Crisis in Mexico's Oil Industry On July 4, 1976, as norteamericanos were ce

On July 4, 1976, as norteamericanos were celebrating the two hundredth anniversary of the Declaration of Independence, Mexican voters went to the polls to elect a new President. The outcome was a foregone conclusion. Jose Lopez Portillo, handpicked candidate of outgoing President Echeverria, was elected by anoverwhelming margin, winning ninetyfour percent of votes cast.1 The new President's sexenio, running from 1976 till 1982, would bring the culmination of the crisis already developing in Mexico's oil industry.

To some degree, the crisis was inevitable. Throughout the worldwide petroleum sector, the 1970s and 1980s were a period of boom followed by bust. This was due, most fundamentally, to market forces. The dramatic increase in oil prices in the 1970s produced at once new incentives for producers to produce more oil, and for consumers to consume less. Supply and demand thus fell out of balance, and the balance could be restored only by a dramatic increase in demand or by a dramatic decrease in price. There was little reason for oil demand to grow faster than the world economy, and much reason (the high price itself, and a "conservation ethic" promoted partly by the price and partly by environmental concerns) for demand to grow more slowly than the world economy. Thus, supplydemand imbalance could in practice be corrected only by a drop in price. This was precisely what took place in the middle 1980s. But it was an outcome which as ine

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production in U.S. waters could only tend to increase demand for oil imports, including imports from Mexico. But this effect was probably more than counterbalanced by the popular interest in and support for conservation. This interest and support was reflected in both individual decisions (e.g., to buy more energyefficient cars even when gas prices were no longer a prime consumer consideration) and in publicpolicy decisions, such as continued support for the socalled CAFE rules that mandated that Detroit continue to improve the overall gas mileage of the cars it produced. Thus, even when the world economy resumed growth in the early 1980s, oil consumption did not increase in proportion to the growth of output. At the same time, oil production skyrocketed, as the output developed during the oilboom years came on line. The combination of greater nonOPEC output and Saudia Arabia's "dovish" pricing policies reduced OPEC's ability to keep production down and prices up. OPEC was still further weakened because many Third World oil producers had, like Mexico, based their development plans on a flow of oil revenue. When oil prices began to sag, their natural response was not to accept production quotas in order to hol

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