Mexican Energy Policies in 1938 and 2013 Juxtaposed to the Investment Factor

Aldo J. Viggiano Austria Latinamerikanistitutet Stockholm Universitet Spring semester 2016 Supervisor: Andrés Rivarola

Drilling the Black Blood of Nations: Mexican energy policies in 1938 and 2013 juxtaposed to the investment factor

Key words: Mexico, Energy, Geopolitics, NAFTA, Energy Policies, Mexican Oil, PEMEX, FDI

ABSTRACT

The work briefly summarizes, the analysis emerged by studying two particular moments in Mexican history with regards to its energy policies: with principal focus on the years of oil expropriation in 1938 and the promulgation of the Energy Reform of December of 2013 with the addition of exploring how the seek for Foreign Direct Investment (FDI), appears as a factor of international economics that has influenced these processes. Since Enrique Peña Nieto arrived to power, the energy model of the Mexican Republic have experimented its biggest transformations after seventy-five years of protectionism. This last reform took to an end the monopoly in industry of the national oil company Petróleos Mexicanos (PEMEX). México belongs now to the North American Free Trade Agreement, previously non-existent when in the 30s president Lázaro Cardenas Del Rio elicited support of the population to expropriate the oil and gas industry. The purpose of this study is to analyze how historical driving forces on a geopolitical perspective, can influence the process of policy-making on the Mexican energy sector. Oil has been known as the blood of the political and economic system of Mexico. To this end, the thesis relies on Classical Geopolitics that combines the Realist Theory of International relations to explore the historical driving forces affecting the outcome of energy policies. With the classification of the geopolitical drivers, identified adopting the model of analysis of the international system proposed by Mark E. Williams, it is possible to reveal implications on the undergone changes in policymaking, especially on energy and foreign affairs. This work is the product of the insights on the impacts of the oil industry in energy policy making, and the repercussions this activity has on foreign policy.

TABLE OF CONTENTS

1. INTRODUCTION 5 1.1 PROBLEM AND RESEARCH QUESTIONS 7

2. THEORETICAL FRAMEWORK 9 2.1 GEOPOLITICS 12 2. THE THREE LEVELS MODEL 16 2.3 THE DRIVING FORCES 17 2.4 FROM THE INTERNATIONAL SYSTEM TO THE ENERGY SYSTEM 18 2.5 ENERGY SECURITY 19 2.6 NATIONAL OIL COMPANIES 20 2.7 JUXTAPOSING INTERNATIONAL ECONOMICS: FDI AND TRADE THEORIES 20 2.8 LIMITATIONS 22

3. METHODOLOGY 23 3.1 SIGNIFICANCE OF THE STUDY 23 3.2 LONGITUDINAL QUALITATIVE DESIGN 24 3.3 THE DEPENDENT AND THE INDEPENDENT VARIABLES 25 3.4 ANALYZING HISTORY 26 3.5 EXAMINING THE FOREIGN DIRECT INVESTMENT AS A FACTOR 28 3.6 OPERATIONALIZATION OF THEORIES 28

4._HISTORICAL BACKGROUND 32

5. THE EXPROPRIATION OF 1938 34 5.1 FIRST LEVEL 34 5.2 SECOND LEVEL 37 5.3 THIRD LEVEL 40 5.4 THE FDI FACTOR FOR THE CÁRDENAS REGIME 43

6. THE ENERGY REFORM OF 2013 45 6.1 FIRST LEVEL 45 6.2 SECOND LEVEL 47 6.3 THIRD LEVEL 51 6.4 THE FDI FACTOR FOR THE PEÑA REGIME 55

7. CONCLUSIONS 57 7.1 THE ROLE OF DAVID PENCHYNA GRUB FROM THE SENATE 58 7.1 SIMILARITIES 59 7.2 DIFFERENCES 60 7.3 COMPARISON AND FINAL REFLEXIONS 62

LIST OF REFERENCES 69

List of abbreviations

AMLO – Andrés Manuel López Obrador (Opposition leader head of radical left)

CSIS - Center for International and Strategical Studies

EPN – Enrique Peña Nieto (Constitutional President of Mexico for the mandate 2012-2018)

FeCal – Felipe Calderón Hinojosa (President of Mexico for the mandate 2006-2012)

FDI – Foreign Direct Investment

GDF – Geopolitical Driving Forces

IEA – International Energy Agency

IOs - Intergovernmental Organizations

MNEs – Multinational Enterprises

MORENA – Movement of National Regeneration/Movimiento Regeneración Nacional

NAFTA – North American Free Trade Agreement

NOC – National Oil Companies

OAS – Organization of American States

PEMEX – Mexican Petroleums/Petróleos Mexicanos

PRD – Party of the Democratic Revolution/Partido de la Revolución Democrática

PRI –Institutional Revolutionary Party/ Partido Revolucionario Institucional

ProMéxico – Agency of the Federal Mexican Government in charge of Trade and Investment

R&D - Research and Development

SENER – Secretary of Energy

UN - United Nations

1. INTRODUCTION

This thesis analyzes the geopolitical driving forces that influenced the transformation of Mexican oil policies concerning the energy sector, with focus on the historical shifts of 1938 and 2013. The dynamics of Foreign Direct Investment (FDI) in oil and gas have been substantially modified to allow participation of international oil companies (IOC) to the country; the government now changed the state monopoly of PEMEX for market liberalization. The current President of Mexico, Enrique Peña Nieto (2012 -) made this possible. Since 1938 President Lázaro Cardenas Del Rio (1934-1940) founded PEMEX (Petróleos Mexicanos), creating a National Oil Company (NOC) to control the monopoly of hydrocarbons and expropriated petroleum from 17 foreign companies. During 75 years, the oil and gas sector had been untouchable by any other head of the Mexican state that has attempted to modify these laws. An aim of this thesis is to expose new insights concerning the present situation of Mexican energy policies, now in the context the North American Free Trade Agreement (NAFTA) created in 1994 as a regional integration project, mostly on the international economic realms.

The main legal reference for energy policies is article 27 of the constitution1 of the Mexican Republic (Congressional Research Service, 2015), and it has been recently modified by Enrique Peña Nieto (EPN) who made last new reform reality. The main hypothesis of this study is that there has been influence from geopolitical driving forces regarding Mexico’s policy making historical outcome on the energy sector: In 1938 nationalization as an expression of protectionism and nationalism, then in 2013 the market opening will appear as a strategy for energy security for North America. In spite advancing neo-liberal oriented reforms, Mexican oil policies continue to reinforce the ownership of hydrocarbons to the country. Even when there seems to be a radical change on politics, these ones still have a nationalistic approach on the property of subsoil for Mexicans based on the 27 article of the Mexican constitution. The openness for FDI in the sector is a nationalistic effort to reach modernization of the industry and technological transference. Historically, some geopolitical driving forces on the international system like the hegemonic

1 Until the changes of 2013 the Article 27 of Mexico’s 1917 constitution gave the Mexican government exclusive legal authority to exploit, distribute, and process hydrocarbons in the country and states that the government may not, per the regulatory law, grant private concessions for their exploitation. Now foreign FDI is allowed from transnational companies, this according to Congressianal Research Service of the US.

5 ideology of the country, the specific profile of the president in turn, energy security for North America and oil prices; have influenced policy making in the Mexican Energy Sector.

Mexico experiments the deepest transformation on energy affairs; this motivates the strong interest in constructing a solid study on the implications. To achieve a deep analysis it is necessary to explore the implications that energy policies have over Mexican foreign policy on a geopolitical point of view. According to Mexico’s Secretary of Energy, Pedro Joaquin Coldwell, the Reform, which required amending the constitution: “will put Mexico at the global forefront of energy legislation and encourage new investment to increase energy security, promote renewables and ensure the sound management of resources” (The Journal of the International Energy Agency 2013: 22). This work will highlight the driving forces on 1938 and 2013; these two dates for Mexicans represent the most extreme changes ever on its modern history, on a complex constellation of driving forces shaping the energy policies.

Moving forward, the study aim is to generate knowledge, which outcome at its best, can help the community, to get free “from ignorance, prejudice, and the half-baked ideas” (Booth 2008:11). The most popular ideas about the future of oil in the country, have been easily spread in the public opinion by political discourses like: on one hand, the hegemonic discourse, arguing that modernization of the sector will boost economic development, and on the other hand, the counter- hegemonic discourse, with a radical left political leaders in the country arguing that the actual President, Enrique Peña Nieto, has sold the nation’s natural sources to foreigners. The strongest opposition (Billiers, 2013) to the Reform came from Andrés Manuel López Obrador (AMLO), former presidential candidate from the Partido de la Revolución Democrática (PRD2) whom lost in 2006 against the candidate of Partido Acción Nacional (PAN) and ex-president Felipe Calderón (2006-2012) and then was defeated again in 2012 by EPN. AMLO with the newly formed political movement, Movimiento Regeneración Nacional (MORENA), leads a movement that rejects the opening of the energy sector to foreign investment in which ever form it could take. Furthermore, the strongest majority in congress composed by PRI and PAN militants, both the Lower House and the Senate, made it unlikely for AMLO to succeed. PEMEX as the National Oil Company (NOC) of Mexico is a principal actor in this study for understanding these transformations. The importance of the hydrocarbons industry to Mexico must be understood as Mexicans looking

2 For more official information about the Partido de la Revolution Democrática visit: http://www.prd.org.mx/

6 forward to foster economic growth, which sets this thesis also under the lens of theory of international trade. One of the objectives is to explore how FDI affected this moments using new growth theory to emphasize the role of technological progress as an engine for growth: “the existence of international spillovers from innovating activities gives a new argument in favor of international exchange through trade and foreign direct investment” (Olofsdotter, 1999:1).

The debate about the energy policies of any country will at the end, underline the conditions about the position that a nation has taken in the international system. Another motivation for this thesis is to give tools for the understanding on how energy policies and foreign policies are interconnected, and both can be a powerful “tool to promote the national interest and the development of the country” (Schiavon 2012: 9). This study will be also useful to promote awareness of how this phenomenon deeply affects foreign policies. With the knowledge produced, it is possible to prevent institutions, companies and organizations from failing “to take into account the need for constant analysis of events and the creation of a mosaic that provides a clearer picture of how to respond” (Sikich, 2015) with well informed and deep reflexive decision- making, over the occurrence of events with far reaching impacts.

1.1 Problem and research questions

The core problem on this thesis, which encouraged the research, is motivated by a perceived gap in knowledge that needs to be filled referring the geopolitical driving forces that shaped the energy policymaking in 1938 and 2013. My intention is to clarify the coincidences of this public policies, the similarities and differences must be addressed with academic strictness, giving a solid historical context of how this process has been given in the international system of nations. As explained by John W. Creswell, “a study will develop over time, then other factors will emerge that could influence this one single phenomenon” (2013: 130); so I must begin a study with a single focus to explore what I need to explore in great detail At identifying and examining the driving forces applying a geopolitical perspective, the research aims giving a better understanding of how the construction energy policies were influenced in this two specific moments on history. Research questions in qualitative research tend to be more open-ended “this can lead to the collection of too much data and, when it comes to writing up, to confusion” (Bryman, 2012: 85), however, the intent is to explore a complex set geopolitical driving forces, shaping the central phenomenon (policymaking in 1938 and 2013 on the energy sector). The general constant question can be stated as: which has been the driving forces behind

7 the energy policy shifts on Mexico in 1938 and 2013? How some specific geopolitical driving forces on the international system, influenced policymaking in 1938 and 2013 on the history of the Mexican energy sector? And How the seek for FDI have repercussions in economic growth? I am counscious that the thesis will build up a theorical model that at its best it can be used as a guide to construct other models with the particularity of being useful mostly in the study of cases in the energy of geopolitics between Latin American countries that share similar characteristics; but it is important to say that the attention of the research focus on Mexico.

2. THEORETICAL FRAMEWORK

I will begin my theoretical review by presenting the most revealing literature about oil politics and the history of the energy sector in Mexico, which will help create a well-structured analysis. This part of the thesis should focus on a logically structured representation of the concepts, variables and relationships involved in the cases of 1938 and 2013 analyzed through the selected literature. To advance with clarity, geopolitics must be understood as the method to study of the effects of geography (human and physical) stressing the focus on international relations and foreign policy (Devetak, Burke & George 2012: 492). The theories used to identify and explain the geopolitical driving forces, from a geopolitical perspective in two specific historical moments in Mexican energy policies in this study are ‘Classic Geopolitics’ and ‘Energy Security Theory’, as defined by International Energy Agency (2015). These theories have been used during the study since they both focus on international issues, and deal with the energy system, which is a subsystem of the international system. This dissertation has a geopolitical approach inspired also on the realist theory, particularly the work of Mark E. Williams (2012) that will be detailed further on. To complement the complexity of this text I also examine the effects of foreign direct investment under international trade theory.

One of the most concurrent readings for the topic is the work of George W. Grayson (1980). It was the first text I used to conduct this thesis, as antecedent in the field. In it, he debates and exposes the main events that shaped energy policies since the 1910s to the boom of hydrocarbons in the 1970s. His perspective reveals facts that underline the conditions of this industry, he contributes exposing the way petroleum dominates the domestic economy and how it affects the political arena directly. In his work he highlights, how the property of oil basins has given direction to the attitude of Mexico as a nation towards the international stage and among other nations. PEMEX as an institutional symbol: a successful international company. He explores also the problems the corporation faced and how it provided cheap fuel to Caribbean states, dealing with the influence of U.S.A. and the complot of NOC.

This analysis was further aided by the use of a report of the Center for International and Strategical Studies (CSIS) for its energy and national security program, one of the most valuable sources of literature to construct sharper theoretical framework. With main attention on “the geopolitics of energy” (CSIS: 2010) this text develops a deep analysis of the trends and

9 international landscapes, and gives a fascinating picture of the uncertainty of these times. Also, this work made it easier for me to find the geopolitical driving forces that I look forward to analyze, for ease of understanding, the report grouped and organize these major geopolitical driving forces of energy in five trends: (1) shifting demand dynamics; (2) the changing resource base, supply choices, delivery requirements for petroleum; (3) investment, price volatility, and alternative fuels; (4) key players and evolving rules; and (5) climate change and efforts to impose carbon constraints on a fossil fuel-dependent world. The historical enlisted five driving forces represent what I am going to analyze through the lens of my geopolitical perspective. These elements are grouped in five trends, I will break down these trends to find the key components to analyze, and they will be organized and examined further through the three levels of Mark E. Williams’s work; at the same time I will study these elements, through the lens of classical geopolitics depending on which category they are more related to: geographical location, resources or power. Some of these elements that will constitute part of our driving forces can be found repeated in our diverse categories that resulted from the methodology of this thesis.

The work of Dodds (2015) is used in the thesis to outline the geographical realities of international politics, like early realist writers of International Relations, classical geopolitics recognized that there was no world government to operate as an ultimate force over other nation-states. The concept geopolitics has its origin in what is known as classical geopolitics, also considered the realism branch of the discipline. As in International Relations realist theories, classical geopolitics has a deep and strong focus on location, territory, resources and power, “triangulating this aforementioned relationship was a major preoccupation of early 20th century authors and the notion of the state as organism was highly influential” (Dodds 2015:5). The term geopolitics was used first around 1890; it was a logical expression to the natural anxiety, over the ever-changing political conditions of Europe and economic problems shocking society. This same anxiety factor motivated this thesis and to move forward the generation of knowledge, this way we can have more certainty about the actual situation in Mexico on the international arena; but: “geography, in particular, is considered by writers associated with this corpus of work to be a semi-permanent template for global politics” (Dodds 2015).

