Mexico Approves Oil Sector Reform

Within the past week, the Congress of Mexico has approved new legislation that will allow the country's energy industry to award contracts to private oil companies. As a result of these new reforms, not only will the state-owned oil giant Pemex lose its monopoly over the country's oil sector that it's held since 1938, but foreign oil firms will also be able to enter the lucrative Mexican oil market.

Aside from the economic benefits that coincide with increased competition, several other factors contributed to the need for drafting new legislation for dismantling the monopoly over Mexican oil. Rapidly deteriorating infrastructure, bureaucracy,and corruption had contributed to decreasing production levels from 3.6 million barrels a day in 2004 to 2.5 million barrels today. These reforms are expected to boost production levels back up to their 2004 levels by 2025, as well as attract billions of dollars of investment into the Mexican economy. Pemex will also now face competition from major American oil producers, including BP, Chevron, and Exxon, that until now have only been able to access Mexican oil markets via service contracts with Pemex.

This reform, led by Mexican president Pena Nieto, is the second recent government-led takedown of a major monopoly in the Mexican economy. Last month, congress passed legislation that ended the American Movil's reign as the largest telecommunications company in Latin America. Attempts to open up the Mexican economy to increased international and domestic competition have been ongoing since the 1980s, but President Nieto's success hints that the efforts towards fundamentally changing the monopolistic system in his country are finally gaining momentum.