Development before 1938 , California oil entrepreneur in Mexico Petroleum was known in Mexico before the arrival of the Spaniards and used by the natives for incense and to repair canoes. In Mexico's colonial era (1521–1821), ranchers lost cattle to tar pits in the Gulf Coast Region, so it was considered more of a hazard than a valuable resource. Exploratory wells were first drilled in Mexico in 1869 by U.S. entrepreneurs. This allowed more than 132 million acres of Mexican land to be owned by the surveyors. By the early twentieth century the reapportionment was complete. In July 1908, British entrepreneur
Weetman Pearson struck oil in San Diego de la Mar, a co-proprietorship, that had been divided up into 87 individual lots, due to the privatization of lands. In 1889, President
Porfirio Díaz had contracted British Weetman Pearson, to engineer several major projects in Mexico, such as the drainage of Mexico City, the dredging of Veracruz harbor, and the building of the southern Vera Cruz Tehuantepec Isthmus railroad line. Mexican President
Porfirio Díaz also encouraged Pearson to develop petroleum reserves, resulting in the highly successful
Compañia Mexicana de Petróleo "El Águila", exploiting the Potrero del Llano reserves located near the central
Gulf of Mexico coast town of
Tuxpan. This further fueled a massive land rush by the foreign oil companies. The two main companies Edward Doheny's Huasteca Petroleum, and Weetman Pearson's El Aguila were able to secure a large sum of land rights through ownership, and leasing. By 1922 Huasteca petroleum owned or leased 1,223,780 acres, and El Aguila 1,890,286 acres of land respectively. Pearson subsequently sold his shares "El Aguila" to
Royal Dutch Shell, although "El Aguila" continued to have a majority of British investors. Mexico became an oil exporting nation in 1911, with the first shipment leaving the Gulf Coast port of Tampico. United States imports of crude oil, nearly all of it from Mexico, rose rapidly from 30 million barrels in 1917, to more than 100 million barrels per year from 1920 to 1922, before declining. The demand for Mexican oil imports was increased by the United States conservation of oil movement. The United States saw Mexican oil as an opportunity and the US business interests were heavily backed by the United States government In 1925, President
Plutarco Elías Calles decreed that foreign oil companies must register their titles and limited their concessions to fifty years. Starting in 1918 and extending into the 1920s, Mexico was second behind the
United States in petroleum output and led the world in oil exports. Oil production and exports from 1921 to 1925 were at historic high levels. In 1921, production was, in barrels of 42 gallons each, 193 million, with exports of 172 million. Production and exports declined each year through 1925, when production was 116 million, with exports of 97 million. In 1926 production dropped below 100 million barrels, and in 1942, net exports dropped below 10 million barrels. Production began to recover with the 1932 discovery of the
Poza Rica field near
Veracruz, which would become Mexico's main source of petroleum for the next several decades.
1938 expropriation , president of Mexico from 1934 to 1940. In 1938, Cárdenas ordered the expropriation of all oil companies in Mexico. The expropriation of lands by the Mexican government started with the ratification of the Mexican constitution of 1917. By nationalizing the land, Mexico and the people would be better able to control working conditions, pay, and environmental impact. However, this expropriation of land further marginalized the indigenous population. In 1935, all companies in the business of oil production in Mexico were foreign companies. Labor practices in these companies poorly benefited the workers since the companies were able to block the creation of
labor unions through legal and illegal tactics. Despite legal opposition, the
Confederation of Mexican Workers was created and proposed a project of general contracts for each oil company. A strike was planned to push towards an agreement but the matter went to the court instead. On December 18, the
Arbitration Board declared in favor of the union and ordered the oil companies had to pay 26 million
pesos in lost wages because of the strike. "Faced with political difficulties in Mexico, as well as the intrusion of saltwater into some of the major producing field, the United States and other foreign oil companies began to seek other sources of supply particularly in Venezuela, and interest in the middle east intensified as well." Foreign oil companies continued to pump as much oil as quickly as possible for exportation, until the Mexican expropriation in 1938, “Ignoring reasonable conservation measures to export as much oil as quickly as possible”. “Mexico only found itself compelled by the rebellious and defiant conduct of the oil companies that is decreed the expropriation of their properties.” The United States refusal to recognize and work with Mexico's post-revolution government, along with a very hazardous work environment that lead to workers strikes and revolts, forced the Mexican government to expropriate the land. On March 18, 1938, Mexican President
Lázaro Cárdenas announced the
nationalization of all oil resources and facilities in Mexico. The government assumed control of all property of nearly every oil company operating in Mexico, including machinery, equipment, buildings, refineries, gas stations, ships and pipelines. At the time, the country's oil industry was dominated by
Mexican Eagle Petroleum Company (a subsidiary of
Royal Dutch Shell) and American oil firms such as
Jersey Standard and
Standard Oil of California. On June 7, 1938, the state-owned company
Petróleos Mexicanos (or "Pemex") was founded, with exclusive rights over exploration, extraction, refining, and commercialization of oil in Mexico.