Lazlo Palotas and Oscar Vanegas (2013) contributed also with a solid comparative document3. In their work they establish a model of analysis for Latin American NOCs. Palotas and Vanegas don’t analyze on a geopolitical perspective these enterprises, but they formulate a well-structured schema for underlining the main characteristics of the institutions in charge of oil on each country, which provide this thesis with a landscape of some internal elements of national oil companies. The proposed model of analysis made by Palotas will be useful in identifying the different elements of a national oil company (like PEMEX) and it can be applied to two different moments of history. It will signal whether it is a monopoly or competition energy model for an oil company. There are two other specialized institutions in the topic that we will have as a reference: the International Energy Agency and ProMéxico. While the first one analyzes energy policies and matters globally, the second is an agency of the Mexican Government charged with promoting Mexico and its interests abroad. ProMéxico works as a business intelligence agency, reinforced with the nature of being a diplomatic institution, with several publications providing official governmental information4 about the energy reform.

Last but not least, the work of Karin Olofsdotter (1999) provides a solid background to juxtapose the geopolitical examination to the economic motives for the changes in energy policies, briefly making a review international trade theory, specially about international transfer of technology and the importance of multinational enterprises in the stage under trade liberalization. In words of Olofsdotter “technology diffusion from an innovating north and an imitating south” is given, and models have developed about it. Then on this same topic, I explore the work of Atik, Tran and Vieyra (2008), which under sharp notions of our globalized world and its implications for the wealth of nations, in their words:

One of the most important notions of our world is “globalization” which affects the lives of human beings in several ways. It is a concept, which removes boundaries and limits; therefore, involves a global world, and consequently a global economy. Within the global economy, there are flows of goods, capital, technology and other means of production

3 This model of comparing NOC was applied it on Ecopetrol (from Colombia) and Petróleos de Venezuela Sociedad Anónima (PDVSA); the first of this companies accepts Foreign Direct Investment, while the second, belongs to a higly protectionist state and is managed completely by the Government 4 In the website of this governmental entity is posible to find different relevant information about the Energy Reform and its impacto on the trade and investment policies: www.promexico.gob/

among different countries... Foreign Direct Investment (FDI) is one of the mostly used ways of internationalization which plays an important role as an engine of employment, technological development, productivity enhancement, economic intensification, and more importantly, as an instrument of technology transfer especially from developed to developing countries.

To conclude this outline is necessary to say that the particularity of my research is, that in a sense when having an eye on FDI it contributes not only giving a new geopolitical perspective on two historical moments of Mexico. Specialized in the field study of energy with a geopolitical perspective, and taking in consideration regional elements. This is the goal, to innovate on generating knowledge to avoid prejudice with the creation of a thesis of high academic standards.

The following section will expose which theories I will on a logically structured representation of our concepts, variables and the established relation between these elements. It will rely on lines of enquiry under the umbrella of the complexity of historical comparisons that will be discussed in detail. Kerlinger stated that theory should work as “a set of interrelated constructs, definitions, and propositions that presents a systematic view of phenomena by specifying relations among variables, with the purpose of explaining and predicting phenomenon” (Anfara and Mertz 2006:14) so is in this similar fashion that this thesis will be developed.

2.1 Geopolitics

The term Geopolitics has been credited to the Swedish geographer Rudolf Kjellen (in 1899), and it showed the need to have a new appreciation of the important changing realities of global politics to nations (Dodds, 2015:3). This same way it is important to underline these changing realities nowadays, concerning the oil politics of México in the American continent.

Dodds (2015:4) explains how there were discourses surrounding relative efficiency that co-existed with interest in a so-called closed space world where the imperial powers were operating without problems with fewer territories to conquer, let alone exploit and manage. It can be perceived that was done over México’s oil and gas industry before 1938. This realist approach underlines the importance of recognizing communications and transportation as one of the main factors of analysis in geopolitics, because the trains alongside the telegraph and later the wireless and the airplane “all played their part in transforming traveling times and perceptions of distance and

12 proximity” (ibid). It became clear with time that geopolitics offered not only a panoramic view of global politics but also a rich spot of understanding the nation-state and the balance of placing “appropriate weight on the relationship between territory, power and resources” (Dodds 2015:5). Nations like Germany, the United States and Italy just to name but a few, sought to secure their comparative advantage over other regions. Classical geopolitical thought was, somehow, a manifestation of Social Darwinism, and “writers such as Friedrich Ratzel, Professor of Geography at the University of Leipzig, were instrumental in promoting it” (ibid: 5). These concepts that have been mentioned before: “territory, power and resources” will be the central aspects of analysis for the geopolitical perspective this thesis embraces. As explained by Dodds (2015:ibid.) based on this Darwinist aspects, Ratzel promoted that the most successful governments (as state-nations), were those with people who were best adapted to their particular habitat, but also a spatial context of international politics is essential to consider. There is an engagement of the states in a never- ending struggle with their existence, and their living space; this way of unrelenting competition about space and resources had to be deeply appreciated. The size of the territory of any state is not necessarily a direct indicator of long-term success: “the challenge facing a new generation of political leaders was to reach out beyond the existing limits of the state” (Dodds 2015:6), under this realistic perspective a country with ambition is more likely to succeed in the world. Ratzel used to emphasize at the same time, this other three elements of analysis, which can be explored (Paredes, 2014: 36) in geopolitics: the geographic conditions, identity of the population and technological development. These last elements represent important geopolitical driving forces.

From a geopolitical perspective Mexico must be thought of as an organism in evolution that struggles on an international environment, where other organisms (nations) with ambition are looking forward to expand its outlands resources portfolio, specially developed countries over the under-developed ones. There are several ways to take advantage of another country. A good example of this, is what is known as “cultural imperialism”, it explains how governments since the sixteenth century, have developed strategies to expand their empires by exporting their culture, when imposing it abroad works as an effective tool to strengthen trade, commerce, as much as winning “political influence and advancing on the recruit intellectual elites for their own purposes”5. The hegemony of US media products on Mexican open television is evident. It has

5 Cultural imperialism is mentioned here with the only intention of giving examples of how a country can have influence an control over others without even steping in the territory.

13 been stated by the Encyclopedia of American Foreign Relations, on the text called “Cultural Imperialism”, that between 1900 and 1930, technological imperialism was the big attempt on the part of governmental officials, to use scientific learning to their advantage, forming an international network of communication and prestige abroad. My intention when using cultural imperialism as an example is to illustrate how one government can impose influence, over another government’s territory without trespassing on foreign lands. It is nothing new to say that Washington policymakers didn’t hesitate to sacrifice economic and ideological objectives, so they could reach geopolitical interests. This text will analyze later on how US congressional studies provided to legislators in D.C. about the interest and opportunities from the Mexican Energy Reform of 2013. So we can say states would need to operate on this ruthless world stage with countries struggling for sources and survival. I will remark what has been said by Dodds: “geopolitics, offered not only a panoramic view of global politics but also an understanding of the nation-state, which placed appropriate weight on the relationship between territory, power and resources” (Dodds 2015:5).

Dodds (2015:24) also highlights the term anti-geopolitics, the interest in resistance entities and counter-hegemonic movements continues to expand even to this day. It is helpful to avoid having simplistic explanations of how people (audiences) can accept the prevalence of hegemonic ideology dominance. The natural environment (Ibid: 8) is central and the strongest influence on statecraft and international politics, by consequence affecting the policy-making process.

Contemporary writers on International Relations include John Herz who wrote, “the key variable was human nature itself in determining political behavior” (Dodds 2015:8), at this level is where we can, on an analogue way, analyze the state leader’s profile as referred to by Mark E. Williams. I need to clarify that the ambitious process of expansion that a state wants, and not imply conquest per se, as we might think. Oil and gas is part of the catalogue of the resources portfolio of nations according to classical geopolitics. From the mentioned points above, I will be taking several elements as geopolitical driving forces for the study, which will be detailed and explained further in the conceptualization, before moving to the methodology. Now it has been possible to identify two main general concepts to work with geopolitics that relates power to “geographical space” (Østeru, 2004). Geopolitics in the Americas has also had a road of development: “In Latin America… since the 1920s and 1930s, geopolitical ideas and representations had been incorporated into public education programs and military academies” (Dodds 2015:11), especially

14 under military regimes, the main emphasis was on the physical security of the state. This was naturally a major issue because states, such as Argentina, Brazil, Chile and Mexico, since its independence in the early 19th century, were born with territorial and boundary related tensions. According to Dodds (2015:13): “Geopolitics might have been shunned in European and North American universities and academies but this was not the case in cities such as Buenos Aires, Santiago de Chile and Montevideo”, as the Cardenismo in Mexico flourished as a patriotic approach in Geopolitics. The Mexican Republic, now on a NAFTA context, has no problems of boundaries but a close dependency with the U.S.A I must add.

The main three axes of how our geopolitical driving forces will be examined are identified in the next categories, under which the dissertation is developed based on Classical Geopolitics theory:

1. Geographical space (location and territory): On a geopolitical perspective, the principal requirement for the survival of a nation, is to guarantee a “living space (Lebensraum) and a series of allies who were equally vigilant with regard to territory and resources” (Dodds 2015: 6). The USA, as the main power in the western hemisphere, has incorporated Mexico and Canada -the NAFTA members - as partners and allies. Even though Mexico has always refused to lend troops to Washington. It is important to mention the territory as a main concept to have in mind, even though this element in the analysis won’t be discussed deeply, because there is no territorial dispute in North America with Mexico. At the same time, the geopolitical examination will be focus mainly in the relation of the United States of Mexico (USM) and the USA as neighbors, taking the influence of Canada in the NAFTA region as a secondary element of study. 2. Power: as defined by Dahl (1957) it is a relation between people, expressed in simple symbolic ways, understood as influence on the interaction between nations: from this definition is developed a statement of “power comparability, or the relative degree of power held by two or more persons. 3. Resources: As our concern is on the energy sector, the research will borrow the conceptualization made by the US Department of Energy (2015) on “energy sources”: the sources can take many forms, including nuclear energy, fossil energy, like oil, coal and natural gas and renewable sources like wind, solar and hydropower. These primary sources can be converted to electricity, a secondary energy source, which flows through power lines and other transmission infrastructure to your home and business.

2. The three levels model

The reader will naturally question which driving forces this study is taking in consideration, mainly because it is not possible to analyze all of the driving forces involved in these moments of Mexican history. Hence, I start unfolding these specific factors that the thesis intents to study, and that will be loosely based on the model proposed by Mark E. Williams, in which he stated “scholars use these levels of analysis to understand policy output, and the factors that motivate state’s behavior” (2012: 48-54). This schema is constituted in three main levels, representing one way to gain more leverage on states’ behavior and the international dynamics, by employing a different set of analytic tools:

First level points to the individuals (actors who might affect the outcome of polity output): actions of specific individuals, skills and weaknesses, personality traits and beliefs or ambitions. In this case we will analyze the state leaders of each moment, whose can also be influenced by others. The individual itself can be a driving force according to this model. It is important to have in mind that individual does not act in a vacuum, and major events have multiple causes.

Second level is that of the domestic setting, states have distinct characteristics that can influence their policy choice and policy outcomes. The factors to take in consideration are: political regime (if democratic factors like public opinion and domestic pressure groups should be studied), economic system (groups and economic sectors), and size of the economy and characteristics of it, ideology, and “isms”. Understanding the fundamental characteristics of a nation can shed light on the forces that shape a state’s perception of its interests and help drive foreign policy.

Third level is constituted by the international system; it explains the outcomes by way of its external setting i.e. how the incentives and constraints generated by the international system might affect the behavior of an individual state or different states. Factors can be: self-help motivation, constrains in the balance of power. Hence we should assume that these levels do not carry the same weight in such complexity within a systemic structure.

2.3 The driving forces

In order to give logical examination to the procedures of the thesis on a theoretical framework it becomes necessary to find an appropriated conceptualization on what we will understand as a “driving force”. The study will rely on the statement made by the prestigious Norwegian philosopher on history Halvdan Koht (1959), to conceptualize and define the broad term:

“Anyone who works with history will often find himself pondering on the causes of the events he encounters there. In my long life I have strayed into many areas of historical activity. So it is only natural that more than thirty years ago I began to make plans for fitting all my special re- searches into a wider perspective. In so doing I have remained on purely historical ground. By this I mean that I reason about history on the basis of facts”.

The factors affecting the international system that we seek to understand are the ones, which can be considered “the causes of the events”, through the lens of history on a geopolitical perspective. By event, the thesis refers to the concrete Energy Policies approved in 1938 and 2013. In the business world, among transnationals, a market perspective of driving forces can be perceived, obeying to the same basic elements of the one exposed before: “key internal forces (such as knowledge and competence of management and workforce) and external forces (such as economy, competitors, technology) that shape the future of an organization” (Business Dictionary: 2015).

Departing from the analysis of trends on the report from the Center for International and Strategical Studies6 recreated for its energy and national security program, it is possible to find diverse driving forces, which had heavily impacted the outcome of the energy policies of Mexico. I could say that the design of the new reform has been shaped by these realities as much as the expropriation. The report was a two-year effort built to examine significant geopolitical driving forces to identify trends that could affect global energy security, as well as supply and demand on the other side. According to this report (CSIS, 2010), the geopolitical driving forces on the geopolitics of energy can be: shifting demand dynamics, the changing resource base, supply

6 CSIS describes The Geopolitics of Energy Series as designed to provide a high-level overview of the relevant drivers that will dictate future trends in energy consumption, supply sources, geopolitical relationships, foreign policy, and environmental choices.

17 choices, delivery requirements for petroleum, investment, price volatility, alternative fuels influence, key players, evolving rules and climate change and efforts to impose carbon constraints on a fossil fuel-dependent world. These are the variables which will be studied under the focus of the main concepts for analysis of classical geopolitics: geographical location (territory and location), resources and power; and at the same time these will also be examined under the three levels model of Williams (2012). Nevertheless, not all of these driving forces obtained from the five trends proposed by CSIS (2010) will apply to the analysis of both historical moments. I will select only the driving forces of transcendence for the purposes of the thesis on the Mexican case.

The methodology will consider the variables that represent the driving forces that intend to identify and analyze for the purposes of my work. Not all of these categories will apply to both moments of history equally; to give an example I can mention that the concerns about climate change were not as strong in 1938 as they were in 2013. But this now sets out the lines of enquiry that this thesis will follow through the entire analysis and development of my work, even though we will add a major situation when adding the table showing the NAFTA influence in the last reform of 2013 in Mexico.

2.4 From the international system to the energy system

According to Mark E. Williams (2012: Pp. 45-46) international politics often stress the importance of the “international system”, this term refers to the “overall patterns of behavior among sovereign states”, and he gives some analogies to make it clear:

Just as the planets in our solar system rotate on their axes in predictable rhythms and orbit in predictable patterns, so states can display predictable patters vis-á-vis each other that are characteristic of a system. Systems transcend their individual parts and produce outcomes that reflect the contribution of individual units… systems can also influence their individual parts… despite its leaders’ intentions, despite its geography and the oceans that kept it isolated, the United States soon discovered that it was not an isolated entity at all, but rather, was part of a larger international system… A major factor behind this development was the US inclusion within a larger system of sovereign states, where states competed, strove to survive, and were compelled to look out for themselves.

