited exports
will far outweigh the short-term profits from $30-a-barrel oil.
many Mexicans don't understand," Mr. López said. "People
are still thinking in terms of national sovereignty and national interest. And
those concepts are out of touch with the changes that have taken place."
Oil remains a
potent patriotic icon because a high point for Mexican
nationalists came in 1938, when President Lázaro Cárdenas expropriated
the country's petroleum industry. The identification of oil with popular
well-being was strengthened in the 1970's, when high prices and
discoveries of huge petroleum reserves led President José López Portillo
to predict an end to poverty. Mexico's new challenge, he said, was to
If oil revenues
have never eradicated poverty, they still finance the
government: 33 percent of the government's operating funds come from
oil taxes. And when the Asian economic crisis in 1997 cut world demand
for energy, prices for Mexico's extra-heavy oil plunged to below $7 a
barrel, causing a crisis here.
When price levels
are so depressed, "We as producing countries have
every right to defend our national interests, and that's what we did," Mr.
Téllez said in an interview today.
In those circumstances,
Mr. Téllez established secret contacts with the
Venezuelan and Saudi Arabian oil ministers, initiating talks that eventually
included the 11 members of the Organization of Petroleum Exporting
Countries and Norway. The countries announced an agreement in
Riyadh, the Saudi capital, in March 1998 to raise prices by slowing
Early last year,
prices began to rise sharply, but only since December
have dangers become apparent. In recent days the Federal Reserve and
central banks in Europe and Japan have warned that petroleum prices
may contribute to inflation, and Mr. Téllez, along with the Saudi and
Venezuelan energy ministers, have done their policy pirouettes.
are too high," Mr. Téllez said today. He said a consensus
had formed among the ministers who had forged the Riyadh agreement
that production should now rise, allowing prices to pull back.
But how soon?
The ministers are to meet on March 2, but the
production-cut commitments are to continue through March 31. Might
the ministers decide on March 2 to short-circuit the Riyadh agreement
and boost oil output immediately?
"Whatever I say
would be very delicate," Mr. Téllez said. "But let me put
it this way: we need flexibility."
in influencing world oil prices is surprising, given its trade
partnership with the United States, its repeated previous refusal to take
part in OPEC and President Zedillo's outspoken advocacy of free
policies had been been well known," said Rogelio
Ramírez de la O, an economic consultant based in Mexico City. "Mexico
stood for free trade and had spoken out against price volatility.
"Now the government
has helped restrict the market to raise oil prices,
and suddenly officials are getting messages from Washington: 'Hey!
You're hurting us. You're fueling inflation. You're playing with fire!' And
they're trying to back out of this with the least embarrassment possible."
But the discomfort already appears intense.
"It seems absurd,
idiotic and contrary to our national interest that there
could be more revenues and the government says they don't want them,"
Cuauhtémoc Cárdenas, the presidential candidate heading a leftist
coalition, told 10,000 supporters at a rally in Monterrey on Thursday.
"If there was
nothing to spend the money on," he said, "I could think that
increasing the oil exports could be logical. But I've never seen anybody
whose product is selling at a high price say, 'I want you to pay me less.' "
Mr. Cárdenas is the son of the former president.
"The man in the
street thinks Cárdenas is right, that we need that money
to build schools and pave streets," said Jorge Montano, a former
ambassador to Washington.
"They don't understand,"
Mr. Montano said, "that weeks from now, if
these high prices continue, the interest rates will rise, our stock market
will fall and we'll all sink."
have lampooned Mr. Téllez as a puppet manipulated
by the United States. "Richardson Comes to Pressure Us Over High
Crude Prices!" said a headline in the leftist daily La Jornada.
But if Mr. Richardson
intends to urge higher production to ease prices,
he will be preaching to the converted.
to tell Mr. Richardson that we'll take measures that are
good for Mexico, not only for the oil sector, but also for the growth of
the rest of our economy," Mr. Téllez said.
is hoping that Mr. Richardson will help him convince 100
million Mexicans of the wisdom of forgoing short-term profits for the
greater economic good.
that the Mexican public understand that there is a real
possibility that world economic growth will slow," Mr. Téllez said. "I
hope Mr. Richardson will say this loud and clear."