While Mexico will undoubtedly be on the sidelines of any potential enlarged armed conflict that results from the ongoing invasion of Ukraine by Russia, the country will still be far more affected than many Mexicans realize.
Unlike the laser focus on the war that we see in most Western countries, the war is not front page news in Mexico. In discussing the matter with the Mexican press and exploring potential angles to be covered, I have received yawning responses. “We are looking at a lot of other issues,” like the unveiling of the controversial Mexico City international airport (one of the current President’s pet projects). Ah, Mexico, forever gazing at its navel, a narcissistic mental island of its own.
While ignorance can offer fleeting bliss, Mexico will be affected for many reasons that we have not yet fully come to grips. Let’s start with the official diplomatic response of Mexico.
The government of Mexico has in fact condemned the invasion of Ukraine; what it has not done is take the step to impose sanctions on Russia. The Minister of Foreign Affairs, Marcelo Ebrard explained early in the game in a tweet on February 24th that “For reasons of history and tradition and the formation of our nation we have to energetically reject and condemn the invasion of a country like the Ukraine by a powerful country like Russia.” He took the opportunity to remind us that Mexico has been invaded twice by France and twice by the United States, losing half of its territory in the latter case. In other words, we know how you feel, Ukraine.
Mexico’s decision not to immediately impose sanctions on Russia is perhaps a pragmatic stance. Mexico would not be able to affect Russia much anyway and as President Andrés Manuel López Obrador (AMLO) explains it, the country wants to be able to speak with both sides of the conflict. Even if it is a little disappointing from the US-lense of neighborly solidarity, in these early days, it is passable. But not for long.
The wishy-washy stance will get complicated if the conflict gets worse and the fact of the matter is that we are dangerously close to a Third World War. If Vladimir Putin feels cornered and decides to throw all of the meat on the grill (yes, echar toda la carne al asador) and “accidentally” lets a missile fall on Poland, there will be no turning back. And if NATO goes to war, the US will insist upon more brotherly love from Mexico.
Now let’s turn to the economic and business considerations at hand. Mexico’s private sector has offered a substantive response in keeping with global trends. Most importantly, the consumer bakery giant, Bimbo, suspended its operations and any new investments in Russia. Nemak halted its autoparts operation in Russia and Gruma suspended its flour production in the Ukraine as a result of the conflict. Interestingly, the private sector must also take a stance in today’s globalized world, and sometimes one that goes against their immediate financial interest.
Oil and gas prices are rising given that Russia remains a hydrocarbon powerhouse upon which Western Europe remains uncomfortably dependent. Good for Mexico and state-owned oil firm Pemex? Not really. Oil prices rising puts pressure on gasoline prices and Mexico subsidizes the price of gasoline, which gets costly for the government. (Yes, amazing in a world with climate change, but I digress). If gasoline prices rise in Mexico – and AMLO has ensured Mexicans that they won’t – internal politics will get even uglier. Further, Mexico imports most of its natural gas and rising energy prices are adding to inflationary pressure, which is running above 7 percent year-over-year. Additional price pressure will come from the agricultural sector, as grain prices increase as a result of the crippling of Ukraine’s significant production capacity.
The University of California San Diego held an interesting webinar discussion last week regarding the geopolitical and energy-related consequences of the war for Mexico. What struck me as most important was the assertion that as a result of the war, the global transition away from hydrocarbons and toward alternative sources of renewable energy has become more critical than ever. For Europe, the transition is not only a climate imperative, but an energy security imperative.
For the world and for Mexico that means that investing in a hydrocarbon future is investing in a past that is in the midst of disappearing. In other words, it’s a bad investment, like building a top hat factory when clearly they have gone out of fashion.
Thus far in the collective mind in Mexico, Russia’s war in the Ukraine still seems remote. But as the pandemic demonstrated tangibly, however, global dynamics are unavoidable and implacable. It is time for Mexico’s government and private sector to plan for continued political and economic turbulence ahead.