THE OIL INDUSTRY

After the 1938 oil nationalization, the Mexican petroleum industry, which had been almost entirely export orientated, became closely linked to increased domestic motor vehicle use. Mexican oil production began a steady increase. In 1940, oil production only totaled 44.0 million barrels. By 1970, production had reached 156.6 million barrels.41

In 1938, the government established a public enterprise, Petroleos Mexicanos, generally known as Pemex, that held a monopoly on oil drilling, refining, and fuel distribution. The oil industry had suffered from years of neglect and had become badly worn, inefficient, and obsolescent. Compounding this neglect was the closure of foreign markets to Mexican oil and the refusal of suppliers to sell chemicals or equipment necessary for refining. Senior technicians and administrators departed at the time of the nationalization, taking with them geological reports. During the early 1940s, the industry continued to have difficulty buying equipment due to wartime shortages. In 1946, Pemex surprised many observers by not only surviving but surpassing the 1937 level of oil

Production.42

After the oil nationalization, exports largely ceased while demand within Mexico was soaring. To meet this demand Pemex reoriented its distribution system, which previously had consisted of pipelines from wells to ports on the Gulf of Mexico. After 1938 it was necessary not only to expand refining capacity but also to deliver fuel to users throughout Mexico.43

With the oil industry in government hands, oil workers sought both the material benefits of oil wealth and effective control over the industry. Not surprisingly, this conflicted with the government’s desire to direct the oil industry in furtherance of its own goals. After the end of the Second World War, this conflict broke into the open.44

In 1946, to assert government control over the industry, President Aleman appointed as director of Pemex Antonio Bermudez, an energetic, wealthy, businessman-turned-politician. In December 1946, when oil workers went out on strike, the military occupied oil installations. Within twenty-four hours the strike collapsed, and the union leadership was fired. The crackdown on labor drew mixed reviews since many resented oil workers for having used their status as heroes in the “battle against imperialism” to obtain an average wage of twenty-four pesos a day, ten to twelve times the national average.45

Given increased Middle Eastern oil production, the export market was weak in the 1950s. At that time, crude oil marketing was a virtual monopoly of big oil companies, which were not keen on lending Pemex a hand. This led Bermudez—who headed Pemex until 1958—to concentrate on supplying the domestic market. He observed:

Mexico is not and never shall be a large exporter of oil. It is illusory—and it would be very damaging—to expect oil, exported in large quantities, to become the workhorse of our economy or the panacea of our economic ills.

In addition to meeting soaring domestic oil demand, Bermudez encouraged Mexicans to supply Pemex with equipment. As late as 1947, 100 percent of Pemex equipment was imported. By 1957, domestic producers supplied half of its equipment. A 1952 New York Times article commented on how Bermudez had expanded exploration, reserves, production, consumption, and the distribution network:

Senator Bermudez’ role in building up Pemex to the status of a modern, progressive industry is one of the few things about Pemex that no one disputes whether they are for or against the nationalized oil company.46

From the 1940s through the 1960s, Pemex maintained low prices in an effort to stimulate economic development. President Avila Camacho stated that since the oil industry was nationalized, it “could operate without worrying about the profit motive, only taking into account the general interest.” The availability of cheap energy did spur industrial growth. However, the policy had several drawbacks. Its effect was regressive, since it disproportionately benefited the wealthiest areas of the country, where the most fuel was used. It also lowered the revenue Pemex generated, so little money was available for oil exploration. Pemex’s low prices and excessive hiring, which inflated costs, led the company to rely on foreign loans, which financed the majority of the company’s investment by 1958. Finally, its low prices encouraged the profligate use of energy, which, beginning in the 1960s, forced Mexico to import oil to meet demand.47

Bermudez and his successors achieved labor peace in the oil industry by tolerating widespread corruption. Union leaders were allowed to enrich themselves if they ensured that the industry did not face serious labor problems. Such leaders regularly received contracts to supply Pemex with goods and services and then farmed the work out to others for a percentage of the profits. They sold Pemex jobs for between $450 and $1,200. This was especially lucrative since management allowed them to hire excess workers. Employees engaged in widespread theft of gasoline. Dissident workers were greeted with job loss and violence. This corruption extended up to the very top of the corporation. When President Lopez Mateos chided his Pemex director, Pascual Gutierrez Roldan, for distributing Pemex contracts to his friends and business partners, the director replied, “Do you expect me to give them to my enemies!”48

Despite its being hobbled by corruption and its low-price policy, Pemex retained its status as a national icon—a symbol of victorious Mexican nationalism. In 1964, President Diaz Ordaz’s appointing of Jesus Reyes Heroles as Pemex director further enhanced Pemex’s reputation. Reyes Heroles improved the company’s efficiency and launched an ambitious exploration effort that was to pay dividends in the 1970s.

As a 1967 Wall Street Journal article noted, Pemex’s positive image caused foreign oil companies to worry that it might attract imitators:

Private oil company executives are worried about the impact an increasingly efficient Pemex might have on private oil operations in the rest of Latin America and in the Mideast. “As a successful government venture, Pemex is the model for other countries wanting to nationalize their oil,” says an apprehensive vice president of a U. S.-based international petroleum concern.49