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0px; font: 12.0px ‘Times New Roman’; color: #000000; -webkit-text-stroke: #000000}span.s1 {font-kerning: none}span.s2 {font: 12.0px Times; font-kerning: none}span.Apple-tab-span {white-space:pre}Petroleum’s status has made it a key component in the world economy for well over a hundred years. It is directly responsible for about 2.5 percent of the world GDP, and it accounts for a third of humanity’s primary energy supply.

Oil is arguably as important to the developed world as agriculture, and if it stopped flowing, it is almost certain that modern civilization would collapse. Two countries, Iran and Mexico, have economies that are heavily dependent on the petroleum industry. Iran ranks fifth in oil production, producing just over 4 million barrels of oil per day, and Mexico ranks twelfth, producing 2 million plus barrels of oil a day (OPEC). While both countries have reaped the benefits that the oil industry has bestowed upon their economies, they have not done so without suffering hardships and disparity to their people. In this sense, the oil industry is both a blessing and curse for these two countries.  Prior to the discovery of oil, Iran’s “source of livelihood” was agriculture, with a smaller focus on trade, services, and craftsmanship (87 Kheirabadi).

Primary exports included quality handicrafts, particularly textiles and carpets, as well as decorative gold, silver, copper, and brass items. But in 1908, the Anglo-Persian oil company (APOC) struck oil at Masjid-i-Suleiman in the southwest Iran, and gradually petroleum became the backbone of the country’s economy. Petroleum was actually known about in Mexico before the arrival of the Spaniards and was used by the natives for incense and to repair canoes (Sanchez). The first exploratory wells were first drilled in Mexico in 1869 by the Mexican and some U.S. entrepreneurs. But in 1883, the Mexican Congress passed a law, Ley de Colonización, which gave land titles to private owners, allowing more than 132 million acres of land in Mexico to be owned privately, making it easier for foreign oil companies to buy or lease property to begin to drill. In July of 1908, a British man, Weetman Pearson who held a a co-proprietorship, struck oil in San Diego de la Mar, and his discovery would fuel a massive land grab by other foreign oil companies.

Pearson sold his shares to Royal Dutch Shell, and in 1911 Mexico became an oil exporting nation with the first shipment of oil leaving the Gulf Coast port of Tampico (Sanchez). Unlike Iran, the economy is less dependent on the oil industry as manufacturing, tourism, and remittances— money sent back from Mexicans living abroad— contribute largely to the country’s economy as well.  Despite the fact that oil production began in Iran in the early 1900s, its impact on the country’s economy was relatively small until the 60s. After the APOC was established, the British government, under the initiative of Winston Churchill, pumped 2 million pounds into the company. In doing this they secured about 51 percent of total shares, and soon the APOC controlled virtually all of the oil operations in Iran (Mohaddes). An unspoken partnership between the British government and the APOC formed and the company made sure that the British government became an important figure in the Iranian oil industry, intensifying British influence in Iran. During World War I, Churchill decided to run the British naval fleets on oil instead of coal.

This decision created a demand for Iranian oil which led to significant increases in the country’s oil production and exports. This Iranian oil would flow to Europe and fuel both world wars. In the process of doing this however, resentment was building in Iran over the exploitation of their resources by western companies. This changed in 1951, when Iranian Prime Minister Mohammed Mossadeq nationalized the oil industry, and kicked out the APOC.

“The rise of the Islamic Republic spelled the end of western participation in the Iranian oil industry until the late 1990s… but before the turn of the century, Iran began courting the expertise of international oil companies to help increase production” (Kent). Despite strict negotiating terms, European oil companies invested billions and billions of dollars, eager to gain access to the country’s extensive oil resources. However this period of investment did not last long, and within a decade European oil companies were withdrawing from agreements as the West tightened sanctions on the Islamic Republic in response to concerns over its nuclear program. The effect this can be seen from the fact that production fell from about 3.

6 million barrels a day in 2011 to 2.8 million barrels a day in 2014.  Beginning in 1918 and extending into the 1920s, Mexico was second behind the United States in petroleum output and led the world in oil exports, the foreign investors—primarily from Britain and the United States—playing a significant role. But like Iran, Mexico had similar problems with the infiltration of foreign investors exploiting its oil. In Article 27 of the constitution of 1917 the Mexican government declared that the country held “the permanent and complete rights to all subsoil resources” (Munch). This in turn caused conflict between the Mexican government and foreign companies, and “lay basis for a twenty-one-year struggle” between Mexico and the foreign companies. (Munch). Political unrest after Mexico’s bloody revolution (1910-1920) and the 1917 constitution, caused this foreign investment in Mexico’s oil sector to gradually decline.

