Oil revenues increased by 33% YOY in Q1 on the back of high prices

High oil prices will continue to drive the extra revenue despite PEMEX’s operational and managerial problems

In 2021, Mexico’s government benefited from high oil prices, helping to increase government revenues, albeit from a low base in 2020. Oil revenues increased 75% YOY in 2021, mainly driven by high oil prices, which kept the Mezcla (Mexico’s oil) averaging above US$ 60. In terms of non-oil revenues, of the three key taxes (income tax, VAT, and the Special Tax on Production and Services or “IEPS”), only the first two increased, by 5% YOY and 14% YOY, respectively, as economic activity improved. The IEPS declined by 9% YOY during the same period.


The López Obrador administration will receive more oil windfalls in 2022 stemming from higher oil prices, even though Pemex’s output has stagnated at 1.6–1.7 thousand oil bpd. The Mezcla is expected to average US$ 104 through 2022 as Russia’s oil supply decreases amid more stringent international sanctions. In March, oil revenues increased by 41% YOY. Yet, President Andrés Manuel López Obrador (AMLO) has announced that oil windfalls will be used to subsidize gas prices. His administration has established a 100% subsidy to gas prices by not collecting the IEPS for gasoline, which explains the negative trend of this tax, while compensating for fiscal imbalances with the extra oil revenues. The IEPS contracted by 34% YOY in March. 

Our View

The war in Ukraine has generated an unexpected fiscal revenue stream for AMLO’s government. With the global oil supply in jeopardy due to Russia’s oil disruptions, Brent is likely to average US$ 111 per barrel in 2022, helping to sustain Mexico’s oil despite PEMEX’s operational and managerial problems. Indeed, the Mezcla has increased by 53% since January, from US$ 70 on January 3 to US$ 107 on May 23. Although PEMEX is unlikely to increase output in 2022, Mexico will substantially increase its international oil sales, which last year amounted to US$ 28 billion. In Q1, PEMEX’s international sales increased by 44% YOY (worth US$ 7.09 billion) as oil prices continued to increase, stemming from the war in Ukraine. Amid an electoral year, AMLO and MORENA, Mexico’s ruling party, want to increase their political clout by winning most of the governorships at stake on June 5 following the lackluster recall referendum victory. Against this backdrop, the oil windfall is a tool to cushion the inflation blow that Mexicans are suffering. Therefore, AMLO will continue using the oil windfall to patch the public finances of the 100% subsidy to gas prices his government has put in place by not collecting the IEPS on gasoline. Without this subsidy, the already-high gas prices would have been even higher, ranging between MXN 26–33 (US$ 1.28–1.63), which would have unleashed social unrest.

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