Mexico’s federal finances are poised to benefit from rising oil prices. According to the General Economic Policy Guidelines, the Finance Ministry estimates an additional MX$13.1 billion (US$683 million) in revenue for every one-dollar increase in the price per barrel.

The Ministry of Finance and Public Credit (SHCP), under the leadership of Edgar Amador Zamora, noted that higher oil prices tend to boost export revenues more than they raise the cost of hydrocarbon imports handled by Petróleos Mexicanos (Pemex).

For 2024, President Claudia Sheinbaum’s administration projects MX$1.142 trillion in oil revenue, based on an estimated price of MX$57.8 per barrel. However, geopolitical tensions are expected to push prices higher. Recent US airstrikes on Iranian nuclear sites and Iran’s threats to close the Strait of Hormuz have intensified these concerns.

Before these developments, the Mexican Institute of Finance Executives (IMEF) had already forecast that the conflict could drive Mexico’s crude blend to MX$100 per barrel. As of June 18, the price had climbed to MX$70.23 per barrel.

Despite favorable pricing, Mexico’s oil production has not met expectations. By April, output reached 1.69 million barrels per day, falling 9.4 percent short of the 1.87 million barrels per day target.

Jorge Cano, coordinator of Public Spending and Accountability at Mexico Evalúa, outlined both potential benefits and risks for public finances.

On the positive side, increased oil revenues could support fiscal consolidation and help reduce the budget deficit to 3.9 percent of GDP. The government has already implemented spending cuts to meet its fiscal objectives.

On the downside, higher oil prices could lead to increased gasoline costs. This may require fiscal stimulus through reductions in the Special Tax on Production and Services (IEPS). Subsidies to counteract rising fuel prices could offset the gains from additional oil revenue.

“In 2022, rising oil prices led to full IEPS subsidies and extra fiscal relief, resulting in a net revenue loss,” Cano explained. That year, the government earned MX$269 billion in extra oil revenue but spent MX$397 billion on fuel subsidies.

Pemex remains one of the most indebted oil companies in the world and continues to rely on federal financial support. For 2024, the federal budget allocated MX$136 billion to Pemex, primarily to address its debt. By the end of the first quarter, the company had already drawn MX$80 billion, which represents 59 percent of the approved amount.

Source: (Mexico Business News)

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