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Peak for Pemex could help push Mexico to ruin

Wednesday's news about the Mexican oil industry won't be good, and the implications are not merely to the Mexican economy.

According to reporting tonight from Bloomberg, Pemex, Mexico's state-owned oil company will report on Wednesday historic declines in production.

This comes just days after a report by the U.S. Joint Operations Command which said that Pakistan and Mexico are in danger of sudden collapse. In my mind, this note from the Bloomberg article ties Mexico's oil production to Mexico's stability:

Mexico relies on Pemex for 40 percent of its budget. Falling sales may cut into funding for a 570 billion-peso ($41 billion)-a-year infrastructure plan President Felipe Calderon is counting on to keep the country out of recession this year, Schtulmann said.

Pemex is among the ten largest oil companies in the world and outside of Canada and Saudi Arabia, Mexico is the largest importer of oil into the U.S. It's astounding that 40% of Mexican government revenue is dependent upon Pemex. Mexico faces all of the structural economic problems it always has. Recently, the government has been locked in what seems a death struggle with drug cartels who are buying out or killing anyone that gets in their way. In 2008, 5,000 murders were attributed to Mexico's struggle with the cartels.

Oil prices fell below $33 per bbl today. U.S. and international inventories are high; world demand has lowered due to the recession - barring an insurrection in Saudi Arabia, prices aren't going up soon. Mexico is screwed.

And, so are we if our little slice of the Third World goes Pakistan Northwest Tribal Areas on us any time soon.

Aside from the scary scenarios one may conjure over the breakdown of central authority in Mexico, there is yet another strategic question for the U.S. Where do we go to replace the lost Mexican barrels? When our economy takes off again and demand for crude goes back on the upward slope, from which international bad actor will we be purchasing more oil?

Editorial Notes: Re-posted by permission of the author. The full report from the U.S. Joint Forces Command is at The Joint Operating Environment 2008: Challenges and Implications for the Future Joint Force (PDF). It is 56 pages long and was released November 28, 2008. No mention of peak oil, though there are sections devoted to Energy, Food, Water, Economics, Demographics and Globalization. Related: Mexico's Instability Is a Real Problem (WSJ) Mexico, Pakistan face 'rapid and sudden' collapse: Pentagon -BA

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