Huge Protests In Mexico Over Gasoline Price Increases — What’s The Link To Mexico’s Declining Oil Industry?

Large protests have been reported in many cities in Mexico following the announcement of price hikes for gasoline, price hikes of 14% to 20% (depending on octane rating).

In addition, hundreds of stores have reportedly been looted, numerous highway tolls were commandeered by organized groups, a couple of gas stations were reported as being burned, and many thousands of people arrested.

Interestingly, some public transportation operators (bus operators) also apparently grounded their fleets in protest as — since their ticket prices are set by the State, the new fuel costs would force them to operate in the red.

Something that I haven’t seen noted in much mainstream reporting on this subject is that Mexico’s oil industry (which is state owned) has been on the decline for quite a while now. The Cantarell Field, in particular, which was previously the second-fastest-producing oil field in the world (after the Ghawar Field), has been declining very rapidly in recent years.

When a country’s economy (and stability) is based to a large degree on a resource that finite in nature, and that’s rapidly depleting, what happens? Is Mexico headed in the same direction that other countries that have had to ask this question in recent years have gone?

To further explain: Gasoline prices have been heavily subsidized in Mexico for a very long time now, and the government has been slowly over the years decreasing the level of subsidization in concert with falling oil production and revenue. The recent surge in the value of the US dollar and the expectation of a possible recession following the inauguration of US President-Elect Donald Trump seem to have put extra stress on the country’s budget, with the result being the government attempting to balance the budget with cuts.

Related to this, 2018 is an election year in Mexico, and the current administration seems to have gambled that cutting fuel subsidization completely now (rather than in 2018, as previously planned) may be the best option, as the backlash may have time to die down somewhat before the elections — and possibly to not affect the way that people vote as much as would otherwise be the case.

Cutting subsidization a year early, though, means that the cut was larger and more obvious than originally planned, rather than being a gradual process. This large, obvious cut in subsidization (or, put another way, increase in gasoline prices by 14% to 20%) seems to have really gotten the attention of people in the country, though. Probably much more so then a gradual change over the year would have.

It should probably also be noted here that rising inflation levels in the country are also putting pressure on citizens there, and probably contributed to the intensity of the backlash against gasoline price increases. Also notable is that Mexico, despite extracting large quantities of oil, doesn’t possess much refining capacity — meaning that most of the oil extracted is exported to the US and elsewhere, and then gasoline and other fuel products are shipped back.

Reuters provides more:

“The hike is part of a gradual, year-long price liberalization the (President Enrique) Pena Nieto administration has promised to implement this year. But the government’s many efforts to justify the hike have fallen on deaf ears. ‘No to the gasoline price hike, Pena out,’ protesters yelled as they marched from Mexico City’s center to the Presidential residence.

“Mexican retail association ANTAD said on Friday that 423 stores were sacked, nearly half in the central state of Mexico, near the capital. Local media reported marches on Saturday in the Mexican states of Sonora, Chiapas, Guerrero, Jalisco, Tabasco and Puebla as well.”

While it may be a simple thing to “say no to gasoline price hikes,” that doesn’t mean that that’s all it takes to have access to cheap gasoline. With Mexico’s oil industry on the rapid decline, what other option was there really, except to liberalize imports and accept higher prices (rather than the subsidized prices that previously accompanied self-production)?

While I understand that the gas price increases will be an economic hardship for many, and will probably end up putting a lot of people on the street, I have to wonder about the sense of entitlement that so many people seem to have about fossil fuels and the comforts they bring.

These fossil fuels aren’t there because people demand them to be, or because of the sort of dumbed-down, take-no-responsibility, over-optimism that seems to pervade the modern world. They’re there because millions of years worth of sea life fell to the ocean floor during ocean anoxic events, was then buried, and then heated, pressurized, and condensed over a long period of time. (Or they originate with similar events happening to anoxic sediment layers formed in seas and lakes.)

And all of the cheapest-to-extract, easiest-to-refine of these condensed masses of putrified sea life are rapidly running out. It’s easy to say that there’s enough oil to last so and so years, blah, blah, blah, but who has access to this limited quantity of oil? Does the fact that Iran still has decent (recoverable) oil reserves help Mexico in any real way?