Mexico’s Pipeline Blasts

The Houston Chronicle reports that the same group that claimed responsibility for four bomb attacks against Mexico’s oil pipelines in early July is now claiming responsibility for the six Sept. 10 explosions of pipelines in Veracruz and Tlaxcala states.

The group, the Popular Revolutionary Army, or EPR, is said to be seeking the release of two of its members held by the Mexican government. If a related aim is to bring the Mexican state to its knees, they’ve chosen their strategy well. It turns out Mexico is particularly vulnerable to an attack on its oil infrastructure.

Based on this vulnerability, John Robb of Global Guerillas all but predicted back in December 2006 that Mexico would see attacks of this kind:

Analysis of critical Mexican infrastructure reveals a critical flaw. Due to its history as an oil exporter, nearly all domestic fuels and most of its electricity is generated from oil and natural gas delivered by pipelines radiating from the oil producing region in the southeastern corner of the country. Low tech attacks along a 300-400 mile stretch of pipeline would quickly starve the country of the oil needed to generate electricity and refine fuels (the current system has been inadvertently built to maximize cascading failures across multiple infrastructures if properly disrupted). Further, analysis of the pipeline infrastructure would also quickly reveal junctions and pumping equipment that would be extremely difficult to replace (systempunkts). As we have seen in Iraq, Nigeria, India, Pakistan, etc. these anonymous attacks could be frequent, effective, and nearly impossible to interdict. They would also result in an immediate expansion of black markets for fuels imported from the US, generating a useful feedback loop for continued disruption.

Indeed, this Reuters headline says it all: “Mexico Pipeline Attacks Raise Fear of ‘New Nigeria’.” (For more on the situation in Nigeria, see here).

Why is oil revenue so important for Mexico? In a July 10 article for WPR, Jonathan Roeder explained:

For decades, Mexico has been able to put off tax reform by milking Pemex, the state-owned oil monopoly. Close to 40 percent of federal funding comes from taxes on oil, but this heavy burden has left Pemex unable to invest in exploration and infrastructure. Mexico’s constitution also prohibits private investment in the energy sector, limiting the firm’s possibilities.

As a result, oil wells are running dry and production is dropping. If current trends continue, Mexico, today a major supplier of the United States, may become a net oil importer within a decade, according to experts.

“Right now you’re already seeing that oil production is starting to fall,” said Jonathan Heath, chief economist for HSBC Mexico. “And it’s starting to fall . . . because necessary exploration and investments haven’t been carried out.”

If other sources of revenue are not found — and quickly — the nation could face financial crisis.

Mexico’s national energy policy doesn’t help the situation. For more on this, see the Mexico section of this article (pdf file) by Sydney Weintraub of the Center for Strategic and International Studies. As Weintraub explains, private-sector energy investment is prohibited by the country’s constitution. In addition, the Mexican government has been heavily drawing on state-run oil company Pemex’s revenue to finance spending. The result: declining oil production and a lack of money for new exploration.