Another economic disaster looms for both the US and Mexico and something needs to be done in the near future to stop it.
Mexico is currently the fifth largest oil producer in the world and the third biggest supplier of crude oil to the United States, but production has been declining at its mammoth Cantarell oil field so drastically that the country is now expected to become a net importer of crude oil within the next four years.
Should that prediction come to fruition, gasoline prices in the United States will skyrocket and the Mexican economy would most certainly collapse.
That’s why when the Mexican government announced in 2006 that a new oil field was discovered off the coast of Mexico’s Veracruz state with potential additional reserves of up to 10 billion barrels of crude, it was viewed as welcome news by many people on both sides of the US-Mexican border.
However that good news continues to be tempered because the state-owned Mexican oil monopoly known as Pemex currently lacks the financial resources and expertise needed to exploit the newly-discovered deep water oil field in the Gulf of Mexico. The resulting capital shortage is further compounded by Mexican law, which still prohibits the foreign investment that Pemex desperately needs to extract the crude.
Last year, Mexican President Felipe Calderon made very modest strides in reversing Pemex’s monopoly but he faces an uphill battle to get any meaningful reforms. This is because most lawmakers believe a national monopoly is the only way to ensure that the majority of Mexico’s oil profits remain in the Mexican Treasury.
Mexico’s economy absolutely depends on oil exports; fully 60% of Pemex revenues are routinely siphoned off to fund 40% of Mexico’s federal budget. If Mexico’s golden goose is to be kept alive and kicking, and if America wants to avoid another potential gas crisis, it is imperative for both countries that Mexico’s nascent monster oil field reaches its full potential.
However, in light of Mexico’s reticence to foreign investment in its dying oil industry, one is left to wonder exactly how that country plans to raise the capital necessary to fully exploit the potential of its newest oil field.
Here’s a crazy suggestion: Why doesn’t Mexico sell Baja California to the United States?
The idea isn’t a new one. In the mid-nineteenth century the United States made two separate formal requests for Baja California’s eclectic array of arid desert, rugged coastline, and fertile farmland. The first came in 1848 during negotiations to end the Mexican-American War. Six years later, a second request was made to include Baja California as part of the Gadsden Purchase.
Selling Baja California now would give Mexico the capital it needs to maintain its treasury revenues, revive the health of its declining oil industry and tap the deep-water crude lying under the Gulf of Mexico sans foreign investment. In exchange, the United States would preserve a locally reliable source of oil imports and become the new owner of the third longest peninsula in the world.
“Okay, Len, so how much is Baja California worth?”
But, in inflation adjusted dollars, the southwestern land buy known as the Gadsden Purchase was settled for roughly $30 per acre. In The Annexation of Mexico, John Ross writes that the Reagan administration wanted to buy Baja California for $105 billion. If Ross’s account is true, the US made an inflation-adjusted offer for Baja California in the neighborhood of $200 billion. That’s $5,580 per acre.
For $200 billion Mexico would receive a significant cash infusion equivalent to roughly 20% of its 2008 GDP. Assuming up to half of that will be needed over the next decade to sustain Mexico’s domestic oil production at current levels, that still leaves $100 billion to stimulate the Mexican economy via public works projects and other improvements to the Mexican infrastructure.
For the United States, a secondary effect of the sale would be the naturalization of up to three million new American citizens that are currently residing in Baja California — many of those poor and dependent on government support. But that’s a manageable issue; after all, we’ve been there and done that already. The INS estimates that the number of unauthorized Mexicans residing in the United States increased by almost that much between 1990 and 2000.
Besides, $200 billion dollars for Baja California and stable gasoline prices seems downright reasonable considering the enormous development potential of the Baja coast. And let’s face it. What’s another $200 billion between you and me when the government has already thrown away over a trillion dollars in misguided corporate and homeowner bailouts?
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