As the world experiences an extreme downturn in oil prices, many oil-producing countries are feeling the pain. But the US neighbor to the south has taken great strides in mitigating this loss by creating post-petroleum Mexican economy.
The Crisis in Mexico
As Iran re-entered the energy market and the Saudis refused to limit their oil-production capacity, the world oil market slowed down for the first time in nearly a decade. What was hoped to be a slight hiccup has since come to be known as a steep downturn in the global energy market, as prices plummeted by more than half.
Unfortunately for Mexico, the nation relies, to a large part, on the production and sale of crude in both onshore and offshore reserves it had eagerly set its sights on exploiting over the past few years. The country had undergone ambitious reforms in many areas, especially the energy sector. The state-run energy company, PEMEX, became a for-profit enterprise and began accepting bids for partnerships with foreign and domestic exploration and production companies. Despite this setback, it is anticipated that these energy reforms will do much to benefit Mexican manufacturing.
In spite of the immediate effects felt by the energy-focused country, many have observed that the country’s response to the crisis will prove to be instrumental in helping the nation to both weather this downturn and to even grow substantially in the process through the creation of a post-petroleum Mexican economy. When the Mexican peso took a hit from the crisis, the federal government took several immediate steps to mitigate this problem including slashing public spending and other substantial measures. The peso quickly recovered, and inflation is now well under GDP growth, which is at an impressively low 3%.
It was not only Mexico’s response to the energy downturn that has positioned the country to weather the economic storm. The young reforms and the diverse post-petroleum Mexican economy that are already in place provide a healthy atmosphere for recovery and growth in spite of this hit to a significant pillar of the Mexico’s historic economic base.
Oil and energy production are only one of several pillars of Mexico’s economy. Additionally, the country has invested heavily in developing other major industries, such as manufacturing and tourism, both of which continue to thrive. Even the energy sector is showing positive signals. The country is investing $15 billion USD into a natural gas pipeline, and foreign countries are lining up to invest in Mexican energy ventures from natural gas to crude oil. Indeed, some analysts are predicting that Mexico’s midstream market will be bustling by 2018 as Mexico rides out this storm and gains net growth in spite of it.