Energy system must be understood as a “subsystem of the international system, a link to industrial

18 progress, economic development and as a strategic element of power and relationships among the international system” (Liendo & González 2012). One of the best and most stable definitions I found comes from ‘The Great Soviet Encyclopedia’ (1979), in which the energy system is considered to be the aggregate of energy sources of all possible kinds, as well as the methods for obtaining, converting, distributing, and using them, including the equipment systems and organizational complexes that supply all forms of energy to the consumer. At the same time energy systems can have a “hierarchical structure, with different levels for the entire nation, the region, the large industrial, transportation, or agricultural center, and private enterprises” (The Great Soviet Encyclopedia, 1979). The total complex of fuel and energy is important to a national economy principally because it largely determines a country’s basic economic proportions: 30 percent of all the capital investment in developed countries is absorbed by the energy sector and it accounts for about 20 percent of the labor force. Efficient energy technology is associated with the development and evolution of energy systems.

2.5 Energy security

As a subset of national security it helps identify areas of vulnerability in the physical infrastructure that carry energy from place to place, in this sense some of these vulnerabilities can have national and international implications for a country’s energy security, such as: “a particular section of transcontinental oil pipeline that if it was to fail would seriously weaken the energy security and ultimately national security of the country (or set of countries) reliant on it” (Flaherty & Leal Filho). At its basic level energy security deals with the protection of the uninterrupted supply of fuels. The concept will be understood as proposed by the Energy Agency (EA), institution that defines energy security as “the uninterrupted availability of energy sources at an affordable price”. The definition of national security, and its relationship to concepts such as “energy security”, according to the US Department of Defense’s Dictionary of Military and Associated Terms defines it as a “collective term encompassing both national defense and foreign relations” (Flaherty & Leal Filho 2013). It won’t be hard while reading this document, to identify how foreign policy has a strong relation with foreign policies. One of its main goals according to the US Department also is to foster the economic well-being and secure the access to cheap energy as essential to modern economies, as explained in the following extract:

“But regardless of the definition one is inclined to use, energy security tends to be assessed along price and supply measures. This can be detailed, examining a “multipolar axis of

physical, price, and geopolitical security.” Typically, the concept of energy security entails understanding the risks inherent in the use of fossil fuels, particularly oil for transport and gas for electricity generation and heating. Each of these elements entails specific risks and potentials. Energy consumption worldwide has steadily increased over the past three decades and has presently reached substantial levels… This state of affairs means that energy issues not only are central to economic development but have also evolved to be matters of national security” (Flaherty & Leal Filho 2013).

2.6 National oil companies

The history of the rise of the oil industry has been characterized by the institutionalization of National Oil Companies (NOCs) in different parts of the world by governmental policies. These structured companies have adopted different approaches to the market opening (Palotas 2013: 114), from protectionism (1938) to openness (2013) in the case of Mexico since the rise of PEMEX. NOCs are big part of the policy outcome themselves on the world energy system, affected by the driving forces.

Lazlo Palotas’s (2013) model serves to identify and examine the different elements of national oil companies (like PEMEX); which occurred in two different moments of history. These occurrences determine how the geopolitical factors affected the outcome of policies that shape PEMEX. Palotas (2013) proposed a clear method to analyze the structure and characteristics of an NOC, this model is based on the observance of basic concepts that shape the constitution of this institutions. For the purpose of this work I will analyze PEMEX, as National Oil Company (NOC), in these two different moments, taking into consideration: (1) Their oil exploration regimes with focus on the its nature of competition or monopoly and (2) the state governance for each one with main focus on points such a, corporate government, regulator, industrial relations and oil regime. These above-mentioned elements will also be categorized according to our classical geopolitical perspective and under the model of Williams.

2.7 Juxtaposing international economics: FDI and trade theories

Technology diffusion across countries is one of the benefits of trade liberalization, this “affect trade patterns and affect welfare” (Olofsdotter, 1999: 3), it has been said that relatively backward nations have the possibility of increasing their growth rates by adopting technological advances

20 from more innovating nations, depending on its social capabilities. This last concept of social capabilities embraces the concepts of “the role of well-functioning institutions and the level of human capital” (Ibid), a positive relationship between trade liberalization and income convergence is expected. Another point to remark is that the technological spillovers reduce unnecessary duplication of research efforts, this technology transfers occur mainly through other channel than is not trade, but foreign direct investment by multinational enterprises (MNEs). The MNEs are the entities that conduct a major share of the world’s Research and Development (R&D).

According to Olofsdotter (1999) an assumption is that an enterprise needs good reasons to locate production plants in another country, like reducing production or transaction costs, then this author states that the main finding is that: “FDI seems to contribute to higher productivity growth in host industries, at least conditionally. For example, certain characteristics like openness to trade and the level of human capital appear to have a bearing on how Foreign Direct investment affects technology transfers to host economies” (1999: 4). The inward of FDI in developing countries, like in this case Mexico enriches the explanation of how the geopolitical forces can shape the phenomena in a different perspective.

FDI became one “important factor in the economic growth and a new instrument for the integration of countries into the global economy” (Atik, Tran & Vieyra, 2008); that is the reason why attracting and managing FDI has become a main strategy for developing to foster their prosperity. However, several investment firms will continue to face difficulties attempting to “integrate into the markets of developing countries and thus will remain unable to make the right type of investment because of obstacles such as national investment policies, investment rulemaking and cultural aspects” (Ibid, 2008). It is possible to see across modern history of nations, that the principal outflow of FDI comes from developed countries, due to their competitive advantage between nations. These theoretical arguments are the main root to unfold the dynamics of how the investment factor had impact on the changes of energy policies; still I will remark the difference in how it has a less important weight in 1938 than in 2013.

On my own perspective it is important to take in consideration the NAFTA as an integration project, nevertheless, as explained by Olofsdotter (1999) about a Free Trade Area as the above- mentioned that includes Mexico, USA and Canada “the welfare effect for member countries are, in this case, ambiguous since they partly depend on the location of industry within the preferential

21 trading arrangements (PTA)”. These countries do not share common external trade barriers, on imports from the rest of the world. To put it on my own words, economies of scale will make production more efficient, because the number of goods being produced increases, because the fix cost is needed is spread out in the total number of goods. In this sense the simple monopolistic model (as PEMEX) is less competitive than having several companies in the same oil and gas sector, this way the cost of the costs are dictated by the industry and not just for one company. The costs will tend to be cheaper with the openness of the current Mexican regulation for oil and it will give access to larger markets to this product.

2.8 Limitations

As stated by Booth (2008:31) data is inert “however, until you use them to support a claim that answers your research question. At that point, your data become evidence. If you don’t have more data than you can use as evidence, you haven’t collected enough” This thesis departs from the interest and investigation of the deep implications that geopolitical factors influence over policymaking, especially over the Mexican policies on oil. Several sources concerning these subjects had been intensely analyzed. For this research we did not take into consideration all of the factors, instead we focused on the geopolitical drivers that can affect policy making using Mark E. Williams’ (2012) model to analyze phenomena in the international system, on one side, and on the other this work includes specific concepts of the realm of energy and geopolitics, like energy weapon and energy security, It emphasizes the appearance of a new driving force as the appearance of regionalist projects such as NAFTA. The most common limitation of my sources is that none of them have a special and unique focus on geopolitical driving forces on historical comparison, this will be my particular contribution: the clash of disciplines. After all, as explained before my analysis I will consider these three elements of study on each level geographical location, resources and power, but the complex correlation can make the examination jump back and forth from one element to another in each moment of study. Another limitation for the study is that in 1938 there was not an institution like ProMéxico that specialized in promoting trade and investment between Mexico and the globalized world, which in fact is an agency that helps provide information about FDI strategies of the United States of Mexico. There was not also in the first moment and International Energy Agency or the Organisation for Economic Co-operation and Development (OECD) fostering internationally energy security.

3. METHODOLOGY

To be more specific on how I am going to proceed to study my sources, I must say that due to the historical character of the research, it relies mostly on the examination, comparison and analysis of secondary sources. Books and articles will be utilized with details of the list of sources consulted included in the final part of the thesis. Secondary sources like journals, specialized magazines and specialized websites will prevail; nevertheless, I will also use official governmental publications, which have been obtained directly from Mexican authorities such as ProMéxico; and I will quote statements from governmental figures that I will source from interviews made by other researchers of specialized publications.

3.1 Significance of the study

On a “globalized and interdependent world, the international events acquire each time a major impact in the national level” (Schiavon 2012: 9). This volume seeks to offer decision-makers in the area of energy and foreign policies, a particular angle, elaborated with academic rigor, on the events that have shaped the present situation of México on the international system. Using as main perspectives a geopolitical historical view, that needs to be more developed in the Mexican Republic, in order to produce knowledge for a wider vision on the construction of geostrategy7. The personal meaning to me as author of this work comes from my leitmotiv to understand the complex constellation of events that shape policy making, and overall to analyze the direction in which the Mexican government is leading my home country. This will leave to other researchers the opportunity to explore alternative methods to the traditional ones, and it may develop better theoretical models in the area of energy and geopolitics. According to Schiavon and Flores (2012:10) geopolitical analysis is one of the central components identified to construct a strong project of nation and “must have a strategic long-term vision and, in the measure of possible, formulate taking in consideration the interests, preferences and perceptions of Mexicans”.

This work will contribute to developed knowledge under a regional North American context concerning energy geopolitics, acknowledging that Mexico is a Latin American country, and this

7 To know more about Geoestrategy go to “The Four Drivers of Geostrategy” published by the intelligence analysts: Philippe Silberzahn and Milo Jones.

23 fact needs to be remarked on global literature. Geopolitical affairs are related to the interaction of the international system and behavior of different state and non-state actors regarding oil policies. The fields of energy and geopolitics deal with the issue of driving forces on behavioral interactions both at an international level and a domestic level. Increasingly social scientists are turning to geopolitical analysis as a framework in which to interpret human society and to understand possible causes of policy-making. That is the reason why this thesis will be designed to identify and examine significant geopolitical shifts that have affected and will continue to influence the future global energy policies. The work is undertaken on the premise that emerging changes are occurring in both markets and international realignments, consequently pushing policymakers to make deep analysis with respect to energy, foreign and national security policy.

3.2 Longitudinal qualitative design

The first step in developing the research design is to stress that the particularity and strength of longitudinal research in principle for giving answers to some questions that cannot be addressed with precision by other types of data collection designs and models of analyses. This kind of research according to Menard (2002: 2) is touted “as a panacea for establishing temporal order, measuring change, and making stronger causal interpretations”. But a longitudinal data collection is not a vaccine if the dissertation is constructed on a weak research design and data analysis. The term longitudinal describes a family of methods “best understood by contrasting longitudinal research with cross-sectional research” (Ibid). It will depend on each study: a period may be defined in terms of seconds, to years, or even geological epochs, this as well said by Menard, and then he adds “in the social and behavioral sciences, periods typically vary from minutes in some laboratory experiments to decades in some cross-national research” (Ibid).

According to Menard (2002) the characteristics of our research design correspond to the next description: when data is collected for each item or variable for two or more distinct time periods, then the cases analyzed from one period to the next and finally, the analysis involves clear and deep comparison of data between these periods; it can be said that “at a bare minimum, any truly longitudinal design would permit the measurement of differences or change in a variable from one period to another” (Menard, 2002). This author also signals that the methodology that best applies to collecting and analyzing the data which will be collected at two distinct periods, on the same set of cases and variables in each period, is the “prospective panel design” (Menard 2002: 2).

3.3 The dependent and the independent variables

The dependent variable is “held to be causally affected by an independent variable” (Bryman & Liao 2004: 4). In non-experimental research, variables are not manipulated, so it can appear unclear which of the various variables in the study are to be regarded as dependent variables. My independent variables were selected based on the theories that were chosen. I proceed to list the particular geopolitical driving forces that I will identify for the purpose of this thesis:

1. The president as an element of power (it is itself an essential actor of influence). 2. Population as an element of the territory (identity and ideology) 3. Ruling elites and opposition 4. Delivery requirements for petroleum 5. Technological development 6. The changing resource base 7. Shifting demand dynamics and supply choices 8. Energy security and the quest for energy security 9. Key players: The USA’s influence as a superpower 10. Investment attraction and price volatility 11. Search for country leadership and innovation (nation position on the international system) and evolving rules 12. Alternative fuels influence 13. Climate change and efforts to impose carbon constraints on a fossil fuel-dependent world

The dependent variable for this thesis is “the outcome of Mexican oil policies”, because they are affected by the “geopolitical driving forces on each moment of history”, which will be understood as the independent variable for this work. As expressed by Bryman, “Judging from analyses like this, it appears that the term ‘dependent variable’, can be quite arbitrary; what matters is clear thinking and careful analysis in nonexperimental research”. The independent variables, which are the driving forces will be identified and analyzed to explain the studied phenomenon. The dependent variable is different for 1938 and 2013, in the first instance it corresponds to the protectionist measure of creating a monopoly of hydrocarbons by PEMEX, and in the second instance the Energy Reform 2013 which established the end of that monopoly through opening the sector to competition and thus allowing FDI of IOC in the country. The common ground that is the core of my dependent variables is Article 27 of the constitution of the Mexican Republic, which is different for each of the years of interest for this study.

3.4 Analyzing history

This analysis claims to construct a clear and solid description concerning the chosen applied approach as a methodology, with a brief explanation before about the main characteristics of the research units, this in order to have an accurate profile of each. When analyzing the two specific moments in the history of the energy policies of Mexico, there are a variety of different approaches for comparing historical examples. Based on the readings of Tilly (1980:174) on comparative history, the appeal comes from the great advantages that looking to historical trajectories can bring up “in order to study social change”.

As Hobsbawm (1997:7) stated, we need to approach historical research with great caution because it is “essential to the politics of identity by which groups of people today, defining themselves by ethnicity, religion or the past or present borders of states, try to find some certainty in an uncertain and shaking world”. The ethics of this analysis claim to be as clear as possible and to look for quality argumentation and evidence in order to offer valuable material that can be trusted. According to Hobsbawm (1997), the useful applications of these methods of comparison can be applied to such macro-social topics as: union movement uprisings, emergence of revolutions, the art of all ages, religious evolutions, progress of trade and commerce, public policies, political and economic development, wars, nationalization of oil, and the rise and fall of empires, just to mention a few of the possibilities. This method will give us the chance of analyzing 1938 and 2013 broadly in a diversity of driving forces.

Comparative history, according to Tilly (1980), is trying to describe processes. Scholars must choose one particular slice of something, and then divide the events in order to find the patterns within the main event. It is important to underline that each approach has its own “requisites of case selection, its own patterns of presentation of arguments, and-perhaps most important-its own strengths and limitations as a tool of research” (Skocpol & Somers 1980:175). This way it is possible to give a logical and accurate description concerning different cases, especially when it will be used for the cumulative analysis of a comparison between entities of study. Mills (2008) argues that utility of comparative research can be applied to almost all types of qualitative research projects. The main focus is always the evaluation of the similarities, differences, and associations between moments.

