U.S. and British oilmen developed the first Mexican oilfields between 1901 and 1910. During the Mexican Revolution (1910–1920) several foreign companies began exporting production from wells along the Gulf Coast in the state of Veracruz. Mexico in 1920 was the world's second-largest producer of crude oil. However, production plummeted in the 1920s as several oilfields became exhausted, and Royal Dutch Shell and the Standard Oil Company of New Jersey began to consolidate production, refining, and production in Mexico. Two problems emerged in the 1930s. First, Article 27 of the Mexican Constitution of 1917 stated that all hydrocarbons belonged to the nation, but the oil companies had been ignoring this law because they had acquired oil lands prior to the constitution. Second, the Mexican oil workers formed a national union in 1936 and went on strike, demanding one collective contract for the whole industry. The oil firms resisted both the government and the union until March 18, 1938, when President Lázaro Cárdenas (1895–1970) nationalized the Mexican assets of Shell, Standard Oil, and fifteen other foreign-owned companies. In July 1938 the Cárdenas government established Petróleos Mexicanos (PEMEX) to administer them.
At its foundation, PEMEX became one of the world's largest oil companies and a potent symbol of Mexican sovereignty. PEMEX was granted a monopoly not only of ownership but also of production, refining, and distribution of petroleum products within the country, permitting only very limited foreign participation. It was a cooperative venture administered by the government and the oil union, with the government as the dominant partner. The Mexican president chose most of the board of directors and the director general. The long-term strategy was to subordinate the state oil company to national economic objectives. As a subsidy to domestic industries and transportation, PEMEX sold gasoline and fuel oil at low, government-set prices. It also contributed high taxes to the state and filled its administration with appointees from Mexico's dominant political party, the Partido Revolucionario Institutional (PRI). Moreover, PEMEX's 1942 contract with the Mexican Oil Worker's Union effectively made the company a closed shop. Union bosses dictated who did and did not get PEMEX's high-wage jobs, and the union became known for corruption and violence. Employment at PEMEX always seemed to rise faster than production. Consequently, PEMEX served the economic and political interests of Mexico but never matched the competitiveness and profitability of the Seven Sisters (the seven major corporations that then dominated international oil: Exxon, Gulf, Texaco, Mobil, Socal, British Petroleum, and Shell).
Under the circumstances, PEMEX did make notable contributions to developing Mexico's oil industry. A major challenge was the boycott of Mexican oil exports organized by the international oil companies. In reality, domestic markets already absorbed the majority of Mexican production, and the 1941 attack on Pearl Harbor ended these export boycotts. Mexican and U.S. diplomats in 1942 settled the dispute over payment for the nationalized properties, and Mexico made restitution in the form of crude-oil deliveries to the oil companies, even though Great Britain and Mexico did not settle accounts for the Shell properties until 1947.
PEMEX met nearly all the energy demands of a booming Mexican economy. It brought in a few new oilfields, but in the 1950s still relied heavily on the properties of the old companies, particularly Poza Rica in Vera-cruz. PEMEX expanded its refining capacity and its service stations throughout the country, becoming popular among U.S. tourists and border residents for its inexpensive gasoline. Its most renowned director general of the early period, Antonio J. Bermúdez (1892–1977), who served from 1946 to 1958, is credited with successfully integrating the oil industry vertically under state control, from well to pump. Yet, important additives and technologies had to be acquired from abroad. For this, PEMEX established a precedent of working with small independent U.S. companies and suppliers. These small companies undertook exploration under "risk contracts," in which they were to bear the capital losses in cases of failure and share the profits with PEMEX in cases of success. The U.S. government provided capital through loans to the Mexican government for "economic development." Domestic sources of capital for PEMEX's expansion seldom provided more than 30 percent of its total investments
The 1960s were a time of increasing contradictions for PEMEX. On the one hand, it completed modernization projects that enabled it to produce petrochemicals and natural gas; on the other, proven oil reserves were declining and production barely met rising demand. In 1971 Mexico became a net importer of petroleum. But together with U.S. loans and foreign-risk contractors, PEMEX engineers developed the Las Reformas fields on-shore in Campeche, as well as offshore fields in the Gulf of Campeche, just in time to profit from the meteoric rise in oil prices after the 1973 embargo by the Organization of Petroleum Exporting Countries (OPEC). The frenzy of development resulted in massive oil exports beginning in 1977, mainly to U.S. consumers grateful that Mexico had chosen not to join OPEC. The oil boom exacerbated all the inefficiencies of PEMEX, as administrative staffing burgeoned, accounting procedures slipped, corruption flourished, union bosses became more autocratic, and the nation's international debt rose. The break in oil prices and Mexico's debt crisis of 1982 curtailed the boom, and PEMEX was forced to cut export prices. The director general was dismissed, and later imprisoned on corruption charges.
The 1982 debt crisis—a profound economic shock—provoked a reexamination of PEMEX. Debates arose about how to make the company more competitive. When the economic reformer Carlos Salinas (b. 1948) became president of Mexico in 1988, he declared that PEMEX would not be privatized, an act he felt violated Article 27 of the Constitution, but that it would have to become more efficient. Salinas jailed the notorious oil-union boss José Hernández Galicia on questionable charges of firearms violations and corruption in order to push through the reforms. More than 200,000 personnel were subsequently laid off at PEMEX, and parts of the petrochemical sector were privatized.
However, the complete privatization of PEMEX remained anathema, despite the PRI's defeat in the elections of 2000. President Vicente Fox (b. 1942) had to settle for professionalizing the company's administration, as evidenced by the appointment of the chemical engineer Raúl Muñoz Leos to head PEMEX. In 2003 Muñoz Leos sought to stimulate expansion of Mexico's oil and gas production under innovative "multiple-service contracts" (MSC) involving international oil companies as contractors to PEMEX for the production of dry (nonassociated) natural gas. Other than the MSC, the Mexican Congress demonstrated little inclination to undertake the legal reforms necessary to make Mexico an attractive investment opportunity for foreign oil companies.
Brown, Jonathan C., and Knight, Alan, eds. The Mexican Petroleum Industry in the Twentieth Century. Austin: University of Texas Press, 1992.
De la Vega Navarro, Angel. La evolución del componente petrolero en el desarrollo y la transición de México (The Evolution of the Oil Component in the Development and Transition of Mexico). Mexico City: Programa Universitario de Energía, Universidad Nacional Autonómo de México, 1999.
Meyer, Lorenzo, and Morales, Isidro. Petróleo y nación: La política petrolera en México (1900–1987) (Petroleum and Nation: Oil Politics in Mexico). Mexico City: El Colegio de México, 1990.
Randall, Laura. The Political Economy of Mexican Oil. New York: Praeger, 1989.
Jonathan C. Brown