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Wall Or No Wall: Trump Needs The Mexican Oil Industry

Hydrocarbon storage

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.

Related: Can Trump Derail The EV Revolution?

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 warning against 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.

By Irina Slav For Oilprice.com

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Leave a comment
  • Jim Decker on November 15 2016 said:
    Venezuela is completely corrupt and run by a dictator. The people are going to starve no matter what happens to their oil. The less revenue to get the sooner that government will be brought to their knees.

    Venezuela is part of OPEC. OPEC is a cartel. That is the enemy of free markets. I don't like the idea of tariffs generally, but in the case of OPEC, one is needed. Make is revenue neutral by using it to off-set gas taxes.

    The idea that they would cut off our supplies is silly. Oil is very fungible, except Venezuela's tar that can only be refined here.

    Trump should leave NAFTA and Mexico's oil alone. Tariff OPEC, cut corporate taxes, reduce EPA and Interior Department harassment of oil and we would be energy independent in four years.
  • Jay Miller on November 15 2016 said:
    The US has plenty of oil and gas. We don't need any imports when the government gets out of the way.
  • PAUL on November 15 2016 said:
    And we were 2.4 mil barrels more than used last week
    the week before 14.5
    No we don't need all the imports
    Some yes but not all
    They need us to buy more
  • Chris T. on November 15 2016 said:
    Really? With a global glut of oil we need Mexico's? Please.
  • Joe Smith on November 15 2016 said:
    BS: simply open up pretty much all Federal lands and offshore sites to exploration and production for oil, gas, and mining coal.
  • Meremortal on November 15 2016 said:
    Irma must have missed the release on Tuesday by the US Geological Survey. Just north of Mexico in the Texas Permian Basin, there are 20,000,000,000 barrels of oil waiting to be produced.

    Estimated value: $900,000,000,000.

    Those are billions if you aren't used to seeing them written out.

    And, this never gets old:

    "Peak oil is now." German Energy Watch Group –2008

    "By 2012, surplus oil production capacity could entirely disappear..…" U.S. Department of Defense –2008 & 2010.

    "A global peak is inevitable. The timing is uncertain, but the window is rapidly narrowing." UK Energy Research Centre -2009

    "The next five years will see us face … the oil crunch." UK Industry Taskforce on Peak Oil and Energy Security –2009
  • John Reyna on November 18 2016 said:
    Lol need Mexico? I'm pretty sure they are still using wooden derricks down there. I could see us using them if we were to block all trade with opec (which would be epic) but the United States needs nobody. THEY need US! Anybody we cut trade with will hurt, badly.
  • Mark on December 01 2016 said:
    While I can agree with the general content of the article, there are some misleading sentences.
    NAFTA is an agreement between ONLY the US, Canada and Mexico. You mention Venezuela in the same phrase as NAFTA. They have nothing to do with each other. The heaviest crude is from Canada and Venezuela. Even if Trump tears up the NAFTA agreement the heavy crude from Venezuela is not directly affected.

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