Although the Mexican economy continues to grapple with the economic impacts of the COVID-19 pandemic, foreign investment is on the horizon. However, México’s president, Andrés Manuel López Obrador, commonly known as AMLO, is unafraid to scare off foreign investors as he aggressively seeks to increase state control over México’s energy industry.
In the campaign trail, AMLO continuously rallied against what he perceived as an infringement on México’s “energy sovereignty”: an increased reliance on large imports of oil and gas.
To address this crisis, his administration is taking a page out of the political book of AMLO’s political hero, President Lázaro Cárdenas. In 1938, President Cárdenas invoked Article 27 of the Mexican Constitution and seized control of all privately-owned petroleum reserves and facilities. Many were owned and operated by British and American companies.
Similarly, AMLO’s energy reform would increase state control over México’s energy sector by canceling long-term energy supply contracts (many with foreign companies) and prioritizing government-run suppliers’ right to sell energy into the grid over private suppliers. In addition, AMLO seeks to bolster domestic oil production by constructing oil refineries in México, as well as purchasing facilities outside the country.
Unsurprisingly, AMLO’s moves have strained relations with the United States. In recent bilateral talks, U.S. Energy Secretary Jennifer Granholm highlighted the uneasiness these reforms were creating within the U.S. business community. Secretary Granholm’s remarks in México came after the U.S. Chamber of Commerce and the powerful American Petroleum Industry lobbied the Biden Administration to raise their concerns to the Mexican government.
The uneasiness has garnered the attention of global law firms, like Holland & Knight. The firm is now advising investors and operators to maintain a close eye on the proposal and to consider local and international investment protection and defense strategies. This is crucial in the event that AMLO’s energy proposal is successful in the Mexican Congress.
The American business community is not alone in sounding the alarm, as Mexican business leaders and economists have also expressed their concerns with the reform. Like their American counterparts, Mexican critics of AMLO’s proposal assert that his proposed reforms would have a chilling effect on foreign investment – a must-have if México is to revitalize its energy infrastructure and its economy.
Despite the sharp criticism, AMLO is moving ahead full force with his proposal. Interestingly, it appears the aversion of the reform among the business community is not reflected among the general public. AMLO continues to enjoy an approval rating of 66% of the population and his party seems poised to win big in this year’s gubernatorial elections, according to recent polls.
Every March 18, México jubilantly celebrates el Día de la Expropriación Petrolera, the day President Cárdenas nationalized the oil and gas industry. The celebration, which highlights a developing nation’s prevalence over Western business interests, promotes a sense of pride and national sovereignty. While many may view AMLO’s energy reforms as a blow to foreign and domestic business interests, it is not difficult to see why he remains a wildly popular president: his proposal, often compared to the Expropiación Petrolera of 1938, appeals to the nationalist feelings that catapulted him to the presidency in the first place.