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Mexico and the United States: Crude Oil Swap?

On April 24, a bipartisan group of five U.S. congressmen, led by Chairman of the House Homeland Security Committee Michael McCaul (R-TX), submitted a letter to President Barack Obama urging the president to exempt Mexico from U.S. crude oil export restrictions. This House letter follows the February bipartisan letter from 21 U.S. senators to U.S. Commerce Secretary Penny Pritzker encouraging the Commerce Department to lift restrictions.

Lifting of crude oil export restrictions would open the door towards a proposed “oil swap” between Mexico and the United States. Mexico would supply heavy crude oil in exchange for U.S. light sweet crude oil. The two types of oil are complementary, as Mexico’s refineries are built for light oil, while the opposite is true in the United States.

Petroleos Méxicanos, or Pemex, would like to import some 100,000 barrels per day of light oil. The rationale is that the light oil may be mixed with Mexico’s heavier oil, allowing for refineries to produce more diesel and gasoline per barrel. In fact, Pemex already sends 700,000 barrels per day of crude oil to the United States, but the proposed deal is in fact a swap of light crude for heavier crude, not a net import of U.S. oil.

Pemex submitted the request in August of 2014 and is expecting an answer from the U.S. Commerce Department very soon. The approval of this oil swap would represent a huge step forward in removing all restrictions on crude oil exports, which have been banned for over 40 years, in response to the 1973 Arab oil embargo.

U.S. law allows swaps of crude on a case-by-case basis with “adjacent countries,” based on “convenience and efficiency of transportation.” Opponents of crude oil exports state that the ban is there to protect U.S. consumers from volatility and price spikes. Not exporting would maintain higher levels of crude oil domestically, thus shielding the domestic market.

In 1985, President Ronald Reagan made a presidential finding that stated that crude oil exports to Canada are in the national interest. Canada continues to be the main destination of U.S. crude exports, exceeding 400,000 barrels per day. It would seem like a natural fit for Mexico, also a NAFTA partner, to receive the same treatment.

NAFTA liberalized tariff barriers in U.S.-Mexico trade, but excluded energy from the negotiations. Nevertheless, initiatives like the U.S.-Mexico High Level Economic Dialogue, launched in 2013, and the High-Level Regulatory Cooperation Council, launched in 2012, are two examples of ongoing bilateral cooperation. An oil swap would further this agenda by rewarding our neighbors and friends through a common-sense energy trade.

Removing the barriers to allowing a crude oil swap between the United States and Mexico would solidify the strong energy relationship between the two countries, and would allow Mexico to receive the same treatment as our other NAFTA partner, Canada. North America is already an energy superpower, and deepening energy integration would further bolster energy security in the region. Chairman McCaul and the bipartisan group of congressmen and senators should be heard. Closer energy ties with Mexico are a no-brainer for the United States.

*Christian Gómez, Jr. is a contributing blogger to AQ Online. He is director of energy at the Council of the Americas. Follow him on Twitter at @cgomezenergy.

Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Tags: Mexico, U.S.-Mexico Trade, oil, NAFTA

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