International reaction to expropriation The British government demanded immediate compensation for the Mexican Eagle Petroleum Company. However, the company had been founded as a Mexican company under Mexican law. Therefore, the British government couldn't intervene directly in the company's favor. Diplomatic relations between the countries were soon broken, but not before Mexico paid a debt claimed by the British government for damages caused during the
Mexican Revolution. The government of the
Netherlands sent business manager Arthur Methöfer to defend the interests of their citizens. Methöfer refused to recognize the legality of the expropriation and demanded the immediate return of expropriated property or immediate payment as compensation. Mexican
Secretary of Foreign Affairs Eduardo Hay reaffirmed that the Mexican government was willing and committed to pay compensation within the stipulated time period. As the Dutch government began to realize the Cárdenas government would not reverse the expropriation decree, the Anglo-Dutch company
Royal Dutch Shell decided to pressure Mexico without the help of the government. Negotiations with the
United States went differently. During Cárdenas's speech, he claimed that the resources in the subsoil belonged to the Mexican nation, and therefore would not be considered as part of the compensation to foreign businesses. The companies, however, assumed compensation should include the fuel that was estimated to be found in the soil. President
Franklin D. Roosevelt in a public speech recognized the right of Mexico to expropriate the oil properties and agreed to accept compensation for the properties of the companies excluding underground oil.
Boycott In retaliation for the expropriation,
Standard Oil of New Jersey and
Royal Dutch Shell began a boycott against Mexico. The companies tried to prevent Mexico from acquiring chemicals necessary to the process of
refining (such as
tetraethyl lead), and specialized machinery. This plan was supported by several American companies which refused to sell certain products to Mexico such as drilling equipment, pumps,
ethyl fluid, air compressors and electrical equipment. Soon after, students at the
Instituto Politécnico Nacional and the
National Autonomous University of Mexico were able to synthesize tetraethyl lead, a popular
gasoline additive at the time used for boosting octane ratings. Gradually, companies that sold parts and equipment gave in as Mexico opted to buy from
Germany,
Italy and other European countries. The U.S. State Department assisted with the boycott in various ways. Purchases of Mexican silver were suspended, which represented an average amount of $30 million annually, although after 1938 sales were resumed in smaller quantities and lower prices.
World War II In 1938, Mexico had voted during the
Pan-American Conference in favor of establishing continental solidarity against non-American and non-democratic influences, an allusion to the governments of
Adolf Hitler,
Benito Mussolini, and
Hirohito. Nonetheless, owing primarily to the boycott, Mexico maintained economic and commercial relations with these countries. Gradually, commercial and diplomatic relations between Mexico and
Germany and
Italy deteriorated. After the Japanese
attacked Pearl Harbor in 1941, Mexico cut diplomatic ties with Germany and Italy. Cárdenas's hand picked successor,
Manuel Ávila Camacho, was elected president of Mexico in 1940. With the outbreak of
World War II, "the quarrel over oil effectively ended" between the U.S. and Mexico.
Franklin Delano Roosevelt was more interested in forming a strategic alliance with Mexico to create an anti-fascist front than in protecting private companies and had already proclaimed the
Good Neighbor Policy in 1933. The U.S. government required cooperation to guard its borders and coastlines and to secure the supply of raw materials, including oil. The Mexican government agreed to pay $40 million for claims originating from the Mexican Revolution, and the U.S. government opened a line of credit in order to stabilize the Mexican currency. The State Department also resumed purchases of silver from Mexico and investments were made in Mexico's transportation infrastructure.
Post-nationalization Between 1938 and 1971, Mexico's oil output expanded at an average annual rate of 6%. In 1957, Mexico became a petroleum net importer after domestic demands exceeded domestic production. However, production rose to by 1971 with the exploitation of new oil fields in the isthmus of
Tehuantepec and natural gas reserves near the northeastern border city of
Reynosa, but the gap between domestic demand and production continued to widen. 1973 witnessed Mexican oil production surpassing the peak of achieved in the early 1920s. In 1974
Pemex announced petroleum discoveries in
Veracruz,
Baja California,
Chiapas, and
Tabasco. In 1976, President
López Portillo announced that Mexico's proven hydrocarbon reserves had risen up to . By 1983, that figure further rose to . López Portillo increased Mexican petroleum production and used the value of the reserves as collateral for negotiating large international loans, most of which went to Pemex. From 1977 to 1980, Pemex received $12.6 billion in international credit, representing 37% of Mexico's total
foreign debt but nevertheless used the money to construct and operate
offshore drilling platforms. Pemex further expanded by building onshore processing facilities, enlarging its
refineries, and vastly improving its production capabilities. These investments led to an increase in petroleum output from in 1977 to by 1982, the end of López Portillo's six-year term as president. By 2007, Mexico had a net oil export of . In early 2008 the
price of oil hit record highs exceeding $100/barrel for the first time ever. By July the price had reached $147.27 and based on demand projections, outlooks were optimistic. At this time a group met at the Mexican finance ministry and reached an agreement to
hedge Mexican oil revenues. They placed orders with
Barclays,
Goldman Sachs,
Morgan Stanley and
Deutsche Bank to buy
put options at prices ranging from $66.50 to $87 barrel for a total of $1.5 billion or 330 million barrels. Shortly afterward the price of oil collapsed during the
subprime mortgage crisis and by 2009 the average price of oil was less than $55. The $5.1 billion deal is sometimes called "the Agustínian hedge" after
Agustín Carstens who was finance minister at the time. In 2013, the administration of Enrique Peña Nieto implemented a policy of liberalization that officially opened Mexico's oil industry to investment by foreign companies. The reform was also opposed by the following president
Andres Manuel López Obrador (AMLO), who governed from 2018-2023. In 2022, AMLO reduced the tax imposed on Pemex to 40%, and pledged to cover the company's debts. Current president Claudia Sheinbaum Pardo has indicated that she plans to continue the energy policies implemented under the AMLO administration, stating that the neoliberal period of 2007–2018 was "very damaging" to Pemex. == Oil production ==