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 Editorials | September 2007 
Pipeline Bombs
 Economist.com
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 |  | The re-emergence of the EPR will also surely worry the US government, which is itself deeply entrenched in a global war on terror. |  | |
A series of attacks on September 10th on Mexico’s natural-gas pipelines have dealt the country a triple blow: they have crippled affected businesses, caused losses to the state oil company Petróleos Mexicanos and hurt the government of President Felipe Calderón. Concern about the vulnerability of Mexico’s infrastructure and its vital oil and gas industry is likely to increase as a result. The incidents also suggest that Mr Calderón, who has proven to be more effective in his early months in office than had been anticipated, still faces considerable challenges from both within and outside the political system.
Credit for the six bombings, which hit a dozen gas pipelines and one oil pipeline in the Gulf coast state of Veracruz, has been claimed by the Ejército Popular Revolucionario (EPR), a small, rural-based Marxist guerrilla group that had been inactive for years, after a series of spectacular attacks on police in 1996. The EPR resurfaced last year amid the civil unrest that shook the capital city of Oaxaca state, where protesters over many months paralysed the city and demanded the ouster of the governor. At that time, the EPR claimed responsibility for several bank bombings in Mexico City.
The actions of the EPR have clearly now become more aggressive. The September 10th blasts followed similar but fewer pipeline attacks in July. The level of organisation and technical and logistical ability required to execute these actions suggest that the EPR is a stronger and more sophisticated group than had been thought, and that it must now be taken seriously. It is demanding the release of two of its leaders, who it claims are in government custody after having been detained in Oaxaca. It is also threatening additional attacks.
Losses to business
The blasts forced some 20,000 people to flee their homes, and the disruption in domestic oil and gas supplies (exports reportedly were not affected) caused numerous businesses to shut down or reduce their operations. Business groups estimate losses of at least US$90m. Some 60% of the country’s steel industry production has been halted, and two major automotive plants are crippled. As many as 2,500 companies in 10 states are reported to have been affected.
Petróleos Mexicanos (Pemex) will millions of dollars per day in lost gas sales and will have to spend millions more to repair the damaged infrastructure. This comes at a time when Pemex is already under strain because of a decline in revenue and output from its aging oil fields. Pemex officials are aiming to repair the pipelines and get production back on line by September 17th. Yet Pemex’s financial constraints could prevent it from making the necessary investments in security at its installations. In fact, officials admit that they cannot fully protect the country’s extensive pipeline network and other infrastructure from future attacks.
Future losses for Pemex would not only hit domestic supplies, but also potentially export revenue as well as fiscal income. Tax payments made by Pemex account for some 40% of the federal government’s tax take.
Challenge to Calderón
Politically, the incidents come at a delicate time for President Calderón. Having won the July 2006 election by a razor-thin margin, he still faces ongoing hostility from the loser, Andrés Manuel López Obrador, and his followers in the leftist Partido de la Revolución Democrática (PRD). Though Mr López Obrador’s clout has diminished substantially since he staged massive protests after the courts confirmed the election results—including a weeks-long take-over of Mexico City’s main avenue—his party is still a potent force in Congress.
Indeed, because the PRD threatened to disrupt Mr Calderón’s delivery of the annual state-of-the-nation address (or “informe”) before Congress on September 1st, the president opted to move the speech to the presidential palace. In recent days, Mr López Obrador has called on his supporters to block an upcoming congressional vote on a proposed tax reform package.
The PRD’s actions are not related to the pipeline attacks. Nonetheless, together they add to the perception that the Calderón administration is not fully in control politically. True, his approval ratings and his performance since taking office last December are much better than could have been imagined after the hotly disputed election. However, given the PAN’s minority position in Congress, his ability to legislate is hostage to an alliance with the other main opposition party, the Partido Revolucionario Institucional (PRI). And new protests or legislative boycotts by the PRD or others could damage his ability to govern.
Further, the pipeline explosions expose the vulnerability of Mexico’s strategic industries and overall economy to future similar incidents by the EPR or other organised groups.
Cross-border implications
The re-emergence of the EPR will also surely worry the US government, which is itself deeply entrenched in a global war on terror. Organised terrorist groups and violent leftist guerrilla organisations of the type found in Colombia have largely been absent from Mexico—although drug-related and criminal violence is endemic. Washington will now be more worried about home-grown terrorists in Mexico as well, and the risk that they pose not only to Mexico’s vital industries and economy, but also to the US and its interests, either directly or via disruptions of Mexican oil exports to that market.
Finally, despite the decline in its output, Mexico remains the fifth-largest oil producer in the world, and increased concerns about supply interruptions would contribute to an already high political risk premium in the international oil price. The latter jumped to a new high of US$80/barrel on September 12th despite OPEC's announcement that it would increase production by 0.5m b/d in a bid to ease prices, amid news of a sharper-than-expected fall in US oil inventories. |
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