Mexican Oil and Nationalism
From Robert J. Shafer and Donald J. Mabry, Neighbors—Mexico and the United States: Wetbacks and Oil. (Chicago: Nelson-Hall,
1981), 28-31. With hypertext additions.
The HTA Press edition
Mexican Oil and Nationalism
The oil that President Cárdenas expropriated had gushed forth in an astonishing bonanza,
but it was owned and manipulated by foreigners. It enriched Europeans and North Americans
but did little more than corrupt Mexicans. The foreign operators bribed Mexican officials,
evaded Mexican laws, and persuaded their own governments to coerce Mexico City. Mexicans
learned to bristle when foreigners talked about Mexican oil; Mexicans bristled and made
oil a state enterprise in 1938. They bristled again when the United States showed great
interest in the great oil strikes of the 1970s.
Early Oil Production
Chapopotes were stinking tar pits and oil seeps where villagers
went to make medicines, magic potions, and adhesive pitch. That those seeps were
potentially black gold Mexico City knew late in the nineteenth century. The frenzy over
petroleum in the United States was reported by Mexico's ministers in Washington and by the
press and the business community, but it was merely one more resource that Mexicans could
not develop. So, when foreigners came to probe around the chapopotes in northeast Mexico,
the government granted permission and privileges. It was not that Mexicans were unaware of
the dangers of foreign exploitation; they leapt to the eye. But Mexico needed foreign
capital, so the dangers were weighed against the advantages. Thus, the dictator Porfirio
Díaz (1876-1911) promoted economic modernization by favoring foreign capital, which
poured into Mexico, especially from Britain and the United States.
Among the attractions were changes in 1884, 1892, and 1901 in the
mining laws--from the Roman system of reposing subsoil rights in the state, to be doled
out on concession, to the Anglo-American system of giving landowners mineral rights also.
Britons and Americans who went into mining and petroleum exploration in Mexico after 1892
believed that the law had achieved perfection, and conveniently forgot that some countries
accepted the Roman theory as socially desirable, so that a barren plain bought at sheep
pasture prices could not confer mineral fortune upon a merely lucky owner.
At the time Díaz made these concessions, some Mexicans criticized the
lack of controls and the excessive privileges for foreigners that were part of the system.
That was a natural reaction, and it had some small effect in the nationalization of part
of the railway system late in the Díaz years. But fundamentally, nascent nationalism was
no match for foreign capital and its allies in Mexico before the great revolution of
In the 1890s American and British interests became active in Mexican
petroleum exploration. Edward L. Doheny of the United States and Weetman Pearson (Lord
Cowdray) struck it rich just after the turn of the century. They were bitter rivals,
unscrupulous in their dealings with each other and with Mexicans, and prone to bring their
home countries to their support. At first, however, it was scarcely necessary to beg
diplomatic intervention, since the Díaz government was generous to the companies.
Tampico on the northeast Gulf coast was a boom town of the new
industry. The town--17,569 population in 1900 and 44,822 in 1921--sat at the mouth of the
Panuco River as it emptied into the sea. It was tropical, hot and steamy, dirty,
pest-ridden, isolated, ugly, and generally primitive. Crude and specialized labor poured
in from abroad and from the adjacent countryside.
Peasants in rough off-white drawers and shirts, straw hats, and sandals
rubbed shoulders with tool-dressers from Texas, accountants from London, bar owners from
Mexico City, and whores from all over. At one time there were some five thousand
foreigners in the seamy little tropical town. Most of the oil was produced from a strip
running about seventy-five miles south of Tampico. The companies dredged the bar at
Tampico and built an intercoastal canal south from the town into the oil fields and moved
oil by barge. It was stored at Tampico in wooden tanks and in artificial lakes and filled
the air with the smell of tar. Ships came for oil and brought food, equipment, and
Each company had a narrow gauge railway from Tampico to the fields. There also was a
Mexican national rail connection with the interior, but it was slow and inconvenient. Road
transportation scarcely existed, although Doheny was a pioneer in selling his product for
Mexico did what it could to extract benefit from the petroleum industry
through taxes (low), bribes, and the conversion of many Mexican locomotives to petroleum.