It is important to remark that entities can be “based on many lines such as statements from an

26 interview or individual, symbols, case studies, social groups, geographical or political configurations” comparisons, and of course, also moments in history (Mills 2008: 101). Hence, it will result in a powerful and useful tool to develop the project strong enough to generate valuable outcome that can even be taken in consideration for decision making of any government, company, student or any other curious just read this text. I attempt to be clear about the convenience of the comparative history research method, it must be added that it is used within qualitative approaches, such as comparisons by categories in “ethnographic studies, within-case comparisons in phenomenology, case study comparisons, comparative politics, and examination of contrasts in narrative and discourse analysis” (Mills 2008: 101), also it can work for comparing moments in history.

The method to be applied is historical approach, which is valuable for analyzing (comparing) two moments with a clear intention to observe, find and reveal the existent similarities and differences (variations) between them. Historical comparison with a geopolitical perspective is the main road this work will be carried on. However, as with any other research, it is impossible to take account of or control for all and every single variable, “therefore, what works or has certain effects in one context, group, or place, may not have the same effect or impact in another” (Crawford 2009: 38), but there is also always the great possibility that it can work the same or even have a bigger impact. While not a simple method, it is a large, complex and detailed process which dares to find the right variants to analyze, finding the two entities to compare and setting the limits of the analysis to Mexico in two different specified times.

Melinda C. Mills (2008) also details in his work that the examination of similarity will commonly lead to the application of a more general theory, and then to a search for universals or underlying general processes found across different contexts or categories. It needs to be clear that the specific ontology of patterns or categories needs is also assumed to be as universal, as independent of time and space. In this thesis the aim is to be clear enough at specifying the distinctions of the categorization of driving forces, this way, the sense of comparison will be broad enough so it can be possible for researchers to compare higher levels of abstraction, even though we know how it could be difficult to determine these general patterns. That’s how comparisons not only will uncover differences between social entities but will also reveal unique aspects of a particular entity that would be almost impossible to detect otherwise, by comparison techniques either we establish regularities, categorizations or links to understand the phenomena within the context it is

27 experienced. The main difference that I am going to reveal is the monopoly of hydrocarbons established in 1938 by PEMEX with the unique characteristic of a really popular president as Cárdenas; and then the end of the monopoly to open the sector for FDI in 2013 with EPN as the most unpopular president in Mexican history.

3.5 Examining the foreign direct investment as a factor

As explained by Olofsdotter (1999) “recent literature on trade liberalization and regional integration focuses on welfare effects in an imperfect competition setting”, in other words, stressing the production of differentiated products and large intra-industry volumes considered for international politics. However trade liberalization must considered that the finding of industrial location is ruled by economic geography because the “existence of positive trade costs gives an incentive to produce” (Ibid, 1999) and as a result it will be possible to find lower prices.

Mexico as an extensive market consumer of oil products represents an opportunity to firms and this must be and this characteristic must also be taken in consideration for the analysis of each case situation. Another characteristic that must be added for analysis of the FDI as a factor is how as investment and “trade barriers are further reduced… the country will eventually start to attract industry thanks to lower factor prices” (Ibid).

The method which will be the path I as a researcher will choose to analyze FDI influence in the cases appeals to be simple and clear, at reducing theory to the elemental concepts of study I will contrast the empirical information of each case to the theoretical background in a dynamic of comparison. Even when this matter of international economics can fit in the model of analysis of Mark E. Williams, I choose to analyze it on another dimension out of it, due to the importance of that discourse of the Government of Mexico has given to the issue.

3.6 Operationalization of theories

In the long quest for theory to construct a solid framework, a clear objective of finding useful information that can answer the research questions, was set. Several theories were reviewed and selected during the process, different authors and schools of thinking were studied to define the direction of this dissertation. The cardinal theories that helped give structure to the methodology

28 are classical geopolitics, which will be crossed with a touch of the realism of Mark E. Williams that is closer to international relations. Basic elements will be broken down into essential categories that will be analyzed under the lens of comparative history. Concepts belonging to the geopolitics of energy realms are going to be taken from the report of the Center for International and Strategical Studies (CSIS: 2010) for its energy and national security program. These elements will be framed into the categories resulting from the clash of the Mark E. Williams model and the three basic concepts to understand classical geopolitics: geographical space, sources and power; the main elements will be adopted as the driving forces.

To make it clear, these theories will be employed to give an explanation to the empirical data. One analytical model like the one below must be applied in both moments: 1938 and later to 2013. The intersection of the first level of analysis and the geopolitical elements geographical location (location and territory) and sources won’t be examined, mainly because at this level I will focus on the president and some political actors as figures of power.

Figure 1. The geopolitical historical driving GEOPOLITICAL DRIVING FORCES IN 1938 forces for 1938

Location and territory Sources Power

International 1ST LEVEL System and levels of 2ND LEVEL Analysis

3RD LEVEL

Figure 2. The geopolitical historical driving GEOPOLITICAL DRIVING FORCES IN 2013 forces for 2013

Location and territory Sources Power

International 1ST LEVEL System and levels of 2ND LEVEL Analysis

3RD LEVEL

After we finally have identified our problem of study then it is time to build up a methodology that can have the purpose of identifying what can be explored, measured or described under examination. It is clear that “no matter how carefully you plan, research follows a crooked path, taking unexpected turns, sometimes up blind alleys, even looping back on itself” (Booth 2008:4- 5). The efforts of this work will focus on finding enough evidence, to clarify some economic implications of oil politics, understanding petroleum regimes is “one of the absolutely first things a geologist, engineer, landman, lawyer, or economist encounters in the international sector is the diversity of fiscal systems” concerning oil politics (Johnston 1994: 1), this way we must say that a detailed explanation of this factors will help create a solid research of the topic for 1938 (Figure 1) and 2013 (Figure 2). Next, I expose the same table that I will use for my analysis but exposing the geopolitical driving forces that this work wants to identify and analyze for both moments on history (Figure 3).

It is important to remember that some of these variables might not apply to both 1938 and 2013; at the same time the analysis will find more elements of analysis in the 3rd level than in the 1st as is possible to see in the tables (figures 1, 2 and 3). The way I will develop the analysis of these two different moments on Mexican history will focus on giving the clearest exposition of ideas, reinforcing the goal of having a well logically structure narrative of the data collected.

The chart will serve as a guide, but the presentation of the ideas will unfold in a natural friendly way for the reader, not as in the chart but on academic prose, taking care with the coherence of the text and reviewing the variables mentioned.

Figure 3. The geopolitical historical GEOPOLITICAL DRIVING FORCES driving forces for the Mexican case

Location and Sources Power territory

1ST LEVEL -The president

- Key players and influence of International secretaries System 2ND LEVEL -Population’s - Shifting demand -The congress and levels of ideology and identity dynamics Analysis - Key players and evolving rules -Technologic - The changing development resource base -Ruling elites and opposition

- Alternative fuels

-Technological development

3RD LEVEL - Delivery -Shifting demand - Key players and evolving rules requirements for dynamics petroleum - Energy security: USA influence -The changing as a superpower - NAFTA integration resource base -Climate change and efforts to -The role of Mexico -Supply choices impose carbon constraints on a towards Latin fossil fuel-dependent world America -Price volatility - Seek for country leadership, - Mexico as producing -Alternative fuels sovereignty and/or innovation oil country in the (nation position on the international system -Investment attraction international system)

4. HISTORICAL BACKGROUND

The history of oil in Mexico is extensive so in this section I will contextualize by starting at the beginning of the 20th century when American tycoons invested millions of dollars to explore Mexican soil with successful discoveries. Companies from the US invested heavily in the construction of pipelines, roads and pumping stations just to mention a few infrastructure matters. The biggest actor of this industry was Edward L. Doheny who became the richest and most powerful oil magnate after John D. Rockefeller at the beginning of 1900. According to Greyson (1980) another man who played a vital role in this game is a Yorkshire man named Weetman Pearson who supposedly made more profits in Mexico than anyone else both during and since Spanish conquest. The Petroleum Law of 1909 reaffirmed the subsoil right to foreign companies and was the basis of the country’s later resistance to expropriation in 1938. Mexican oil production was so abundant that it could move the Kaiser’s Kriegsflotte, and there were 160 American (U.S.) and European firms settled on Mexican soil because of the new found wealth. This was the Golden Age of Mexican Oil. Production rose from 10,000 barrels in 1901 to 193.4 million in 1921. In 1922, operating companies began questioning their status fearing that under President Alvaro Obregón (1920-1924), the new government would collect taxes from them and sympathize with worker demands. After that the rapid rate of drilling increased two and a half times between 1921 and 1926. (Greyson 1980:3-12). It is important to understand trends and to have a solid historical context, especially before 1980 where one of its big conclusions is how this natural source gave some power on the foreign Mexican policies and regional leadership.

It is absolutely necessary to pay special attention to the key concepts that play a vital role the constellation of all of the events. A good starting point is to understand that Mexican Nationalism plays a heavy role in the balance; there is cultural pride involved in the environment of the phenomenon. For understanding the phenomenon of Mexican Nationalism is fundamental to have in mind that Mexico is the clash of ancient indigenous cultures and European explorers; it is a country with a constant quest to form identity. Aztec people discovered petroleum in Mexico and used it long before the Spanish conquistadors who arrived in 1519, they used it mainly as a medicine as well as a substance called chapopote used primarily for dye and glue, and in current times this importance still remains relevant and fundamental for the countries: with the high prices of petroleum increasing “dramatically in recent years, it is obvious that the possession of energy reserves enhances a nation’s power, influence and independence” (Greyson 1980:3). Many

32 challenges need to be faced by Mexican people, where the complicity of the context needs to be considered, a complete description of it was made by the recognized researcher history, Jonathan C. Brown, from the University of California (1993: 2-4):

“Mexico and other Latin American countries share one commonality: their societies have been born and reared in extreme social diversity. Every Mexican searches for his or her identity amid the social plurality and inequality of the multiracial colonial order. Many racial, ethnic, regional, and even language groups have formed the country's heritage…. As a force for change, economic growth posed a serious challenge to a society that had not been accustomed to dividing property strictly according to economic criteria. In Mexico, social position and political connections had always influenced one's access to economic benefits…Research in Mexican labour and political documentation as well as in foreign diplomatic and business archives confirms that Mexico's economy cannot be separated from its politics. In few other national histories have the complexities of the preindustrial social order been more evident than in Mexico: the thin, privileged, and fearful European upper crust; the competitive, vulnerable, and racially mixed middle strata; and the mass of Indian peasants and day labourers, suffering abuses and saving up grudges”

History shows how as FDI arrived to arise the oil industry of Mexico, President Cárdenas knew at that time that the industry development level was sufficient to continue operations on Mexican hands, while in current times the technological development and the high investments that PEMEX needs to make represents high risks for the state that can be shared with major oil companies. As Atik, Tran & Vieyra (2008) remarked, through the last decades since the industrial revolution:

Particularly in developing countries, which referred as ““low-income and middle-income economies” (The World Bank, 2007), over the last twenty five years the FDI inflows have increased remarkably (Busse & Hefeker, 2007) from USD 4 billion in 1980 to USD 379 billion in 2006 (UNCTAD, World Investment Report 2007). The increase in FDI inflows into developing countries reflects the wide-ranging privatization of state-owned assets in a number of countries in Latin America and Eastern Europe and the sale of banking and corporate assets in several Asian economies following the Asian crises (Working Group of the Capital Markets Consultative Group, 2003).

5. THE EXPROPRIATION OF 1938

Now I proceed to analyze what has been recognized as a big act of determination and sovereignty for Mexico.

Figure 4. The geopolitical historical GEOPOLITICAL DRIVING FORCES driving forces for the Mexican case in 1938

Location and territory Sources Power

1ST LEVEL -The president

-Political actors International Systems 2ND LEVEL -Population’s ideology and - Shifting demand - key players and and levels of identity dynamics evolving rules Analysis - The changing -Creation of resource base PEMEX (as NOC)

- Energy security -Opposition

3RD LEVEL - Delivery requirements for - Shifting demand - key players and petroleum dynamics evolving rules

-The role of Mexico -Supply choices - USA and UK towards Latin America influence as a -Price volatility superpowers - Mexico as producing oil country in the international -Alternative fuels -European powers: system axis as consumers

5.1 First level

The president as an element of power

We can analyze the individual factor- the analysis of the profile of political leaders that influence the position of one country, starting with Lázaro Cardenas del Rio, who we can say came from the lines of the army, he was a colonel conscious of the discrimination towards Mexicans that the oil

34 companies wield. He was also Governor of Michoacán and encouraged the workers of the oil industry to merge into a single national union in 1935: The Union of Oil Mexican Workers of the Republic. The fundamental aim for Cárdenas was the decision to be a progressive president and to assert the sovereignty of the country, as a proud one, which has been treated as fiefdom for more than half a century. He declared in his speech that it was “the declaration of México’s Economic Independence” (Greyson 1980:15). President Lázaro Cárdenas del Río expropriated petroleum from 17 foreign companies in 1938; this sector had been considered untouchable by any other president that attempted to modify these laws. In November 1937, the decision by a government Arbitration Board stated that the oil companies should pay 26 million pesos in wage increases to Mexican oil workers; the deadline was 7th of March (Wartz 2004).

The companies that were involved with this nationalization conflict included the USA, England and Germany. President Gen. Cárdenas was totally committed to fulfilling the aims of the Mexican Revolution that started in 1910 and the concrete objectives of the Mexican Constitution of 1917, which mainly “were to establish Mexico as a sovereign nation-state in control of its own resources, including its oil” (Wertz 2004), by that time there was no intention of designing a North American integration deal (like NAFTA today) and facing international powers like the neighboring USA which was fundamental to strengthen national sovereignty. Before Cárdenas created the General Administration of Petroleum in 1937, according to Wertz (2004), Britain was controlling 59% of Mexican Oil which later made the president face also this European superpower leading to a break in diplomatic relations between Mexico and Britain between 1938 and 1942. One of the principal differences between the changes in the politics of Mexican oil comparing 1938 to 2013 is that the first move made by Cárdenas, which “elicited an outpouring of public support from sweat-bathed day laborers as well as bejeweled society matrons” (Greyson 1980:15). One political actor that influenced President Cárdenas during his mandate and even before his mandate was Francisco J. Mújica who, according to the Mexican intellectual Enrique Krause (1998), was fundamental to consummate the oil expropriation; Mújica was secretary of communications during the sexenio of Cárdenas. Mújica and Cárdenas had to deal with the arrogance of oil companies when both worked in la Huasteca in the state of Veracrúz ten years before the conflict of 1938, they “both dreamed before of a moment of national justice like the one that was going to come” (Krauze, 1998). The Secretary of Communications of that time had the most significant role in history of any other Secretary of Communications until now. I should add that, in my opinion, he was basically responsible for writing one of the most beautiful and brave

35 political communicates from the government of Mexico to the Mexican people - in a meeting the President asked Mújica to redact the manifest of the Oil Expropriation Act8. It was the discourse by Cárdenas in which, after labor disputes with intransigent international oil companies and with support of the population on a moment of geopolitical juncture previous to the Second World War, he announced the nationalization of Mexico’s petroleum industry and reserves, the expropriation of all foreign companies’ equipment and properties. This was made as an act of social justice to the workers of Mexico.

Lázaro Cárdenas del Rio had a really particular profile, he defended with courage the principle of the constitution of 1917 and during his mandate took risky and brave diplomatic movements (Krauze, 1998): he gave asylum to Leon Trotsky when no one wanted to because of fear of repression, he opened the doors of the country to people looking for shelter from Nazism and fascism, stated the Mexican essence that consisted of having no antipathy or prejudice against any country or race world. This attitude denoted Mexico as one of the leading nations among the Latin American countries, but at the same time, Cardenas wasn’t a complete republican; he managed Mexico through a corporative state with all the civic liberties but submitted the legislative and judicial power to his commands.

