The worst case scenario for Mexico at the OPEC+ meetings last week would have been that because of the López Obrador government’s unwillingness not to cut oil production in the same proportion as the rest of the world, the agreement would have collapsed and that the price would have remained low for a long season. Mexico would have paid two very high costs.
The first cost would have been serious liquidity problems for Pemex, the state-owned company, and therefore for the Mexican treasury. The second cost would have been for Mexico to be responsible for the world’s oil industry disaster.
However, Mexico will only cut 100,000 barrels, not the 400,000 that would be based on the proportion of what the country produces. The US, Trump says, will absorb the difference. There has been a festive spirit in the López Obrador government.
But there is no reason to celebrate.
First, the cost of the López Obrador government having its way will be high among the international community, especially in this time of crisis. Countries always keep count of who helps and who does not. For a country the size of Mexico, its good reputation in the international diplomatic arena has been essential throughout the decades. Acting in accordance with principles of collective well-being, has allowed Mexico to have an influence greater than its real weight. Saudi Arabia and Russia will certainly not forget the lack of solidarity of Mexico.
Second, although the agreement will help the price to go up, it remains to be seen whether this increase is sustainable. It is common for more than one country to cheat in and not to lower its production. Furthermore, the drop in demand is such that even if everyone is cooperating, the price will remain low. Pemex must learn to live with crude less than US $20, and that implies focusing its investment only on productive oil fields, which implies…lowering its production.
Finally, in either scenario, the opaque agreement between López Obrador and Trump generates natural concern. Trump has not given anything for free in his life. Everything is an exchange. He is not thinking about the well-being of the relationship between the peoples of Mexico and the US. We do not know how is charging López Obrador for his support. But he will, do not have the slightest doubt.
* Carlos Elizondo Mayer-Serra is professor at the School of Government and Public Transformation at Tec de Monterrey, in Mexico City. A Spanish version of this Op-Ed appeared first in Reforma’s newspaper print edition. Twitter: @carloselizondom