Blackmail by local political bosses (caudillos or caciques) was commonly used to ensure
supply routes, protect workers in the bush, and prevent theft or sabotage of
installations. But Mexicans in government and private enterprise were poorly trained,
unorganized, and left all alone to deal with the international petroleum giants, by now
well equipped to repel the feeble efforts of underdeveloped countries.
Mexican oil production rose from an insignificant amount in 1901 to
12.5 million barrels in 1911, and much more thereafter. Most of it was exported. With
world petroleum consumption constantly rising, Mexico's prospects for large oil profits
Although to the developed nations Mexico in 1910 never had seemed more
stable and prosperous, a few intellectuals and dissident politicians there were planning
revolt and the masses of peasants and laborers were quiescent only under the lash. When
the dissatisfied toppled the old regime by violence in late 1910 and early 1911, the
country fell into a series of civil wars as leaders, interests, and ideas competed for
control of a country more than three times the size of France, though with only 15 million
Foreigners in Mexico suffered much destruction of their property as
well as injury and death. No government was firmly in control of the country from 1910 to
1917, so that foreign interests could not be well protected. Furthermore, it often was
uncertain where protests from abroad could most effectively be lodged. The foreign oil
operators naturally feared damage to their interests in the northeast. At the beginning of
the movement against Díaz, the British suspected that the United States was aiming at a
protectorate over Mexico, something London had feared for nearly a century. Although that
view later was shown to have been erroneous, at the time it stimulated British fears of
danger to all their holdings in Mexico. A report circulated that the revolutionary
Francisco Madero received financing from Standard Oil Company, with the aim of damaging
British petroleum interests that were favored by the Díaz regime. That report was never
proven. Possibly it sprang up almost spontaneously because ruthlessness was normal--and
probably necessary--in international oil rivalry.
As events proved, the oil companies were less affected by the
Revolution than they feared. Their relative isolation in the Tampico-Tuxpán area was an
advantage. It was remote from the large-scale military activity of the times. It was
difficult for the armies that took and retook Mexico City, more than two hundred miles
away, to levy tribute in the petroleum fields. Much of the time the oil area was
controlled by Manuel Pelaez, a regional leader with his own army and whose family held big
estates in the state of Veracruz. With little zeal for social reform but a large appetite
for money, Pelaez was happy to sell protection to the oil companies. Even when a
supposedly national government controlled the town of Tampico, the producing oil wells
were in the back country, which was controlled by Pelaez.
Under these conditions, oil production continued to rise, spurred by
the advances of the automotive age and by World War I. Mexican oil helped fuel the allied
fleets. The 12.5 million barrels of production in 1911 became 193 million by 1921, by
which time Mexico was the world's second largest producer (after the United States),
turning out a quarter of global production. Mexico held that second position from 1919 to
1926. The world needed oil; various Mexicans needed revenues from oil, which was mostly
exported; and virtually no one was interested in the control of foreign enterprises in a
time of civil war.
U.S. relations with Mexico during the great revolution were profoundly
disturbed by many issues but little affected by the oil industry. That was not the issue,
for example, in April 1914, when American sailors in Tampico were briefly arrested by
soldiers of the forces of Victoriano Huerta, president in Mexico City, but far from ruler
in all the country. The administration of Woodrow Wilson seized on the incident as a means
of putting pressure on Huerta. Wilson, with good reason, regarded Huerta as the murderer
of his predecessor, Madero.
The absurd squabble over the sailors at Tampico quickly escalated into a large dispute,
and in the course of a few days the United States had landed troops at Veracruz. There
they killed some Mexicans and remained in uncomfortable possession of the main port of
Mexico until November, long after Huerta had fallen.