According to Colmenares (2008), the decision of the expropriation of oil in 1938 by the government of Lázaro Cardenas due to the insolence of foreign oil companies to comply with Mexican law was conceived as a measure of sovereignty. These actions gave Cárdenas the image of being the brave protector of the nation, a hero that underpinned the economic growth and development of the country. It is of common knowledge for Mexican people that Cárdenas was given the nickname “Tata” meaning “father”. Some people called him “Tata Lázaro” or “Tata Cárdenas”, especially the indigenous population of Mexico that he took special care of.

The politician, diplomatic and intellectual Manuel Moreno Sánchez (1908-1993) described the President responsible for the expropriation as: "In Cardenas, while there was the semblance of a tolerant and equitable president, and the shadow of a mighty man; that certainly was a destroyer, because every revolutionary is born to overthrow; but he knew how to build a new country for

8 To find the original version of the Act, which was promulgated by Gen. Lázaro Cárdenas see: Discurso pronunciado por el presidente de la República Làzaro Cárdenas in the website of the Centro Lázaro Cádenas y Amalia Solorzano.

36 many people, and no one can deny his major work: he have accentuated the moral change of humble people; with Cardenas, many outcasts knew they were men" (Krauze 1998). As it has been stated Lázaro Cardenas was a declared antifascist, but in that particular moment of world history Mexico ended up selling oil to Germany and Italy. At first it seems a contradiction “however, is a passage that illustrates the geopolitical complexity that Cardenas had to deal, in the midst of which he boasted of his diplomatic skills, essential pragmatism and political clarity” (García, 2002).

Krauze (1998) stated on Sunday 20th of March, 1938 after the decree of expropriation, the president organized an excursion to El Nevado de Toluca, where he swam in the icy water of the volcano, and Raul Castellandos, the Secretary of the Presidency expressed, "swimming in the volcano" seemed to be the best metaphor of the political, cultural and economical battles that had taken place during the Cárdenas mandate and most of all for the ones that took place in March of 1938; but this was not the last political activity of Cárdenas, when Mexico joined World War II, he was named Secretary of Defense in 1942 by President Manuel Ávila Camacho (1940-1946), this was a call for National Unity. The Mexican Republic joined the conflict after the Mexican oil ship Franja de Oro was torpedoed and sunk by a German U-boat.

5.2 Second level

Population as an element of the territory (identity and ideology)

It is not coal but oil that is the main energy source in Mexico. According to Benítez (1990) in 1887 the first oil refinery was installed and in 1901 the industrial exploitation began. In 1910, at the beginning of the Mexican Revolution El Ébano, Campoacán and San Cristobal fields were discovered and, from the beginning, oil exploitation was performed by foreigners who, in the decade from 1910 to 1920, installed the large monopolies of Royal Dutch Shell, Standard Oil, Sinclair Oil, City Services and Warner Quinla who together managed to produce 90% Mexican oil from 1901 to 1938. During the Mexican revolution, practically the only companies that continued having an important presence in the country were the oil companies. I could add that not even a revolution can escape from the need of energy sources.

According to Colmenares (2008), Mexico started having a more sustained growth of its economy until 1934, just after recovering the same level reached in 1921. The difficulties in consolidating that growth were reflected in the little confidence to invest in the country due to struggle between various groups seeking to exercise political hegemony in the country. This struggle was even

37 translated into the physical liquidation of political leaders. By 1937, inside the country there was a claim to seek social justice and for a new statement from the government to confront these powerful corporations. The population got tired of the arrogance of the oil firms, and it generated tremendous amounts of pressure on their own government. American investment in the Mexican oil industry influenced national life becoming critical element of Mexico's economic modernization the expansion of railways is proof of it.

Petroleum has become somehow a mystic symbol of patriotism to Mexicans. The researcher George W. Grayson (1980) has said that the importance of oil to Mexicans transcends its economic worth, and it is greatly appreciated as a national symbol for the entire population9, this driving force is supported by the ideology of Mexicans at the time, the revolutionary nationalism was flourishing through the consolidation of institutions, and the constitution of 1917 which reinforced the will to take over subsoil sources as a property of the nation. Mexican people were still skeptical about foreign property of Mexican Republic sources, especially towards USA (who took over half of the Mexican territory in 1948) and other European powers.

In the political economic field, at times of the nationalization, these “corporations claimed not only to hold ten- or twenty-year concessions but to own the mineral deposits they exploited” (Greyson 1980:13). They were being ruled and encumbered more by the 1884 mineral law, and it offended the spirit of the new social-reformist Constitution of 1917. Matters of ownership in these times constantly agitated the relations between oil corporations and the Mexican government. On the other side, as an example, Mexican foreign tycoons were not giving any consideration to the labor force, “petroleum workers endured physically exhausting work, squalid living conditions, and harsh discipline” with miserable salaries and risky work environments, these facts opposed Article 123 concerning Workers Rights. Lázaro Cárdenas was aware of all of these injustices and the governor of Michoacán took the first steps towards “ordering the expropriation of the plants that had closed their doors rather than implement labor regulations” (Grayson 1980:14). Conditions in Mexico were not the best to develop local content on the oil industry:

Mexico's domestic market, nonetheless, did little to stimulate Mexican private entrepreneurship in the production of petroleum. Several early Mexican efforts to produce,

9 As defined by Cambrige dictionaries (2015) “population” is all the people living in a particular geographical space (country, area, or place). This is the reason why I placed “population’s ideology and identity” as an element of the 2nd level (internal factor) that is marked by a territory.

refine, and sell oil products had failed. To develop the infrastructure of a successful private marketing business in Mexico, the entrepreneur needed capital, management skills, and technological expertise. These commodities, developed in more advanced capitalist economies, meant that only foreigners with prior experience in the oil business could succeed. Their success may have forever blocked effective competition in petroleum from Mexican entrepreneurs. More than that, the foreign entrepreneurs came from another world, not a seigniorial but a business world (Brown 1993).

It is important to consider that at that time, “American oilmen had competition not from Mexican entrepreneurs, who in any case lacked the capital and technological resources, but from the British —specifically from Sir Weetman Pearson” (Brown 1993: 9). Competitiveness can make a difference to the comprehension of the study as a driving factor. By this time, in the 1930s, Mexico had the infrastructure to satisfy their internal delivery of petroleum, mainly because of the vast infrastructure created during the porfiriato10 , and because of the investments of the oil tycoons during the first decades of the 20th century, this is a driving force that gave impulse to the intentions of expropriation, not possible before until the country developed a network of railroads.

Ruling elites and opposition

According to Krauze (1998) the labor conflict ended up in the resolution on favor of the workers, while on one side the Secretary of Communications Francisco J. Mújica wrote a manifest based on the Law of expropriation for the benefit of the population, reinforcing what was written in the constitution of 1917 on the convention of Querétaro where this constitution was created, the main point was the Mexican ownership of the subsoil; but on the other hand: Eduardo Suarez, Secretary of Finances of the country and the president denied constantly having intentions of nationalizing the industry.

Krauze (1998) described that the atmosphere between foreign oil businessmen was one of uncertainty, many financial centers and foreign companies thought that the government would easily send the army to take over the refineries and oil industry buildings. All of the ideas supporting Mexican ownership of subsoil sources contained in the Constitution of 1917 could not be enforced right away, due to the power of the foreign oil companies supporting the reactionary Mexican Catholic Church to empower the Cristero Rebellion (1926-1929) with the goal

10 Period in the history of Mexico when Porfirio Diaz Mori (1876-1915) was president.

39 overthrowing the Mexican government as explained by Warts (2004) who also gives an overview other intends of intervention by IOC after 1938 on how the quick reaction of this transnational companies “Royal Dutch Shell and Standard Oil Company imposed a boycott on Mexico, and Gen. Saturnino Cedillo launched a military revolt against Cárdenas, which was backed by the foreign companies”, this revolt did not succeed; other groups that were against Cárdenas in Mexico where the pro-fascist Mexican circles which were concerned about the migration from Europe to México in search of asylum; this ultra right movement was leaded mainly by Manuél Gómez Morín founder of the Partido Acción Nacional. Colmenares (2008) remarks that the first 38 years of existence of Petroleos Mexicanos, corresponded to the period called "stabilizing development" that lasted until 1970, it was characterized by a significant economic growth in Mexico. After that it came a period of frequent and acute crisis, as well as uncertainty that was reflected in the deterioration in living conditions of Mexicans as well as a technological lag.

5.3 Third level

The 1917 Constitution and Article 27, which regulates foreign investment on the wealth of the nation, is, according to Benítez (1990), the axis of the conflict that erupted between Mexico and foreign companies. This IOC from United States, England and Holland acted strongly supported by their governments, even though by 1938 President Franklin D. Roosevelt (1933-1945) acted under the good neighbor guidelines while the expropriation. Foreign oil majors were challenging the Mexican state using diplomatic threats and even threats of army interference. This factor was crucial in creating adequate conditions leading to Expropriation as a new possibility for this Latin American country, which is also a North American country. On one side we have the obvious reality of an exploitation mode of political economy that was somehow ruling the American hemisphere, and after several abuses to the sovereignty stemming from various foreign powers, “governments of the region began looking energetically to find new mechanisms to generate independence and power, and to achieve social justice” (Riggirozzi 2012: 17). The large presence of foreign investment in the sectors of Mexico and the abuses incurred in order to form these transnational corporations started the friction between foreign governments and the Mexican government.

Factors like the entry of foreign entrepreneurs into Mexico were a curious driving force from the

40 outside that operated domestically. The operations of the foreign oil companies in the first Mexican oil boom placed the country in the international economic context as the companies expanded, even as Mexico became engulfed in the first social revolution of the twentieth century:

The collusion of foreign interests and domestic reactionary forces. The relationship between foreign oilmen and the "counterrevolutionary" caudillo, Manuel Peláez, has stirred considerable conjecture in the historical debate concerning the Mexican revolution. Was Peláez only the political tool of the foreign interests? In fact, the companies fell victim to a local political struggle only tangentially linked to the role of foreign enterprise in Mexico… It demonstrates that they had to expand just to survive the growth of international trade in petroleum. Foreign entrepreneurs succeeded because of their earlier experience in oil production, their vast financial resources, their ability to satisfy both domestic and international markets, and the failure of Mexican entrepreneurs to compete on the same level. At the same time, the activities of the foreign companies became inextricably bound to the political and social breakdown that was already leading the country to revolution. (Brown 1993: 5- 9)

The big challenge to Mexican culture of the ‘30s was to face the future in the world scenario. When PEMEX (Petroleos Mexicanos) became one of the best oil exporters and a worldwide success, it became an important icon for Mexican identity. Then finally, after decades, the state took control of an increasingly important role in the energy industry that in those times represented a huge contribution to public finances. Even when the supply choices of consumer countries generated troubles to the external placement of Mexican oil which was going through a major decline due the “abundance of oil in the United States which was producing 60% of world production, and increased extraction of crude being made by the Royal Dutch (Shell) and Standard Oil in wealthy Venezuelans petroleum fields” (Colmenares, 2008).

Supply choices and delivery requirements for petroleum

The international boycott of IOC forced Mexico to diversify its exports; the main group of countries buying oil were the Axis powers, the Nazi Germany was included as one big consumer (Wertz 2004) “As Betty Kirk, an American journalist with close ties to the government of Lázaro Cárdenas, reported: "The biggest consumer of Mexican oil from the time of the expropriations until war broke out was Germany, which took 50 per cent. Italy took half of the remainder. Moreover, Germany had sent Dr. Joachim Herstlet, second-ranking man in Hitler's Foreign Economic Ministry, to Mexico to promote the deals here. Even the brother of Dr. Hjalmar

Schacht, long-time chief of the Reichsbank, paid Mexico a visit during this Nazi heyday". Thus, for the external delivery of petroleum when international oil companies (IOC) like Standard Oil and Royal Dutch Shell executed the ruthless boycott to Mexico, according to Wertz (2004) “Mexican oil was sent to Germany through the Davis Oil Company of William Rhodes Davis, who had connections of his own to Göring and Himmler, and who, with the backing of I.G. Farben and Kurt von Schröder, received financial support from Hjalmar Schacht at the Reichsbank”. The delivery requirements after expropriation were basically solved by the consumer countries, which had the necessary equipment for logistics to assist their own supplier states in transportation of the product. In the prelude of World War II price volatility was not as important as securing a supply of oil, this driving force, as well as the concern of climate change, did not take relevance on the broad picture for 1938.

Technological development The boycott made by different IOC to PEMEX included in the blockage also included a restrain to technology, this way the monopoly of technology deliberately executed against Mexico was in fact an attempt to damage the emerging Mexican oil industry. There was turbulence in the first years of the Mexican NOC according to Colmenares (2008: 55) “precisely as a result of the drop in foreign sales revenues, since the early forties and intensified in the years after the Second World War, Mexico was facing a severe contraction of its oil revenues. Indeed, while in 1939 foreign sales accounted for 49% of total sales income of Petroleos Mexicanos in 1945 it amounted to just 24 percent”. Something that has become evident now through this thesis is that the comparison involves a young emerging Mexican oil industry with a mature oil industry nowadays. New important players in the energy industry like China have appeared as important actors in the hydrocarbons competitive sector, it will be possible to forecast that in the conclusions, which new countries represent a different balance of power during EPN’s mandate compared to 1938.

On the lens of Wertz (2004) the Good Neighbor Policy 11 , which Roosevelt undertook on December of 1932, was a break for U.S. intervention and it kept the northern neighbor out of conflict with the Mexican Republic. Then it was confirmed in November 1941, after Cárdenas left the presidency the United States and Mexico would sign the Good Neighbor Agreement, which recognized Mexico's sovereignty over its subsoil wealth. This has been hailed as a great moment

11 Lázaro Cárdenas told to the ambassador of USA in México Josephus Daniels “I am lucky to have Roosvelt as president on the same I am on the presidential office”

42 of understanding between the two nations.

One of the reasons why it is sometimes difficult to separate the levels proposed by Mark E. Williams is because when one strong man rules one state, the foreign policy of a country can be mainly the instructions of a strong leader like it seemed to be under Cárdenas time in the presidential office. According to Krauze (1998) the behavior of the president was of a man congruent actions respecting to his moral attitude: he censured Japan in the Second-Japanese war (1937 to 1941), condemns the invasion of fascist Italy to Ethiopia, orders the permanent representation of Mexico in the Genève to assume the protection of Jews and protests energetically against Nazi invasions refusing to recognize satellite governments imposed by Hitler. The geopolitical driving forces can be easily recognized in terms of the quest for sources, on February of 1940, the American Embassy in Mexico City reported that company Texas Oil of Arizona, in close collusion with other oil groups was worked constructing a plan with the help of the Davis Oil Company, to introduce arms into Mexico (Wertz 2004) “to support a possible military coup by the Nazi-backed Mexican Presidential candidate, Juan Almazán, in the event of his defeat at the polls”. The overview in general seemed hardly affected by the political effervescence that was about to end up in WWI.