This combined with the worldwide depression of 1929, the lack of new oil discoveries, and the emergence of Venezuela as a “more attractive source of petroleum”, led the output to fall 20 percent below its 1921 level (Munch). Further, the nationalization of the industry in 1938 through Pemex, has allowed the state-owned company to retain a monopoly over Mexico’s oil and natural gas sector. In addition, the Mexican Finance Ministry keeps tight control over the company’s finances and management. In part because of the Mexican government’s heavy tax demands, Pemex has operated at a loss since 1998 and significantly increased its debt burden.

Despite Mexico’s rich-endowment of oil, it is the only country in the world among those considered to be oil-rich that has consistently lost production and reserves in the last ten years. “In Mexico, the oil proverb ‘Oil a Gift from God, is the Temptation of the Devil,’ came true (Sanchez). For millions of Mexicans, the oil boom only meant more disillusion in their hope for social justice. In a country where more than 30 million people live marginalized from any benefit of economic growth, the oil industry only brought more deficiencies and problems for the people, and worsened their standard of living. In addition, the oil boom in Mexico has further polarized the income distribution of the country (Mexico’s income distribution is already one of the worst in Latin America).

The benefits truly were only for a few. Continual poor management of Mexico’s oil resources, and the failure of the nationalized PEMEX to be treated as a profit-making company has left oil production lower than ever in the past ten year. With 151,000 employees, Pemex’s output of oil per worker falls short of that of its foreign counterparts; Exxon Mobile reportedly producing around 50 barrels of oil per worker, compared to Pemex’s 25 barrels per worker. Reforma, a Mexican newspaper, reported that the union’s leadership received “$65,000 a day last year for business trips and general expenses” (The Economist). Mr Morales, the former head of Pemex, admitted that the upstream business was overstaffed with workers who could not be laid off, even though the wells they had worked on had dried up due to overhead bureaucracy. In order to make big changes, Mr Morales quoted he that he needed “five sets of approvals for any big contract, including one from the full board” (The Economist).

  When managed properly, oil revenues are a blessing to a country’s economy, but the volatility of the industry can have negative effects on output, through excessively high and persistent levels of inflation. Despite oil production beginning is the early 1900s, its impact on the Iranian economy was relatively small until the 60s. Today, Iran’s economy is suffering from “stagnation, inflation and unemployment, despite the fact that the country has large amounts of oil and used to have a thriving energy industry” (Wald). When sanctions ended in 2016 there was optimism throughout Iran that the economy would improve, but it has not.

For Iran’s oil industry, foreign investment—especially from oil companies with the expertise and capital to work on Iran’s mature oil fields—is absolutely necessary. Many foreign companies expressed interest in working in Iran after sanctions were lifted, but have not gone through with doing so as they have found it very difficult to sign contacts with the NIOC. The Iranian government has established rules and policies that make it “difficult and unattractive” for foreign businesses (Duhalt). Without higher income from its energy industry and better jobs for its population, Iran has been unable to significantly improve its economy, post-sanctions. This is the fault of  Iranian government, specifically the Ayatollah Ali Khameini. In Mexico, the situation appears to be improving as reforms for the oil and gas industry gain momentum, and “for the first time in almost eight decades, Mexico carried out a bid round to auction oil and gas blocks to private firms on July 15, 2015” (Duhalt).

In the eyes of the global oil and gas industry, Mexico is making definite steps in crafting a new energy industry for themselves.  Oil is one of the most important industries in the world. The developed world is dependent on oil for essentially all actions of daily life. Because of this having oil reserves can be extremely  beneficial to a country’s economy, but only if they are managed properly. Unfortunately in Iran and Mexico, years of poor management and exploitation by foreign countries has made each country’s oil industry a curse, just as much as a blessing. Hopefully, in the future better management and oversight of the petroleum industries for both of these country will boost the economies, so that all Mexicans and Iranians will benefit from the positive effects this highly coveted resource can provide. 

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