The Mexican Revolution went on and on thereafter, with the forces led
by Venustiano Carranza gradually winning, so that Wilson faced a chief executive in Mexico
that he liked little better than Huerta. Carranza's "fault" was that he would
take no orders or suggestions from Wilson or accept any U.S. intervention in Mexico. But
Wilson's unhappiness at the rise of Carranza was muted by American involvement in World
War I and the peace thereafter. Mexico now seemed a sideshow to Wilson and most Americans.
Revolution and Foreign Producers
There were a few Americans, however, including executives of the oil
companies, who thought Mexico more than a sideshow. That was founded first of all on the
fact that various revolutionary leaders, including Carranza, occasionally issued reform
decrees that seemed to threaten private property in general and foreign property in
particular. That concern became vastly greater in 1917 when a constitutional convention
produced a document providing for severe restraints on private enterprise and foreign
The Mexican constitution promulgated in February 1917 was socially and
economically the most radical in force in the world. It gave a social definition to
property, gave organizational and social rights and benefits to organized labor, and
contained much nationalism on political and economic subjects. The national government was
given control of subsoil riches, agricultural estates were to be broken up and village
communal lands enlarged, foreigners were not to own land within sixty miles of the
frontiers or thirty of the seacoasts, aliens acquiring land had to promise to abide by
Mexican law and forego appeals to their home governments. There were extensive provisions
authorizing labor unions, the right to strike, employers' liability for accident and
disease, minimum wages, time limits on work, child labor reforms, and many other matters.
With promulgation of the Constitution of 1917, and especially after the
fears occasioned by the faraway Russian Revolution of 1917, many supporters of private
enterprise in Mexico and elsewhere began inveighing against "Red Mexico." That
was a cry heard frequently for more than two decades, and was a favorite charge of
spokesmen of the foreign oil companies in Mexico.
Although President Carranza, inaugurated in May 1917, was a
conservative on many subjects, he was a strong nationalist. In April 1917, as provisional
president, he put a 10 percent tax on oil production. Then in June he refused drilling
permits for leases acquired after February 5, when the constitution went into effect. From
then until the end of his administration in 1920, Carranza issued other decrees that
increased national revenues from the oil companies and threatened their leases. But
because Carranza's policy was somewhat ambiguous and because production was needed during
World War I, the oil companies protested but kept at work.
President Alvaro Obregón (1920-24), the greatest military commander of
the Revolution, came to office as the United States was suffering from the "Red
Scare" of the postwar years. This search for communists in America reinforced the
claims of those--including oil company spokesmen--who said that communism must be put down
in Mexico. The United States refused to recognize the administration of Obregón. That was
a powerful and frequently efficacious weapon when used by a great power against an
underdeveloped and unstable country.
Although nonrecognition was intervention in Mexican affairs, Obregón swallowed his
resentment. He needed recognition to avoid the belief among domestic opponents that revolt
might be supported by Washington; and he needed it internationally for credits to rebuild
Obregón tried to reassure the United States with promises, but
Washington feared any Mexican agreement less binding than a treaty, possibly
overestimating the inviolability of the latter. Obregón in 1921 and 1922 had the Mexican
Supreme Court declare that if the owners of oil leases had performed a "positive
act" to develop their properties before the constitution went into force, they were
ensured possession. The smaller oil companies and other business interests were largely in
favor of acceptance of this assurance, but the State Department held out.
The problem was then taken to the Bucareli Conference in Mexico City,
May-August 1923. Agreements were reached on a number of matters unrelated to oil, and on
the latter Mexico offered a "gentleman's agreement" to adhere to the doctrine of
positive acts. With that, the United States recognized the Obregón government. Mexico, of
course, considered that it had been coerced, yet it was a good guess that some future
government would argue that such an agreement need not be honored.
