Drowning in the Oil Sea.(Mexico's national oil industry)(Brief Article)

The water-borne city appears through the helicopter window, dozens of oil platforms scattered across the shimmering blue Gulf of Mexico, smokestacks spitting fire. It was here, 50 miles from shore, that in 1976 a local fisherman named Gumercindo Cantarell spotted a shiny black substance floating on the water. The oil deposit below proved to be one of the biggest in the world. And the oil gushed with such force that the cost of extracting it was almost incidental. By the late 1970s Mexico had become an oil superpower and the government, it seemed, had cash to burn.

Mexico is still the world's third largest oil producer, and half of its oil comes from the Cantarell deposit. But a looming strike over wages highlights the uncertainty at Petroleos Mexicanos, the state-owned oil monopoly known as Pemex. In recent years Mexico has earned renown as a star reformer among emerging markets, yet it is one of the few oil powers that refuses foreign help to improve efficiency or find new wells. As a result, reserves have dropped by half over the past decade. President Vicente Fox came to office with plans to open up the oil sector, but he's run into a constitution that defines fossil fuel as state treasure, and a gusher of local opposition. Says Jose Luis Torres, a 37-year-old foreman on a Cantarell platform, "The workers think the gringos are coming to take their jobs."

Three decades ago private companies known as the "Seven Sisters" dominated global oil markets. Their power spurred nations from Saudi Arabia to Venezuela to seize oil assets, and since the late 1970s state companies have ruled. Despite recent megamergers that created giants like ExxonMobil, the top five oil companies are national enterprises (Pemex is No. 3). Of course, most are no longer so nationalistic, and are partnering anew with private oil firms to gain expertise, capital and technology. Even Iran has found ways around constitutional restrictions on foreign involvement. Mexico is the unexpected exception.

Mexico nationalized oil earlier and more aggressively than most. Formed in 1938 from the expropriation of U.S. oil companies, Pemex became a patriotic icon. Even as Mexico opened its markets during the 1990s, energy was the one sector that the struggling left ...