Explaining policy choice in the oil industry: A look at rentier institutions in Mexico and Venezuela (1988--1999)

This dissertation sought to answer what determines policy change in the oil market or the lack thereof, and when change does occur, why is it done so differently. The study focuses on the two major Latin American oil exporting countries, Mexico and Venezuela, and their different policy choices when adjusting to changes in the international oil market. In this sense, the relative liberalization of the oil sector in Venezuela is in significant contrast with a still highly closed oil industry in Mexico. This difference in reform levels is particularly striking given the divergent experience of these countries with market reforms in general. That is, the experience with oil sector reforms in Venezuela seems to indicate that there is an area of reform that escapes the deterministic fate of rentier States and their difficulty with change. Conversely, the fact that Mexico has found it very difficult to reform its oil industry, is in steep contrast with Mexico's well-known status as one of the most important reformers in the region.; This study uses an international political economy framework to the question of change or the lack thereof. While concentrating on reforms to the oil sector as the dependent variable, this dissertation explores domestic oil institutions as the independent variable. It looks at the incentive structure for reforms resulting from the different type of institutions developed for the distribution of oil rents. The analysis of oil-rent distribution is particularly relevant for understanding the distributional costs involved in the reform process. That is, rent seeking brings clear financial empowerment to certain groups, and this in turn raises the stakes in changing the status-quo.; The argument that this study presents is that oil rent distribution in Mexico was mostly funnelled through Pemex, while in Venezuela it centered on the State, with Venezuela's national oil company, PDVSA, acting as an enclave industry transferring but not distributing oil rents. In this sense, oil reforms in Venezuela were possible because they did not imply a change in rent distribution mechanisms since, with reform, PDVSA's role as a provider of oil rents remained untouched, at least formally. In Mexico, reform of the oil sector does entail a change in rentier institutions since it implies Pemex's loss of monopoly and within it the company's sources of rent. This explains why oil reforms escapes the fate of the rentier dynamics in Venezuela, but also why Mexico has had so much difficulty in reforming Pemex and its oil sector despite enormous progress in implementing deep reforms in other sectors.