ly of President Lopez Portillo, would cause much of the oil wealth to be squandered. In the end, Mexico would be left with vast debts, and very little to show for either the borrowed money or the flow of oil. How this unhappy situation came about will be examined in this chapter.
For an oil exporting country, which Mexico had again become in 1974, the late 1970s were heady times. The restoration of Mexican oil self sufficiency and its movement into the exporting category coincided with the "oil shock" of 1973 74, and a fourfold increase in the price of oil. The nearly universal assumption of the times was that the price of oil would continue to increase, and that as a consequence major oil producers would reap a windfall in the tens or hundreds of billions of dollars in the years to come.2
In fact, as the industrialized world sagged into recession in the late 1970s, amid continued high inflation, the real price of oil did not appreciate as expected. The recession drove down demand for oil, while conservation ignored in the days of low oil prices tended to reduce demand further, as less oil was required per unit of economic output. Nevertheless, a boom psychology pervaded the world of oil production. In spite of conservation efforts and the search for alternative energy ________
2George W. Grayson, The Politics of Mexican Oil (Pittsburgh: University of Pittsburgh Press, 1980), 225 28.
sources, oil seemed likely to remain the world's predominant fuel for the indefinite future. Recession would not last forever, and resumed growth would only further increase the demand for oil, faster than new discoveries could increase the supply. In the long run, therefore, a continuing upward movement of real world prices for oil seemed inevitable. Moreover, much of the world's oil reserves were in the volatile Middle East. In 1973 74, the Arab oil producers had shown their muscle. Future supply interrupt...