Yves here. Mexican oil is example of where Trump will have fewer degrees of freedom than he anticipated. His economic team was reported to be working on a plan that among other things, had the US exiting Nafta and the WTO on the first day of his presidency. In reality, the US needs six months of notice to exit Nafta, but even that precipitous a move seems unlikely, given that the US is not prepared to handle the extra volume of work involved in computing and imposing tariffs, which among other things requires major changes in IT systems, a long lead-time item.
This article points out that leaving Nafta would mean tariffs on Mexican oil and US players being disadvantaged in developing
By Irina Slavis a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry. Originally published at OilPrice
Two of Donald Trump’s main pledges during the presidential race were building a wall along the border with Mexico, and making the U.S. energy-independent. Now that the election is over, these issues are coming to the fore.
First, the president-elect said that the wall, which he mentioned on the campaign trail and in numerous debates, is still very much on the table, though what type of “wall” that may be is an unknow. Second, he said he planned to start deporting illegal aliens—those with criminal records—which could amount to as many as three million individuals.
Despite “The Wall”, the deportation of Mexican citizens, and several grandiose comments about Mexico paying for said wall—not to mention Trump’s proclamation that he would raise import tariffs up to 35 percent on some Mexican products—Mexico’s President Enrique Pena Nieto was among the first of the world leaders to congratulate Trump on his victory.
And if NAFTA is no more, tariffs will rise for all imports. What does all this mean for the future of oil imports to the U.S.?
The United States imported over 670,000 bpd of crude and fuels from Mexico in August, according to the EIA. Another 773,000 bpd came from Venezuela. Together, the two countries ranked third in the U.S. oil and products import mix, after Canada and Saudi Arabia.
While supplies from Canada are unlikely to be threatened, thanks to traditionally warm bilateral relations with the country, the situation is different for both Mexico and Venezuela because of the illegal immigration issue and the blatantly anti-U.S. Caracas regime. Whether Trump is successful in cutting back—or cutting entirely—imports from Saudi Arabia is yet another unknown
And while it’s possible that Mexico and Venezuela could suffer a drop in exports to the U.S., if Trump stays true to his campaign promises, other forces are also influencing the matter.
The situation in Venezuela remains highly volatile, but there is a ray of hope on the horizon as the government of President Nicolas Maduro and the leaders of the opposition party MUD begrudgingly discusses the direction Venezuela should take. But no matter the outcome of these talks, the starving country will need markets for its crude oil, and the U.S. happens to be the largest one, so it is very unlikely that anyone there would seek to antagonize Trump.
Things are a bit different in Mexico, since many of the illegal immigrants Trump wants to deport come from the southern neighbor—a factor that may stress relations. But with the liberalization of the Mexican energy market in the last few years, Mexico is turning out to have lucrative opportunities for the U.S. energy industry, to include oil and gas production, refining, marketing, and, of course, transportation—the full deck. And U.S. energy businesses need these opportunities to sustain their profitability, just as Mexico needs to sell its crude. In short, the neighbors need each other.
President-elect Trump will likely come to rely on expert advisers for a lot of the decisions he will make once he steps into the Oval office. With various experts already warningagainst the adverse outcomes of NAFTA’s removal and the increase of tariffs, it’s possible that these advisers will help the president-elect tweak some of his campaign pledges. For the time being, imports from Mexico and Venezuela should be safe.