The Role of Mexico in the First Oil Shortage: 1918-1922, an International Perspective

Abstract

In 1921 Mexico produced a quarter of world’s petroleum, making the country the second largest producer in the world, but by 1930 it only accounted for 3 per cent of world’s production. To date the discussion has mostly relied on events taking place in Mexico for explaining the decline of the industry. Very little attention has been placed to developments in petroleum industry elsewhere, except Venezuela. Practically no attention has been paid to the reasons for the rise of oil output in Mexico. This neglects the massive changes taking place in the petroleum industry worldwide during the Great War years and its aftermath, and overall ignores the shortage of oil that occurred in the world’s markets between 1918-1921. These are crucial events in order to understand the early rise of the Mexican oil industry and set the basis for a better understanding of the subsequent sudden decline.

In 1921 Mexico produced a quarter of world’s oil, making the country the second most important producer in the world, but by 1930 it only accounted for 3 per cent of world’s production. In 1938 the petroleum industry was nationalised by the Mexican government and it took it over fifty years to regain the level of output of 1921. Two main lines of arguments have been used in order to explain the rapid decline of the Mexican oil industry during the 1920s. The first explanation argues that the decline was the result of the institutional change caused by the Mexican Revolution. The second hypothesis vindicates that Mexico simply run out of oil deposits that could be extracted at competitive costs given technology, prices and competing sources. Some authors have argued that both hypotheses are true. The problem is that the discussion has mostly relied on events taking place in Mexico, using sources and data exclusively relating to Mexico. Very little attention has been placed to developments in petroleum industry elsewhere, except Venezuela. Practically no attention has been paid to the reasons for the sudden rise of oil output in Mexico. This neglects the massive changes taking place in the petroleum industry worldwide during the Great War years and overall ignores the shortage of oil that occurred in the world markets between 1918-1921. These are crucial events in order to understand the rise of the Mexican oil industry and set the basis for a better understanding of the subsequent sudden decline.

Due to the Great War and the Soviet Revolution, Europe lost all its domestic supplies of oil and, become totally dependent on its Asian oil supplies (Dutch East Indies and British India) and overall, on the United States. Mexican oil was to play a major role at this time of shortage. This paper focuses on the rise of the Mexican oil industry by concentrating on the events taking place in the world’s petroleum industry. Thanks to the data of the American Petroleum Institute, the U.S. Department of Commerce, and the Mexican Government it is possible to place Mexico in the changing context of the world oil markets of the early 1920s. In addition, it shed some extra light into the debate about the rapid fall of the industry.

The first section of this paper reviews the literature debate, revealing how little attention has been paid to the raise of the industry, and how much concentrated on events within Mexico has the debate remained. The second section steps out of Mexico in order to show the extensive changes taking place in the oil industry worldwide during the First World War and its aftermath, including the surge in demand and the awaken of nationalism world-wide regarding the exploitation of oil resources. The intense growth of demand for petroleum products was not followed by an equal growth in supply. The distortions introduced by the War, the Soviet Revolution, the cold winters of the end of the 1910s, plus the final War effort produced the first petroleum shortage of the 20^th century. Section three reveals the importance of Mexican oil at this time of shortage. Section four peeks at the sudden decline of the Mexican petroleum industry departing from the depiction of the rise of the industry provided in earlier sections. The conclusions summarise the main findings of this paper.

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