Mexican President-elect Claudia Sheinbaum’s next steps on energy could make waves in the U.S.
The peso is slumping against the dollar following Claudia Sheinbaum’s election to succeed Andrés Manuel López Obrador as Mexico’s next president. Investors are concerned about Sheinbaum’s determination to continue the current Mexican president’s policies, particularly with regards to private investment in the country’s energy sector.
Whether Sheinbaum follows her predecessor’s lead or strikes a new path could have significant implications for the U.S. — particularly for Texas.
Six years ago, Mexico’s finances were relatively healthy, thanks to the policies of López Obrador’s immediate predecessors as president. Claudia Sheinbaum, by contrast, will inherit the results of López Obrador’s administration, including his re-nationalization of the country’s oil and natural gas resources and electric power generation.
“I think reality is going to be much, much harsher to her than it was to Mr. López Obrador,” said Tony Payan, director of the Center for the U.S. and Mexico at Rice University’s Baker Institute for Public Policy.
Just how harsh can be seen in the country’s budget deficit, which is approaching 6% of the country’s GDP. The last time Mexico’s budget deficit approached 6% of its GDP was in 1995, at which time it helped spark a financial crisis.
“Ms. Sheinbaum will have to understand that, today, the Mexican economy depends much, much more on the U.S. than it did six years ago,” Payan said.
Roughly 40% of the Mexican economy is exports, about 80% of which go to the United States. The depreciated peso will make Mexico’s exports to the U.S. cheaper. But it’ll also make Mexico’s imports from the U.S. more expensive — and that’s where Mexican energy policy may really hurt the country.
“We really rely on gas from the U.S.,” said Veronica Irastorza, senior managing director for FTI Consulting and a former Mexican undersecretary for energy planning and transition.
Sheinbaum is determined to continue the nationalization of Mexican energy production. But López Obrador’s restrictions on private investment have already taken a toll. “Mexico’s natural gas production is maybe half of what it was in 2010,” Irastorza said. “And it now serves just about a third of the demand, and the rest is gas from Texas, mostly.”
Mexico bought nearly $130 billion in goods from Texas last year, making it by far the Lone Star State’s largest trading partner. But trade isn’t the only way the two economies are linked; there’s also direct investment.
“The energy sector in Mexico is really a devastated landscape,” Rice University’s Tony Payan said. “Texas can certainly help a lot. But will Mexico allow itself to be helped by Texans and Texas investment? Who knows? It depends on which Claudia Sheinbaum really shows up to govern.”
Payan said Sheinbaum is ideologically committed to the left, but unlike López Obrador, she’s known for being a disciplined leader focused on results. Sheinbaum has pledged to cut the deficit to 3.5% of GDP next year.