Although the Bucareli agreements helped secure a friendly U.S.
government attitude during the Adolfo de la Huerta rebellion in the winter of 1923-1924,
the leaders of the Mexican Revolution perceived significant American business support for
the conservatives supporting the rebellion. The nationalistic distaste of the leaders of
the Revolutionary faction for foreign business thus was further stimulated.
At the same time, the foreign oil companies were converting their
leeriness of the political climate in Mexico into a drastic decision to damp down
production there. It was easy to do that because other oil producing countries (notably
Venezuela) were coming on, where political conditions were more favorable--that is, local
nationalism was feeble. That was the sort of global decision the oil giants could make and
against which the underdeveloped country--in this case, Mexico--ordinarily had little
The Plutarco E. Calles administration (1924-1928) did little to
reassure the petroleum companies. Calles supported organized labor in a way that
frightened all private enterprise operating in Mexico. Businessmen exaggerated the
immediate consequences to themselves of Calles' labor policies. but they were right in
interpreting them as portending a long-term increase in the bargaining power of labor.
In December 1925, Calles had Mexico's congress pass a petroleum law
that declared possession of oil holdings acquired before 1917 would be limited to a total
of fifty years. Since this violated the Bucareli agreement, various U.S. officials,
private enterprise spokesmen, and journalists protested. But President Coolidge and the
American public were against intervention.
State Department officials generally were disillusioned with American
interventions in the smaller Caribbean countries since 1904. During most of the years of
controversy in Mexico, 1917-1938, the petroleum companies were dissatisfied with the State
Department's views on the Mexican situation. Nor were the companies happy about U.S.
banks, which preferred compromise with Mexico rather than confrontation, so that they
could get some return on defaulted bonds. The State Department quite properly concerned
itself with the totality of American interests rather than with single interest groups. It
is not true, as the legend has it, that the State Department jumped when Standard Oil
In the summer of 1927, in an effort to calm various disputes with
Mexico, Washington sent Dwight W. Morrow to Mexico as ambassador. Morrow proved a
brilliant choice and helped quiet Mexican fears. President Calles thereupon helped
persuade the Mexican Supreme Court to reaffirm in November 1927 the doctrine of
"positive acts." Then Calles had the petroleum law altered to incorporate the
court decision by January 1928. After that, the State Department in Washington announced
that oil problems now would be left to the Mexican courts. That was what the Mexicans
wanted, but it was far from the desire of the oil companies.
The companies did not abandon Mexico, but they did not lavish attention on it. From the
peak production of 193 million barrels in 1921, Mexican output declined to only 33 million
in 1931. A small rise occurred in the later 1930s, but, as it turned out, the production
record of 1921 was not to be equaled until 1973!
The Expropriation of 1938
From 1928 to 1934, Calles was conservative boss of Mexico, managing
three successive presidents of the country. During that period, about two-thirds of the
oil companies received government confirmation of their holdings, although all of them
disliked the very theory of reconfirmation. The six-year lull in the petroleum fight ended
with the 1934 election of Lazaro Cárdenas to the presidency.
The new president, inaugurated in 1934, was intent on reform of all sorts. His
administration took a stronger line on most of the revolutionary aims, including foreign
holdings in Mexico. It very soon ended issuance of confirmatory petroleum grants. It also
created Petróleos Méxicanos (PEMEX) as a state oil enterprise, an action that coincided
with a vast extension of the communal ("ejidal") farm system. Both acts seemed
clearly socialist to international and domestic private enterprise.
Cárdenas also greatly increased labor organization and improved its
position in the political process, integrating the unions into a revised national party.
In early 1936, as a part of the improvement of organized labor, various unions
(sindicatos) joined in the Petroleum Workers' Union of the Mexican Republic (STPRM). This
was part of the huge new national labor organization Cárdenas put together--the
Confederation of Mexican Workers (CTM)--under the direction of the left-leaning Vicente
STPRM later in 1936 sent to the oil companies a contract to govern the
entire industry. That sort of industry-wide collective bargaining conformed to the Mexican
Labor Code of 1931. The oil companies rejected it because they preferred to deal with
workers as part of a fragmented labor system. The American companies also rejected it
because at the same time new national unions in the United States were fighting for
industry-wide bargaining. American private enterprise considered itself under siege.