There was a lot of uncertainty respect to this event; Rippy (1954: 227) states that the situation was of major concern for the media and explains how the New York Times expressed the disagreement between both countries could bring with it different international complications, not only for the US, but for other countries as well, mainly because of the role of Mexico at that time, that could “might set an example that all South America could emulate. President Cárdenas did not fail to exploit Latin-American sympathy for Mexico, for in 1938 he appealed to all Latin-American nations to unite to defend themselves against the possibility of their being victims of economic, social or political imperialism (Ibid).

5.4 The FDI factor for the Cárdenas regime

Olofsdotter (1999) stated that FDI “affect welfare”, this was clear for Cárdenas, since times of “Don Porfirio” (common way to appeal to President Porfirio Díaz Mori) at the end of the XIX century and beginning of XX. During the “porfiriato” several oil companies arrived to México, and as Malmström explained (2002):

Among the most remunerative investments realized by foreign investors in Mexico were those made in the Gulf coastal plain just after the turn of the century. American geologists had every reason to believe that the same oil- and gas-rich formations that underlay Louisiana and Texas continued southward along the coast of Mexico as well. So, beginning in 1900, Edward Doheny started buying up large sections of the lowland surrounding Tampico, some of it at a cost of a dollar an acre, and within a few years his properties totalled over a million and a half acres, much of it underlain by the "black gold" which he had surmised to be there but which was totally unsuspected by the Mexicans. Not to be outdone, Weetman Pearson, an English wheeler-dealer, proceeded to do the same some miles farther south, and by 1910 the annual production of oil from Mexico totalled 13 million barrels, almost all of which came from these foreign-owned properties. When these lands were later re-sold, Standard Oil purchased Doheny's holdings and Royal Dutch Shell acquired Pearson’s properties, both yielding substantial profits to their original investors.

These tycoons that arrived to Mexico, they came bringing with them the technology that was needed to make the oil industry work properly, offering the technological advances of the time from more advanced nations, this industries managed to teach the skills of the sector to Mexican workers. The violence caused by the revolution did not distracted IOC from expanding its operations. When Cárdenas arrives to the power the infrastructure created by the major oil companies and transference of technology was already made, in that moment he was in need of making a movement as a statement of sovereignty more than an economic goal; nevertheless, the later created PEMEX represented of course also a successful NOC bringing profit to the government.

6. THE ENERGY REFORM OF 2013

Next, I proceed to analyse what has been recognized as the most radical change in 75 years regarding Mexican energy policies.

GEOPOLITICAL DRIVING FORCES

Location and territory Sources Power

1ST LEVEL -The president

International 2ND LEVEL -Population’s ideology - Shifting demand -The congress and identity dynamics Systems -Pacto por México and levels of - The changing Analysis resource base - Key players and evolving rules - Alternative fuels -PEMEX (as NOC and the -Technological syndicate of workers) development -Opposition

3RD LEVEL - Delivery requirements -Shifting demand - Key players and evolving for petroleum dynamics rules

- NAFTA integration -The changing - Energy security resource base -The role of Mexico - USA influence as a superpower towards Latin America -Supply choices -Climate change and efforts to - Mexico as producing oil -Price volatility impose carbon constraints on country in the a fossil fuel-dependent world international system -Alternative fuels

6.1 First level

Enrique Peña Nieto was born in Atlacomulco, State of Mexico, on July 20, 1966. A lawyer, he was the youngest governor of the State of Mexico between 2005 and 2011 (Univision: 2012), some legislators and those who knew him in his term as governor say he is a pragmatic person who learns fast, listens to all reviews, provides good political relations and supports the projects of even his adversaries (BBC: 2012). But according to Ackerman (2014) “media had turned him into the most unpopular president in recent Mexican history”, this is an element that needs to be stressed, while Lázaro Cárdenas has been the most loved and respected President of Mexico.

EPN has risked his own image in the battle to modernize the energy industry in the republic; he is the leading figure of a new class of politicians that emerged from the Estado de México known as the Golden Boys. This current head of state has been signaled by the public opinion by the adjective of “handsome”, which has also give him the highest rate of haters in the history of the USM. Somehow EPN has been close to the energy industry in Mexico since he was a kid, his father was an engineer with the national electric company. According to Tavira (2012) the legend says that in the forties, a psychic called Francisca Castro Montiel made the following revelation to the remarkable people of Atlacomulco "six governors will emerge from this town. And from this compact group, one will became president of the Republic”. Peña is the sixth governor who comes from Atlacomulco Group12; he governed the Estado de México from 2015 to 2011, it is the most populous federal state. The governors that came from Atlacomulco were all relatives of EPN since 1942; the current president of Mexico is a result of a familiar quest for the presidential chair, on my personal perspective, as a Mexican this fact doesn’t rest him legitimacy. One of his forefathers was Isidro Favela (1882-1964) known as father of the modern Mexican diplomacy.

The President of the United States of Mexico, Enrique Peña Nieto, in the official magazine13 of ProMéxico, has made a clear statement of what he expects of the country when saying:

“Mexico is in the move. Our country has concluded an important transformation cycle that includes 11 structural reforms. With theses profound changes, Mexico is the restrains that have prevented it from reaching its full potential… The Energy Reform will allow the participation of higher number of companies, thus modernizing the sector with more productive investment and technologies. This ensures the supply of electricity and hydrocarbons at competitive prices for industrials and homes”.

The changing resource base

Based on this idea, the main concerns of this thesis will analyze the actors that shape Mexico’s policies, drawing a detailed vision of the geopolitical context that can intervene, in a world of challenging rivalries between powers, which classical geopolitics theory explains. In the context where the Mexican Republic belongs to North America and Latin America at the same time, in a moment of history where, according to ProMéxico, the country is looking forward to diversifying

12 The mythic quality of “Grupo Atlacomulto” corresponds to the negation of all its members about the existence of such a political group. 13 This magazine was created by the Trade and Investment Official diplomatic agency: ProMéxico.

46 exports. I personally have understood that, until now, one of the directions of México under the presidency of Enrique Peña Nieto has been to move from being a resource-based economy to an exporter of manufactured goods. Akerman (2015) argues also that international media had proclaimed EPN as a libertador of the energy sector that although previous President Felipe Calderón may have pushed for real oil reforms in reality the total shift is was by “Peña Nieto who will get the spot in the history books.” According to Proceso (2009) it has been pointed out as a product of marketing, and is accused of becoming president with the abuse of television advertising, in other words the owners of the principal TV companies in Mexico (Televisa mainly, and second TV Azteca) questioned as their promoters.

6.2 Second level It can be seen as ironical, but the ruling political party PRI (Partido Revolucionario Institucional14) the oldest in the country for decades, since the beginning of the creation of PEMEX “opposed attempts at energy changes and promoted many nationalist arguments against private oil ownership that made the subject a taboo topic in Mexico political debate” (Agreen 2013), but now during EPN administration, it has been the main faction that have pushed for the Energetic Reform submitted in December of 2013 from the presidential office. A political force like PRI that was supposed to have roots in the Cardenism was now supporting the return of these “almost mythological” villains that “Tata Lázaro” had kicked out of the republic in 1938: the IOC.

The urgency of the EPN’s reform must be thought according to Ramírez (2013) as a second oil expropriation to take the industry to the political bureaucracy, the predator unionism, a spoiler Treasury and parties who took the energy debate as a hostage. The focus of geopolitical and national security of Mexican oil will clearly show that the discussions on privatization are about converting Mexico’s energy potential as a factor of state and a force of development for the country.

To develop a good analyzes Puyana (2015) states that it is necessary to point to the oil boom of Mexico with the discovery of Cantarel15 in the 1970s as a milestone on Mexican oil history. Mexicans entered the into the oil world during the first decades of the 20th century, when its political institutions were under development and the maturity of its economy was incipient,

14 Constituted as Partido de la Revolución Mexicana in 1929 15 Cantarell Field or Cantarell Complex is an aging supergiant oil field in Mexico. (Cantarel in Spanish)

47 external factor and the interests of super powers marked the direction of the oil industry and impacted the national political unfolding with different intensity, but on the same way notorious. The conformation of the international oil market as the space for hydrocarbon business is derived of this understood as a particularly powerful source (Puyana 2015: 10) by “its implications on military power and the importance of it to superpowers to conquer the world”; because of this, several nations have given constitutional duties to national oil companies.

Discontent was evident among specific sectors of the Mexican population in 2013, and it was motivated by what I perceive as a geopolitical collective distrust towards the United States of America. As the state-nation “as an organic entity operating in a competitive world system led writers to highlight the need for governments to maximize the territorial and resource portfolios of states at the possible expense of international cordiality” (Dodds 2015:5), this specific thinking made that acquiring territory and resources, could started to be perceived as essential to health of state and national security: that could be the quest for Mexican oil. One study published by the CIDE 16 (AND Político: 2013) showed that a majority, 65% of the population, was against allowing foreign investment in the hydrocarbons sector, 4% did not know or did not answer. This research reveals that over the past eight years, the oil sector has the most increased resistance amongst the Mexican population for its openness to foreign capital. In the five surveys of the study it is registered that on average 68.2% of the population is against the sector openness, as opposed to 27.5% who are in favor of allowing foreign investment. Definitely “the bastion of economic nationalism remains the oil sector," says the study led by Guadalupe Gonzalez Gonzalez, the principal investigator who guided the efforts of the project (AND Político: 2013). Some specific facts like the appearance of Fuerzas Armadas Revolucionarias-Liberación del Pueblo (FAR-LP) in México, declared “the rebels of Guerrero said the PRI, by endorsing energy reform, opening the way for foreign companies to obtain the natural resources of the nation” (Proceso: 2013). It is natural to generate popular resistance, when a statement like this is made, and it is a common thought among the Mexican population especially leftists and nationalists: “Latin Americans are still highly sensitive toward even the hint of U.S. intervention of internal affairs” (Williams 2012: 2) and I can add that any interest of other foreign country is seen with no trust.

16 The CIDE: Centro de Investigación y Docencia Económicas is an academic institution for economic and political matters.

According to ProMéxico17 articles 25 and 27 of the Mexican Constitution are the most important articles pertaining to oil politics: Article 25 states, “The Federal Government will maintain ownership and control over productive agencies and state enterprises” and 27 says, “in the case of radioactive minerals as well as petroleum hydrocarbons and solid, liquid or gas, no concessions were granted”. As it is easy to observe, the main idea of protecting sovereignty has been pushed to the forefront as the primary aim in Reform, representing not an opposite stream of Cardenas’ success in nationalizing, and in the sense of who possesses it gives it continuity as a nationalistic project. PAN (Partido Acción Nacional), known as a super conservative entity, made several attempts to push for a reform when they were in the precedence (2000-2012), however, failed consistently, but they were really open to privatization. As it was said by Jericó Abramo Masso one of the PRI legislators in 2008 on the project of Energetic Reform of the ex president Felipe Calderón Hinojosa, “we should all be very alert and be careful because the Partido Acción Nacional pretends for a undercovered privatization of PEMEX” (El Universal: 2008). On the domestic front, the Mexican regime showed soft roots of state capitalism; it has ensured that strategic sectors remain in state hands. The facts are clear “Mexico has an estimated 60 billion untapped onshore and deep-water barrels of crude oil. With huge shale production potential on the border of Texas as well, this policy shift could produce a bonanza of cheap oil in the Americas” (Landstreet, 2015).

There are those who support the President’s Peña Nieto decision for change in 2013 and find this political movement as a necessary step in order to turn PEMEX (the national petroleum monopoly company in hands of the state) into more innovative company, and to eradicate the existing corruption that is currently associated with this syndicate. On the other hand, there are those who believe these actions to be treasonous and feel that Enrique Peña Nieto is selling the country to foreigners.

Search for leadership and innovation and evolving rules

Somehow it is important to clarify that one of the goals of the Energetic Reform is to set PEMEX down a road of innovation, which is of vital importance as a tool for the adaptability,

17 Carlos Francisco Pèrez Cirera Langenscheidt is the Trade Comissioner at ProMéxico. This institution is the diplomatic business office in charge of the attraction of foreign investment, trade and commerce between México and the world; according to this agency

49 competitiveness, and economic growth of companies not only in the private but also in the public sector (Aasen 2009:1) inside the country and abroad. Francisco Olvera, Governor of the central state of Hidalgo, externalized (El Sol de México, 2015) the concern between the state's populations to know what benefits society will get with the projects that will be planned by Pemex in the frame of the session of the Comision Nacional de Gobernadores (CONAGO). As a result of the Energy Reform, the construction of the new refinery in the Tula region was stopped after the approval of the energy reform due to the evolving changing rules of the energy policies. In this same event, the CONAGO 2015 held in Veracrúz on February the 20th, the EPN spoke in support of private investment, which the same reform promotes; however, Governor Olvera pointed that the opening to investment of private capital should be monitored to allow national entrepreneurs, mostly, who can strengthen their operational capacity.

We can find anti-geopolitic representations in some of the opposition parties in Mexico like first the Partido de la Revolución Democrática, which after sometime cooperated with the dominant party (PRI), and after MORENA, which leader is Andrés Manuel López Obrador, who has been candidate for the left in two occasions. It is important to mention that while there is a “need to avoid glamorizing those who appear to challenge, anti- geopolitics is an invaluable strand of research that shows how patterns and processes of domination, acquiescence and resistance are entangled with one another” (Dodds 2015: 24). This antihegemonic movement did not reach great relevance on a geopolitical level though; one highly influential driving force instead was the market, according to (Robinson and Qinhua 2013): “most of what happens on the oil and gas supply side is related to markets, but policy will also influence the outcome".

According to Puyana (2015:92) oil prices work as a geopolitical driving force, it is precise to mention that it establishes the economical and political rationality behind the decisions of investment to expand the productive capacity in a country together with the scrutiny of the reserves. México faces, on a geopolitical level, the reality that according to its energetic potential it is not situated between the countries that are considered the big players. In fact, the Mexican Republic is framed on the category of the countries that lack of influence over the market prices and in the decisions of big producers. In this uncertain context (Ibid: 92): unpredictable due to technological changes, offer and demand create a complex relation of actors and a crowded asymmetric network of nexus that feed themselves increasingly and affecting the all economies in the world.

6.3 Third level

Shifting demand dynamics

According to Ramírez (2013) if Mexico is late for discussion of the reorganization of the energy industry, two facts will operate against: the decline of oil exports, and energy strategy of the United States pointing to its oil self-sufficiency by 2025. The demand dynamics are shifting and it will force the USM to look for new consumer countries to place its petroleum, today the country has the necessary technological development and equipment required for the delivery of oil around the globe. When President Cardenas in 1938 expropriated the Mexican oil industry, he “used a geopolitical and national security focus on a prewar stage… the current reform occur in the context of a US geopolitical aimed at ending its dependence on Arab and Venezuelan oil” (Ramírez, 2013).

Far beyond the implication of the new legal frame for the country, on a geopolitical perspective North America will be more directly involved in dealing with these new energy policies. It is important to mention that with the North American Free Trade Agreement (NAFTA), negotiations leaded by the United States had been already taking place with Mexico and Canada in trying to create a path for important arrangements on energy cooperation projects as an integrated region. The Mexican miracle18 (1940-1970) was supported in big part by PEMEX, the Mexican oil giant. The profits of its NOC shares the same burden of most state owned companies now, according to Chafuen (2013) “they are so inefficient that they usually generate losses, which are then passed to the taxpayer… sometimes, as it happens in Venezuela, citizens get gasoline at below market prices, but that only furthers market distortions”. The supply choices of North America are driven by the plans for oil self-sufficiency of the United States by 2025; but at the same time “The White House changed its approach to energy supply from the Arab world and Venezuela due to the political cost; first the US started taking advantage of the accumulation of reserves in salt mines and, then it started an aggressive policy of exploration and production” (Ramírez, 2013).

