[BETA] Fortnightly

Et Tu, Mexico?

A consultant questions whether our trade partner's role in organizing cutbacks in world oil production is consistent with NAFTA obligations.

 

In the last nine months of 1999, the outflow of U.S. dollars for imported oil increased by $18.6 billion from the same period in 1998, according to figures from the Energy Information Administration at the Department of Energy.

From the gas pump to the refinery, U.S. consumers and businesses are feeling the pinch of cutbacks in OPEC oil production. Crude prices hit a nine-year high of nearly $32 per barrel in early March, up from about $10 per barrel a year earlier. Glenn R. Schleede, president of Energy Market & Policy Analysis Inc., blames our neighbor to the south in large part for the tightened oil supply.

In fact, as Schleede notes in a Feb. 18 letter to Energy Secretary Bill Richardson, our NAFTA partners are among countries most benefiting from increased U.S. dollar outflows for oil. Canada, the No. 1 beneficiary, reaped 14.4 percent of the U.S dollar outflows for oil imports from April to December last year, while Mexico, the No. 4 beneficiary, had a 12.0 percent share of the outflows.

But, says Schleede, it's Mexico's work with OPEC that has made the oil producers' cartel effective when OPEC, by itself, had failed. According to news reports, Mexico's energy minister, Luis Tellez, played a key role in organizing the cutbacks in world oil production that resulted in higher prices.

"To a non-expert, cartel participation seems inconsistent with the good words in the NAFTA Preamble and Objectives, such as 'harmonious development and expansion of world trade,' 'clear and mutually advantageous rules,'" says Schleede in his letter to Secretary Richardson.

Although the total increased cost of petroleum products to U.S. consumers during the nine-month period last year is impossible to calculate, Schleede estimates that consumers probably paid $38 billion to $43 billion more than during the comparable period in 1998.

Schleede concludes that the cutback clearly has had a negative impact on U.S. consumers. He suggests, "If, in fact, NAFTA does not now deal with this matter, perhaps it should be revised to do so."

Relief appeared to be on the horizon in early March. Major oil exporters Saudi Arabia, Venezuela, and Mexico agreed on the need to raise crude supplies but had not decided on the timing and volume of an output increase. Furthermore, according to Reuters, Tellez declined to allay fears among producing countries that Mexico might raise output ahead of the cartel.