Oil Price Hikes Could Strengthen Mexico’s Public Finances: SHCP

Mexico’s federal finances stand to gain from increasing oil prices, with the Finance Ministry estimating an additional MX$13.1 billion (US$683 million) in revenue for every dollar increase in the price per barrel, according to the General Economic Policy Guidelines.

The Ministry of Finance and Public Credit (SHCP), led by Edgar Amador Zamora, explained that higher oil prices boost export revenues more than they increase the costs of hydrocarbon imports managed by Petróleos Mexicanos (Pemex).

For 2024, President Claudia Sheinbaum’s administration forecasts MX$1.142 trillion in oil revenue, based on an estimated price of MX$57.8 per barrel. However, geopolitical tensions—including recent US airstrikes on Iranian nuclear sites and Iran’s threats to close the Strait of Hormuz—are expected to drive oil prices higher.

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

Despite favorable price trends, Mexico’s oil production has lagged behind targets. By April, production reached 1.69 million barrels per day, falling 9.4% short of the 1.87 million barrels per day goal.

Jorge Cano, coordinator of Public Spending and Accountability, Mexico Evalúa, highlighted potential positive and negative impacts on public finances:

• Positive: Higher oil revenues could support fiscal consolidation, potentially reducing the budget deficit to 3.9% of GDP. The government has enacted spending cuts to meet its fiscal goals.
   

• Negative: Rising oil prices could inflate gasoline costs, necessitating fiscal stimulus through reductions in the Special Tax on Production and Services (IEPS). Subsidies to offset higher fuel prices could negate gains from additional oil revenues.

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

Pemex remains among the most indebted oil companies globally, requiring ongoing federal financial support. For 2024, the federal budget allocated MX$136 billion to Pemex, mainly to address debt. As of the first quarter, the company had drawn MX$80 billion, representing 59% of the approved amount.