The contract drawn up by STPRM in 1936 was offensive to the foreign oil
companies for other reasons as well. It demanded the closed shop, inclusion of office
workers in STPRM, higher wages, strike pay, double pay for overtime, paid vacations, and
other benefits. The companies did not want to agree to those things in Mexico, nor did
they want news of such heresies to reach Venezuela and other producing
Before the industry could be disrupted, Cárdenas in November 1936
imposed a six-month cooling-off period. The companies then agreed to industry-wide
bargaining and contracts and some increases in compensation, but the concessions were not
enough for STPRM. The union in mid-1937 obtained government approval of definition of the
dispute as an "economic conflict." The law considered that to be a condition
requiring government intervention to arbitrate and then make and enforce a decision-not a
pleasing prospect to the companies.
It meant that the Cárdenas regime appointed a Federal Board of
Arbitration and Conciliation, more of the government intervention that private business so
much lamented. The experts used by this board declared that American companies made much
higher profits in Mexico than in the United States, thus they were exploiting Mexican
workers. That was something that Mexican nationalists believed of all private enterprise
There followed the expectable dispute over profits. In December 1937 the Federal Board
ordered wages increased by 27 percent, a forty-hour week, office personnel included in the
union, and various fringe benefits. The companies took the matter to the Mexican Supreme
In the United States, the oil companies and supporters tried to
pressure the federal government and met with little success, partly because the country
had an increasing interest in good relations with Mexico, and also because of the rise of
fascist Germany, Italy, and Japan. It seemed to some leaders that the world faced an
uncertain and dangerous future.
The Mexican Supreme Court in March 1938 rebuffed the oil company pleas,
whereupon the companies raised their wage offer but coupled it with demands that no more
should be re quested. When no agreement was reached, the Board of Arbitration declared the
companies in "defiance" (rebeldía), a state that permitted worker control of
private enterprise. That led the largest oil producer, "El Aguila," a subsidiary
of Royal Dutch Shell, to consider capitulation; but it was persuaded by the American
companies not to give in.
The latter, however, had badly miscalculated the force of the new
Mexican nationalism. It also had overestimated the willingness of the American government
and people to pull business chestnuts from overseas fires. It was a period in which
Roosevelt's New Deal had promoted harsh opinions of the selfishness of large corporations.
And the fascists abroad had arms in their hands, more worrisome than wage disputes in
The result was that when President Cárdenas, on March 18, 1938,
declared the nationalization of Mexican petroleum, the official U.S. response was only a
tepid disapproval. Since Cárdenas promised compensation to the oil companies, many
official and private groups in the United States could accept the expropriation as legal.
The British government inveighed against the seizure as improper, and Mexico broke
relations with London in May 1938.
The oil companies themselves did all in their power to punish Mexico economically. They
had a number of weapons, including control of tanker fleets, distribution systems, and oil
production equipment. They managed to stop U.S. Navy purchases of oil from Mexico. They
urged American tourists not to go across the border. Mexico compensated to some extent
with increased relations with Italy, Germany, and Japan--a development worrisome to many
Negotiations between Mexico and the companies made no headway
immediately after the expropriation because the companies refused to yield, still fearful
of the effects in other lands. A minor company, Sinclair, did conclude an agreement with
Mexico in 1940, renouncing most of its claims.
In April 1940--with World War II some months old--U.S. Secretary of
State Cordell Hull demanded arbitration, which Mexico rejected as intervention in her
domestic affairs. But the wars raging in Europe and Asia quickly reduced the interest of
Washington in Mexican petroleum. Furthermore, Mexico took an antifascist stand that
coincided with that of the United States, which was pleasing. In April 1941 a treaty
permitting aircraft of the two countries to use each other's airfields was indicative of a
new atmosphere and new interests. Global developments made oil rights shrink in
perspective. A number of other developments signified the growing rapprochement. The
United States also found new Mexican President Avila Camacho (1940-1946) easier to deal
with than Cárdenas.