Among the complex set of market-oriented policies developed for the NAFTA, countries included in the reforms trade liberalization, the belief was that dismantling tariff and non-tariff trade

18 In 1940, Mexico began a stage called the Mexican miracle, this stage was characterized by sustained growth and was the shift towards the formation of a modern, industrialized nation.

51 barriers, Mexico as a developing country was expected to highly stimulate economic growth; but however, neither the results between trade liberalization and economic growth has been clear-cut. A perfect example is the myth of the NAFTA superhighway based on the forecast of an extension of the Trans Texas Corridor (Jones 2013). NAFTA can have big repercussions in the energy trade relationship between the USA and Mexico; we must take into account that the complex constellation of events related to the Energetic Reform implies also investment issues (mainly on infrastructure and technology). In 2013 Mexico took a step towards risking the protectionism policies that ruled for decades in order to create a new path of development, where it is possible to operate with today’s technology and: “a considerable part of the technological expertise needed to extract the oil is to be found in major international oil companies and in a significant number of almost equally large oil contractors” (Ryggvik 2013:7), but this achievements will be taken by countries if there is a strong desire to develop as much industry around the oil as possible, and this was a desire that has been shared by Brazilian and Norwegian governments by example.

Even when Mexico is pioneer on the Latin American oil industry, Puyana (2013:9) states that the country also suffers the implications of oil crisis caused by the increase in production, or rise of the interest rates. The changes in oil politics have always been daring and inspired foreign interests, in both years of the political events 1938 and 2013. By realizing the importance of petroleum to the world, being conscious of the enormous significance of PEMEX to the Mexicans, and by understanding the attractive opportunities of making large quantities of money in the sector, the governments took dangerous steps that changed the entire reality of the country. Since the oil boom of the 80s: crude oil exports have represented juicy benefits, more than 35 percent19 of total government fiscal revenue comes from Pemex’s transfers.

Key players: The USA’s influence as a superpower

The biggest goal appears to be the achieving energy security through the creation of a NAFTA energy block. Geopolitics also focus with great importance on the vigilance of potential adversaries, taking in count that in the international arena, nothing guarantees that another country can assist and help another in case of need, it can be understood as the loneliness of a nation. This

19 According to Mexico’s Ministry of Energy, hereafter called SENER (Secretaría de Energía), the oil rent is the amount of income left from deducting all costs incurred in the production and marketing of products from the overall value of hydrocarbons production, priced at international prices.

52 is why Ratzel studied with geopolitical concern “the general settlement of people with particular reference to continental societies such as those found in North America and China” (Dodds 2015:6); on a regional perspective México has always being included on calculations because of its strategic geographical position. By obvious reasons Washington prefers to buy hydrocarbons to Mexico, who is a close stronger allied for business since the NAFTA was created, than to take risks on its old dependency on Middle East oil imports. Due to new ways of production in the U.S.A. and new gas findings in Mexico, these countries in North America could be the beneficiaries in Asian markets as LNG suppliers, together with the main LNG suppliers from East Africa, Qatar and Australia (Robinson & Qinhua, 2013: 7). The consumption of nearly 30 million barrels per day that supports US hegemony on the hemisphere had been tied to other producer countries according to Ramirez (2013), hence the goal is producing what they consume and getting into the market as energy exporter to change the geopolitical context.

One of the main concepts for the analysis is what has been known in the area of energy and geopolitics as energy security, especially when in North America, the U.S.A’s President Obama has made a strong declaration that reflects a fundamental shift in that nations energy policy making. On this context, under the NAFTA area it has strong implications for Mexico on the quest for the regions Energy Independence which can be understood as at “its simplest, energy independence could be said to exist when a country produces more energy than it consumes. Taking oil, natural gas and coal together, US production rose from 70% of combined domestic consumption in 2010 to 79% in 2012… a remarkable cut in net imports” (Robinson and Qinhua, 2013: 1), but it does not really imply that the US will be energy independent with respect to fossil fuels for some time, even though that seems to be the plan.

The quest for energy security

Energy security must be understood as a Subset of National Security. This information leads me to have reflections over the interests of Washington over Mexico’s oil and gas sector and it can also be understood as a matter of national security in North America:

As was introduced in the conceptualization, the concept of national security will be defined “to include, not only defense, but also state craft, foreign relations, and economic policy”. National security is also “a central component of public

policy”. The most notable change has been an extension beyond international relations concepts to incorporate domestic individual security as well as the earlier ideas of national defense. In short, many countries adopt strategies, policies, and military action under the mantel of energy security, which provides a much broader characterization of the concept, as a definition in its own right…. The US Homeland Security Act 20 merged a large number of US Government agencies into one entity. This entity was not only intended to deal with the traditional defense-related areas of national security but also nontraditional areas such as internal US security, its law enforcement, borders, as well as trade, investment, and energy security (however that may be defined, in the context of future US President’s policy initiatives). As well, the national security approach to energy security allows incorporation with Critical National Infrastructure Protection (CNIP) concepts, such as 3D vulnerability analysis. This method can be used to collect physical infrastructure vulnerability information, which can be used to identify potential threats. (Flaherty & Filho 2013)

The amazing increase in US oil production has been very able, mainly thanks to the world known shale oil revolution. US and Saudi liquids production (crude oil and products) reach similar numbers in 2012, at over 11 mbd (Robinson and Qinhua, 2013: 3).

There is a wide range of forecasts concerning shale oil production. Meanwhile, oil demand is falling in the USA, somehow a result of more demanding planned fuel economization standards. Collin Eaton (2015) reported to the Houston Chronicle that according to the IEA“healthier economies could burn through crude faster than they have in five years as they take advantage of cheap prices, but the oil glut will likely persist” and as the world’s demand will grow by 1.6 million barrels per day “crude supplies are expected to decline, but the global oil glut still won’t be fixed right away” the main source of energy will be hydrocarbons, which despite the low prices today, an economy based on scarcity will secure oil rent to Mexico. So for the second aspect of analysis independent from price volatility, the logic under the reform is the urge to innovate in new sources of energy, element that is not of big relevance in 1938 except for the

20 The passing of the US Homeland Security Act of 2002 represents a radical transition between an extraterritorial notion of national security and expansion of the concept into the civil domain (Flaherty 2003).

54 environmental care that the state must provide. Eaton states that “Iran added 50,000 barrels a day last month, an early increase following a deal with Western powers that is expected to lift oil- export sanctions against the Islamic Republic after it has passed international nuclear inspections”, and this can affect prices which will impact the Mexican reforms economic output. For several driving forces like the Iranian factor EPN can’t be judged.

Investment attraction and Price volatility

Landstreet (2015) explains that investors can profit from changes in government policies, though of course the practitioner has to accept the framework. But it becomes clear that government policies can be the main driver incentives as much or more than any other single driver to bring investment. I will use this example to illustrate how just the rumor of a policy action can affect prices, during the George W. Bush (2001 - 2009) administration “in 2008, oil prices plunged at the mere suggestion that a moratorium against drilling on the outer continental shelf (OCS) might end” (Landstreet, 2015). EPN just signed the new legislation on August 11, 2014 opening Mexico’s oil and gas industry to private and foreign companies, and he announced that the process of awarding contracts would be expedited according to the reform. Landstreet (2015) says that the framework for he calls “Political Peak Oil” is changing very quickly, and then because of it he predict oil prices will hit $90 by the end of 2015, even when barring any geopolitical crisis and a possible reversal of policies.

6.4 The FDI factor for the Peña regime

Adopting technological advances from more innovating nations became a priority for EPN government, most of the Mexican population doesn’t understand that there is a technological monopoly from IOC. The social capabilities of the Mexican people by 2012 were ready to open up the oil industry to Foreign Direct Investment. In 2014, Mexico, USA and Canada celebrated 20 years since the NAFTA was implemented, I as a Mexican became witness of how since the 90s the country has advanced in a way that now a days the opening of the energy sector is possible. As Olofsdotter states (1999) “the role of well-functioning institutions and the level of human capital” made in possible to move forward to trade liberalization. The decline of oil production since 2006 in Mexico fostered the interest to allow FDI to arrive to the country, mostly because income

55 convergence is expected. The geographic location of big non-convectional oil reserves in the nation made it extremely risky and expensive for PEMEX to started exploration and operation; the possibility of sharing risks with multinationals is a big incentive. It was always an important industry for a more complete integration of the NAFTA region to become an energetic block. EPN decided to promote the energy reform exactly when the cojuntural key aspects were aligned for it. The energy reform of 2013 represents a big step towards allowing the development of renewable energies in the territory. ProMéxico in its official magazine Negocios (2014) brings up these arguments:

Few countries can truly claim such a profound transformation as Mexico. The New York Times recently referred to it as “radical.” Probably one of the most relevant steps is the trans - formation of the energy sector. It opens a great attractive market to foreign investors, through services, licenses, profit-sharing and production-sharing agreements. In few words, for the first time in over 75 years, private companies can participate in Mex - ico’s energy sector. A Citibank study estimates that the impact of the energy reform will attract over 40 billion USD in investment flows between 2015 and 2019. Mexico is the third most important destination in the world for investment in solar energy projects and its wind potential is one of the most attractive. The renewable energy sector has recorded steady growth in the country during the last decade. Installed capacity for energy generation from renewable sources has grown substantially and conditions are ripe for business development in the sector, as you will discover in this issue. . Mexico definitely has many competitive advantages.

7. CONCLUSIONS

The results in this work will allow a reappraisal of the competing theories of geopolitics and the oil industry development in Mexico. The issue has had a high profile in public awareness because of the importance it has been given; especially among hegemonic and counter hegemonic domestic forces which can manipulate information according to their interests. The question of the role of NAFTA in the development of Mexican oil policies is fundamental to our understanding of public policies evolution. My intention is to clarify the coincidences of these moments, the similarities and differences are addressed with academic rigor and I give a solid historical context of how this process has been presented in the international system of nations.

To start my conclusions, it becomes fundamental to make some observations; the model of Mark E. Williams used to examine the diverse geopolitical driving forces tends to demonstrate how the levels are deeply tangled between each other, it means that all of the levels have elements of interaction between each other. For example, it would be impossible to analyze the foreign policy or geopolitical behavior of Nazi Germany if we left out the influence of Hitler, the same happens here in Mexico for 1938 and 2013 regarding the state leaders at each time. The same way it won’t be possible to give a sound explanation of how the USA joined World War II without analysis of the internal approval of the population towards the government to take action in the belic conflict. At the same time, it is possible to say that the individual level of analysis is hard to cross with the classical geopolitics concept of geographical location and sources as it can be seen in the charts.

Nevertheless, these particularities and my method of analysis reveal valuable findings concerning the identification of the driving forces concerning the outcome of Mexican energy policies. The condition of Mexico as an oil producing country places the country in a powerful position in the international arena; this characteristic more than a driving force is a characteristic defining the energy potential of the republic in the international arena. The questions I will answer now are: which has been the driving forces behind the energy policy shifts on Mexico for 1938 and 2013? And how some specific geopolitical driving forces on the international system, influenced policymaking in 1938 and 2013 on the history of the Mexican energy sector?

As Mills (2008) argued, the utility of comparative research can be applied to almost all types of qualitative research projects. The main focus is always the evaluation of the similarities,

57 differences, and associations between moments; this is how we will present our conclusions. In this part I identify and examine the driving forces applying to a geopolitical perspective, the research will give a better understanding of how the construction energy policies were influenced in these two specific moments on history. The gap in knowledge that I fill with my thesis refers specifically to the geopolitical driving forces that shaped the energy policymaking in 1938 and 2013.

7.1 The role of David Penchyna Grub from the Senate

At the end of this thesis, it has become evident that FDI must be analyzed as one transcendental element juxtaposed to the geopolitical perspective, this way economic geography turns out to be revealing in the realms of study of the wealth of a nation. One characteristic that makes a difference between the periods that I analyze is a more evolved division of powers in Mexico, while in 1938 the legislative and judicial power were subordinated to Cárdenas, in 2013 the system of check and balances was stronger. The successful story of passing the bill through the congress cannot be explained without the participation of different actors across the diverse institutions of the nation. Enrique Peña Nieto found a skillful ally in the person of the Senator David Penchyna Grub, whose sound and convincing argumentation in the senate accelerated the promulgation for the reform just after one year of Peña’s presidential mandate. Also after passing the bill this senator continue to reinforce in the media and in other public forums the advantages of the new legal framework. This can be a real booster of growth and development for the country, specially, with the enforcement of the modern legal frame for FDI for the oil industry as ProMéxico (2014) states:

The intention is to create competitive markets that enable, in the short and medium terms, the reduction of energy costs, a secure supply, and to reach all current and potential consumers in the most efficient and sustainable way. Regarding institutions, greater powers are given to the Ministry of Energy (SENER) and to the energy regulatory bodies such as the National Hydrocarbon Commission (CNH) or the Energy Regulatory Commission (CRE). National energy control centres are also created to encourage competitive natural gas and electricity markets (Cenagas and Cenace), as well as an independent regulator called the National Industrial Security

and Environmental Protection Agency of the Hydrocarbons Sector (ANSIPA). Finally, Finally, the Mexican Petroleum Fund for Stabilization and Development –a public trust fund managed by Mexico’s Central Bank– was created and will be responsible for the long-term management of oil revenues. A fundamental aspect of the reform is the transformation of both Pemex and the Federal Electricity Commission (CFE) into State-owned productive enterprises, so that now they have the obligation to generate value for their owners, that is, for all Mexicans. The State is no longer a manager but an owner.

7.1 Similarities

In identifying and examining the similar driving forces applying to a geopolitical perspective, the thesis aims at giving a better understanding of how the construction energy policies were influenced in these two specific moments on history. In a complex set of geopolitical driving forces, I identify the common elements shaping policymaking in 1938 and 2013 on the energy sector. The similar driving forces are:

First level:  The president as an element of power: in both cases the presidential influence has been a decisive factor for the shift of oil policies. This driving force is a constant, though the difference between the profile of the state leaders is evident: Cárdenas is remembered as the most loved president in history and EPN has become the less popular president in modern history of Mexico.

Second level:  Ruling elites and opposition: the ruling class led by Cárdenas in 1938 supported the nationalization of the industry but clearly with no opposition, at that time the hegemonic political party ruled completely. And then in 2013 the ruling elites of the three political parties advanced in the reform with big opposition from different parties as MORENA, PT (which just disappears) and the radical left stream of PRD.

 Population as an element of the territory (identity and ideology): in 1938 the expropriation is a product of the leftist nationalism of Cárdenas and that it was shared with most of the

Mexicans, it reinforced the property of oil to Mexicans. The reform of 2013 also reinforces the property of oil to the nation but the difference is that this nationalist identity accepts neoliberal competition. This nationalism gave unity to Mexicans, but nowadays the hegemony of just one party does not exist, and plurality in the USM made it impossible that all Mexicans agree with the Reform.

Third level:  Key players: The USA’s influence as a superpower. It is notorious how the influence of the American Union was a major driving forces that affected the policies outcome, just that in 1938 the situation was of economic international conflict and for 2013 as partners of the NAFTA.

 Seek for country leadership and innovation (nation position on the international system): this leadership in 1938 was acquired through the determination of the government to expropriate which was an act of national sovereignty. This positioned Mexico as a strong nation in Latin America, as a leading country. In 2013 leadership seek is giving in terms of a Reform that has been acknowledged as innovative and that will place Mexico as a leading oil producing state.

FDI factor similarities

The similarities are reduced to the technical skills that FDI provide to the host country, but in 1938 the shift of policies was not focus on bringing money in the form of investment, the seek for money was made in form of making sales to the countries that wanted it. Still the only coincidence was the need to develop the industry and to make profit, maintaining sovereignty.

7.2 Differences

First level:  The president as an element of power: as I have stated before, in both moments the presidential influence has been a main factor of influence, the core of this corresponds to a Cardenista left ideology and a more centre and neo-liberal tendency of EPN.

Second level:  Technological development: in 1938 technological development is not a heavy driving force for expropriation, but in this case EPN and its government are looking forward the technological exchange that will be given due to allowing highly advance oil companies to operate in the country.

 Delivery requirements for petroleum: the resources for transportation of IOC in 2013 will also make it easier for Mexican oil to arrive to new territories.

 Investment attraction: Several companies are expected to arrive to Mexico and spend money on infrastructure and give jobs to millions of Mexicans.

 Shifting demand dynamics: USA is looking to be energy independent for 2025 or 2030, which make it really urgent for Mexico to find new consumer countries, and this new markets are likely to be find with IOC working in Mexico.

Third level:  Quest for energy security: this is the geopolitical driving force that affected the outcome of oil policies in the 2013 reform. The NAFTA block leaded by the USA intends to achieve energy security through collaboration with Mexico and Canada in the energy sector.

 Price volatility: the need of Mexico to be less dependent of oil is a reality, price volatility has affected the finances of the country several times, and through sharing risks with other IOC the country economy will find itself less affected by oil prices.

 Supply choices: the Reform in 2013 contemplates the fact that nations are highly dependent on oil and that Mexico wants to be a choice of supply for this countries.

 Alternative fuels influence: Mexico is moving forward to greener because the Reform of 2013 opens up the possibility to develop the energetic potential of other alternative energy sources like wind and sun.

 Climate change and efforts to impose carbon constraints on a fossil fuel-dependent world: the environmental care is a key factor for the 2013 reform and it was not at all a decisive element in 1938.

 The changing resource base: Mexico wants to be less dependent on oil and to be a manufacturer country nowadays, which was not a key component for the 1938 expropriation.

FDI factor differences

It can look obvious after reading this entire thesis, in 1938 IOC were not friends of the regime and in fact an obstacle for national development, mainly when Cárdenas was trying to protect the workers rights; now, in the last 2013 shift of policies the objective is to make alliances with major oil companies to foster development and share risks at going for non-conventional oil reserves.

7.3 Comparison and final reflexions

My study demonstrates how the unregulated operations of foreign companies in Latin America were incompatible with the historic relationship between the working class and the Cardenista government in Mexico; the close connection Cárdenaz developed with the labour unions of the country was one of his strengths. The disrespectful behaviour of the foreign companies deeply offended nationalistic sensibilities. In this case, nationalism is one of the main driving forces that gave impulse to the execution of the expropriation while in 2013 the source-based nationalism and the symbolic value of oil to Mexicans that transcended the economic value, was a force against the opening of the sector, which is why EPN declared after the Reform was approved by the Congress; “we have overcome myths”. The Peña Nieto administration needed a lot of negotiation in the congress where Senator David Penchyna Grub was a main actor in helping pass the bill for a

62 renewed legal frame on energy. While Cárdenas had the broad support of the population in his mandate, when according to Antezana (2013) with deep "moving acts", people of all social sectors carried their donation to support the cause: chickens, pigs, jewelry, etc.; on the other hand we have a president in 2013 heavily criticized by a broad part of the population with big mobilizations against the reform fueled by the protectionism held by left wing leaders. The empirical evidence shows that the Mexican government was greatly influenced by domestic driving forces in 1938, like economic nationalism and the labor force united for expropriation, even though there were no guarantees that Mexicans could handle the oil and gas industry. It was not until the 2013s, and after building a skillful industry, when Mexico with the support of several the main political parties pushed to finish the monopoly of PEMEX. In this sense the Pacto por Mexico21 allowed EPN to find a moment through the alliance formed by PRI, PAN and PRD to pass the energy bill. For Cárdenas the juncture was external, the preamble of WWII which left USA and UK with less chances of intervention, and for EPN an internal driving force that impacted the geopolitical reality supervised by his Chief of Staff, the Latin-Americanist Aurelio Nuño.

The fact that international companies keep a technological monopoly on the oil sector, the decline of international oil prices, the fall in national production, the need for capital and the corruption of syndicates, could explain why Mexico sought for this Energy Reform. Regional driving forces such as NAFTA affected directly in the conflict for the first time, even when Mexico looks for the diversification of its economy. The thesis shows that in the framework of energy security the results from the study gives us a new light energy security issues and geopolitical strategy. The conditions brought by globalization also serve as an argument to open up the potential hydrocarbons in Mexico with the intention of reaching new markets due to the actual infrastructure for delivery not only with the USA. Nationalism is one of the main aspects that must be stressed in this issue. It will be illogical not to take the advantage of becoming an oil supplier for the USA being their neighbors. The supply choice is the NAFTA.

21 The Pacto por México (Pact for Mexico) is a political agreement signed by Enrique Peña Nieto, President of the United Mexican States; Jesus Zambrano Grijalva, National President of the Party of the Democratic Revolution; Maria Cristina Diaz Salazar, President of the Executive Committee of the Institutional Revolutionary Party and Gustavo Madero Muñoz, National President of the National Action Party in December of 2012, currently these parties are in process to change national leader or they already change it like in the case of PRI which now has Manlio Fabio Beltrones as president.

The aim is to understand how geopolitical driving forces have influenced national policy making on oil historically. One of the main findings was energy security as an important geopolitical driver in 2013. The specific research questions were based on a central one exposed as: “How some specific geopolitical driving forces on the international system influence policymaking in 1938 and 2013 on the history of the Mexican energy sector?” So the entire effort of this thesis was on concentrated on the next set of interrogations: Which are the driving forces behind the energy policy shifts on Mexico for 1938 and 2013? What are the differences and similarities of these moments (1938 and 2013) in their economic policies, from protectionism to openness in the oil and gas sector in Mexico? What are the main factors, substantially, affecting the outcome on the policymaking process? How do the geopolitical driving forces also affect foreign policies through energy policies? The study was limited by the fact that is too early to see implications of the Energy Reform of 2013. This fact makes it difficult to know the final outcomes of the new energy policies in the frame of NAFTA. Historians have yet to analyze the ongoing interest of oil companies that are interested in Mexico. The data available was limited to give specific statistics of the early 20th century about oil production, on the other side, for the Reform with EPN as president, there are now highly specialized entities, such as the International Energy Agency, generating accurate information in abundance. Clearly the limited amount of time and resources was a factor to consider in the investigation. Nevertheless, I firmly believe in the value of what I have developed as a little piece of knowledge can fill an important gap.

From the empirical data, the study results confirm the hypothesis: The empirical results confirm the hypothesis that there has been a “policy-making in Mexico, regarding oil policies in 1938 and 2013, have been historically influenced by geopolitical driving forces, and for the last reform of Enrique Peña Nieto, the importance has been stressed as a national security strategy for North America”. Highlighting the finding that NAFTA pushes for energy integration and the geopolitical interest of national security in the subset of energy security.

The constellation of actors that have influenced the policy-making on energy, especially on oil is comprised of a vast composition of elements. From international companies like Shell, BP, Standard oil and the presence of Doheny and the Nazi interests in the first period, taking in consideration always the heavy figure of the president. PEMEX is more considered an element of study than an actor, as at the same time, presidents are considered a driving force themselves.

Moreover, there have been different kinds geopolitical driving forces that evolved along the

64 decades. The Mexican government's national security strategy has been directed to seek support from the United States as a ruling power in the 20th century, and now the national security has been taken on a process of NAFTA integration, where now it takes a regional treatment. NAFTA has formed a multilateral agreement and space of cooperation, with focus on commerce. Negotiation on oil related issues have always been on the table. Goldwyn (2013) states that Mexico has firmly positioned itself to become a major player in the global market, but it will take some time for it to become a transparent supplier of oil and the competitiveness will increase with the cooperation of transnational firms. Several USA companies are tempted to invest taking advantage of the NAFTA value chain; still one of my major personal concerns is that the government should diversify their investors.

In order to conclude, it is necessary to say it is not easy to construct a simple argumentation on such an extensive and complex topic. Mexico has had a deep debate about the issue, that has severely affected the political and economic panorama of the entire Latin American region; there are factors that should be considered such as: oil workers unions, corruption, capital for technology, foreign interest, offer and demand, public opinion, as well as the study of the profile of the leader in addition to many other points that should be taken into consideration in order to create a broad and solid context. For the comparative history as the contrast of contexts, the differences between the two moments are significant, starting with the most apparent thing: Mexico is one of the most important oil producers in the world. That is the main point of importance of the study of this growing economy. It is important to mention too, quoting actual president Enrique Peña Nieto “Mexico has pronounced itself in favor of change and transformation… we have overcome myths” (La Jornada: 2013). According to Ackerman (2014) the international press expressed around the oil reform that when the economy of Venezuela implodes and Brazil’s growth has slowed considerably: Mexico is becoming the Latin oil producer to watch and a model for developing the economy’s country. Most of the experts think that the success of the reform of 2013 will depend on if they are implemented effectively with the complete respect of what has been written on the constitution. In words of Goldwyn (2013) “Mexico’s role in global oil markets is positioned to increase from major supplier status to strategic supplier status over the next decade”. The leaders of North America are pretty aware of that on “his first meeting with President Barack Obama in Washington, Peña Nieto claimed that such reforms would contribute to guaranteeing North American energy independence” remarking that Mexico is owner of the fifth largest shale gas reserve on the planet, and holder of vast deep-

65 water oil with a big capacity to develop renewable energy sources.

In addition the difference between these historical moments to contrast the periods of changes in oil politics is the need for new technology that affects the situation in a different way than before. The need to explore deep sea reserves of oil, one big chance to get the capital for this goal is to merge in a joint venture with other Foreign Oil companies and try to expand the market. Another fact now is that the political risk that Enrique Peña took at making this movement demonstrates the worth of the objective. Mexico has overcome its traditional past. When compared to the 1938 expropriation, the 2013 Energetic Reform lacks the popular support within the nation, but is given continued backing by foreign entities.

Will the political class of Mexico be brave enough led and protect PEMEX to make even more money for the country, or will they be fooled by the new foreign partners? It can be said that, what this thesis will do, after identifying the different elements to analyze the goal, is underline the driving forces that led to the historical changes to the energy model of this Latin American country, in those two particular moments - 1938 and 2013. According to Ramirez (2013) the energy reform will give the first results after 2018, when new explorations begin and after 2020 for the refining activities, US has already reduced their imports from Mexico, Venezuela and Nigeria and augmented acquisitions from Canada. In Latin America, the geopolitical impact in Brazil and especially Venezuela and Mexico will have to rethink its oil relationship with the United States. I can say that Mexicans are ready to take the challenge.

Underneath the world’s panorama, according to the works of George W. Grayson22, who will be reference when reviewing 1938, the biggest question at that time was: could Mexicans, who were for many years dependent upon “foreign expertise, run the industry they had seized? Or would they live up to their caricature as a friendly people fond of dozing against sun-warmed adobe walls, massive sombreros shading their eyes?” This can be appreciated as a matter of technological development, which was not a break to nationalization: the government took the risk; the need to do it was out of doubt. The big challenge to Mexican culture of the 1930s was to face the future in the world scenario. When PEMEX became one of the best oil exporters and an engine for national development, it became one important icon for the Mexican identity. Only the

22 Taken from the intro of The Politics of Mexican Oil by George W. Greyson and the page is written as –XV- Edition of 1980.

66 future will show whether the bold efforts of Peña Nieto to create a thriving Mexican state will be successful. It is now too early to say whether or not the Energetic Reform will be valuable for the development of a more progressive and developed economy.

It became extremely fundamental for me to built up this work to shed some light on the topic, mainly driven by the curiosity to understand the driving forces as well as which was the factor that motivated EPN energy bill. My desire was to produce an academic contribution, to help any person that is interested in this topic to visualize a broader picture of the reality. This way is possible to prevent the reader of ideological manipulation form those who were against the reform as well as those who defended it. I want to bring up some facts provided from ProMéxico (2014), when talking about FDI and how it impacts on transforming the reality of the country, through the impulse of economic growth after the change in energy policies:

Spanish renewable energy developer Acciona Energía has signed a contract worth 111 million USD with private investors Actis and Comexhidro for the design, engineering and construction of a 49.5 MW wind farm in Mexico. The Ingenio wind farm, located in the Isthmus of Tehuantepec in Oaxaca, includes, through additional contracts, the sale of the project developed by Acciona Energía México to its new owners, plus the operation and maintenance of the wind power complex for 15 years. Thanks to the recently implemented energetic reform in Mexico, the states of Tabasco, Veracruz, Chiapas, Puebla, Tamaulipas, Nuevo León, Coahuila and San Luis Potosí will register a higher economic dynamism by 2018 than the one they would have observed without the reform. According to the document, the largest oil production platform implies that Tabasco, Chiapas and San Luis Potosí will accelerate their growth. With the reform, Tabasco will grow 7%; Chiapas, just over 4% and San Luis Potosí, above 5%; whereas without reform, the expansion of the Gross Domestic Product (GDP) in Tabasco would be close to 4.5%; in Chiapas, 2.5%, and San Luis Potosí, under 4%. “To enable greater oil production platform in the coming years is one of the main goals of energy secondary laws. The benefits of this will be reflected primarily in those states that concentrate both conventional and unconventional resources,” says the report.

The impossibility of untangling the market as a driving force (internal and external) shows how shifting dynamics and supply choices of fuel have a direct impact on energy policy-making. For the country, Lázaro Cárdenas will always be a nationalistic reference of the XX century, but the

67 evolving energy system is inviting Mexico to move forward to become a more aggressive and integrated actor concerning the international system. So far, the reform debate has not taken the geopolitical and national security approach in public opinion. Slowly the Mexican reform will take effect on the international market, it will impact the balance of producers and the global framework of the oil industry. The Mexican reform will increase the production and availability of exports also, and thus affect the precarious balance of prices of the Organization of Petroleum Exporting Countries. From my own reflexions, the reform of 2013 is a milestone in Mexican history, but oil is just a part of it, the main focus on society should be on reinforcing the development of renewables, and to push the government towards the attraction of FDI in this sense. Another comment that I allow myself to express in these conclusions is that taking advantage of the automotive boom in Mexico, the authorities should focus on developing environmental friendly cars. Vehicles that can work with biofuels represent a big area of opportunity for the country; the great potential to produce biofuels of the Mexican Republic should be matched with innovative policies that can lead the research and development of the automotive industry towards adopting engines that need no hydrocarbon products to really move Mexico. Brazil is doing it; the Mexican government can do it as well. The existence of strategic institutions like ProMéxico can accelerate the international cooperation with organizations and green companies around the world, the Nordic countries can become powerful allies for this aim. Let’s be conscious that the energy reform of 2013 was not only about oil.

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