Heavy pressure to negotiate the oil dispute found no support in the companies but much in
the U.S. government, with the result that at the end of 1941 Washington signed an
agreement with Mexico, accepting a system whereby experts would decide on the value of
U.S. oil properties in Mexico. That left the companies out of the settlement process and
opened the way to other agreements with Mexico on land claims, silver purchases, credits
to Mexico, and improvement of trade relations. Most of this was achieved by the time of
Pearl Harbor (December 7, 1941) or soon thereafter. The petroleum companies thus were left
behind by history.
The Mexican and American experts easily agreed that the company claims
were excessive, and an agreement of April 1942 set a value of $23.9 million, which was
paid off by 1949. No doubt the companies had made large--possibly excessive--profits
during their short tenure in Mexico, but they certainly got a meager terminal agreement.
The new nationalism and government organization in Mexico had proved too much for the huge
Problems of the State Monopoly
The nationalization of oil was immensely popular in Mexico, largely
because it involved a swipe at the foreign devils, though a minority approved it also out
of anticapitalist sentiment. Furthermore, it appealed to national pride in general, and
together with other Cárdenas economic measures built confidence in the capacity of the
country to develop by its own efforts. It gave a big lift to nationalism, and the
sentiment of nationalism was the engine most potent for the mobilization of common efforts
and the acceptance of change and sacrifice for the general good.
Expropriation and nationalization of oil did involve sacrifice. Most Mexicans, of course,
did not understand the economics of the matter and supposed vaguely that with the ousting
of foreigners from petroleum all its magic inhered automatically to Mexico. There was
considerable woolly belief that now it did not cost anything to produce petroleum
A few Mexicans knew better. Mexico could not keep up exploration and
open new wells and fields without outside capital and technical aid; for some years those
proved hard to come by. Nor could Mexico easily keep up production from the existing wells
and the distribution of its products. Nor could it easily market surpluses abroad--if it
had any--without the aid of the petroleum giants. Finally, Mexico would find it difficult
to alter the character of the petroleum system to meet changing needs as the country
Mexico found it difficult to build up production, which only reached
43.4 million barrels in 1941, 78.8 million in 1951, 116.8 million in 1961, 177.3 million
in 1971, and in 1973 reached 191.5 million, about the production of 1921. Building
managerial and technical staff took time, and capital was limited. Mexican credit abroad
was poor for some years, so that PEMEX had to live too much off its own domestic sales.
There was little surplus oil for export, and that was partly because of the cry in Mexico
that oil was a "nonrenewable" natural resource, not to be depleted at a
"loss" to sell to foreigners.
The efficiency of PEMEX never was easy to determine. Establishment
politicians claimed marvels for it, critics muttered about incredible mismanagement. The
data, unfortunately, were not good enough to permit certain judgment. It was clear,
however, that PEMEX activity increased, production rose, its personnel grew more numerous,
and its budget soared. It kept Mexico reasonably well supplied with fuel oil and gasoline,
although after 1957 Mexico became a net importer of petroleum. Mexico also went into
petrochemicals, with PEMEX in 1958 being granted a monopoly of basic development of the
industry. Much secondary petrochemical production was done under license by private
companies, with their stock owned at a minimum 60 percent by Mexican nationals.
PEMEX grew to meet the demands of electricity production and industrial uses, both of
which rose enormously during World War II and thereafter. Petroleum products were needed
to pave the huge highway system that was built in those same years. And on those highways
rolled more and more buses, trucks, and passenger cars, which, in the 1960s and 1970s.
were chiefly manufactured in Mexico.
These roads and vehicles served by PEMEX helped reduce the ancient
isolation of the Mexican village and the regionalism of the country. It was a boon to the
public and a big help to the governing party and the state apparatus, including the army
Not only was PEMEX a huge enterprise, but it gave the state much
leverage with private enterprise because the latter depended on it for supplies. As PEMEX
grew, the remaining bits of private foreign and domestic activity in the petroleum
industry dwindled in significance. Most of the foreign element was liquidated by the
1950s. Mexico had tamed (at some cost) the multinational oil companies long before OPEC
took a hand.
The PEMEX distribution system grew with the rest. Green-painted PEMEX
gasolinerías sprang up by the thousand, operated by private concessionaries but required
to sell only PEMEX gasoline. Fleets of gasoline and diesel fuel tank trucks rumbled down
the new highways. Tank ships scarcely were needed, since PEMEX exported so little.
One of the most interesting aspects of the growth of this giant was the
pricing policy of the federal government. It required PEMEX to keep the cost of fuel low.
This favor to consumers especially impressed the public because it helped subsidize low
bus fares and cheap gasoline for private cars, and diesel fuel and gas for the mushrooming
private trucking and passenger bus industries. The directors of PEMEX, on the other hand,
grumbled to their fellows in government that they were not permitted to accumulate enough
capital for expansion and often had to pay heavy interest on borrowings for investment.
The New Oil Bonanza
That pricing policy was going to be abandoned in a time of crisis in
the administration of President Luis Echeverría. During his tenure, Mexican petroleum
production began to fall further behind domestic demand, so imports increased.
Unfortunately, that occurred just when Arab and other Third World producers erected the
great OPEC cartel and quadrupled the price of their oil. Mexico paid $124 million for oil
imports in 1972, but $382 million in 1974, under the OPEC dispensation. It was clear that
along this road lay disaster.
This was especially the case because from 1974 to 1976 production in
the total Mexican economy declined to the point where it was not keeping up with
population growth. That occurred in a country accustomed to annual per capita increases in
Echeverría also chose to permit high imports of all sorts of supplies
for the industrial plant he was so intent on fostering at a faster pace than the country
could afford. He financed this extravaganza with increased foreign borrowing. The external
debt rose from $2.2 billion at the end of 1967 to $9.5 billion in 1974 and $20 billion in
1976, by which time debt service required $4 billion a year. Private investors lost
confidence, and the government raised public credits. That added to an irresistible
pressure on prices and destroyed Mexico's twenty-year immunity from that common malady of
developing countries-inflation. Finally, in August 1976 Echeverría devalued the peso. It
had to be done, but the deed was met by a fury of fear and criticism. Echeverría left
office in December with his reputation in shreds.
But he had made one decision not long before that promised a way out of
the dilemma of need for more investment capital while the economy was deteriorating. He
abandoned the policy of freezing prices at an artificially low level. The result was
greatly increased PEMEX revenues, and they were used to increase production and search for
The results of this were not evident to the public until after the
inauguration of President José López Portillo in December 1976. Proved reserves of
hydrocarbons (oil and natural gas) went from 5.56 billion barrels at the end of 1970, to
11.16 billion at the end of 1976, 16.8 billion by the end of 1977, and more than 40
billion at the end of 1978. There were rumors--possibly founded in part in hopes or
political tactics --that reserves ultimately would exceed 200 billion barrels, topping the
fantastic reserves of Saudi Arabia.
Furthermore, by the beginning of 1979 actual production of crude was up
to an annual rate of about 511 million barrels, far beyond the once-fabulous year 1921.
Much of the new production was going to the United States, with beneficial effects on that
country's strategic position and with happy results for Mexico's threatened financial
So many problems between Mexico and the United States that loomed large
from the 1950s to the early 1970s took on a new hue as well as new dimensions--or at least
both countries hoped so. Even floods of illegal immigration to the United States could be
nearly dammed, diverted, accepted, or compensated for to please the oil colossus south of
*See chapter 8 for more on recent developments in Mexican oil and natural gas.