Economics 101: Controlling the Price of Gasoline Produces Scarcity

By Paul Alejandro Sánchez, Analyst in energy, technology, and sustainability with a background in economics, geopolitics, public policy, and regulation. He analyzes global energy markets and the energy transition in a changing environment. Visiting professor at UC San Diego

A lesson in basic economics: the price of gasoline and diesel cannot be sustained by decree, even more so when the cost of raw materials and finished products rises faster than the margin of those who sell them. The Mexican government has opted to keep regular gasoline below 24 pesos per liter and then reduce diesel to 27 pesos, just as the crisis in the Middle East and the risk over Hormuz pushed international energy prices upward.

The objective is understandable: to prevent fuel from adding further to inflation. The problem is that price is also a signal, and when that signal is erased, someone ends up paying the difference.

Cheap gasoline generates scarcity and a regressive subsidy

Economic theory is quite straightforward. If the permitted price remains below the real market cost, consumption increases, the incentive to sell falls, and scarcity appears. With fuels, this does not occur in the abstract. It occurs at service stations that are already beginning to show signs of scarcity due to a lack of inventories or supply problems, and among business owners who can no longer absorb the difference between the price at which they buy and the price at which they are asked to sell.

The government can say that the agreement is voluntary, but the market does not operate through voluntarism; even PEMEX has increased its logistics costs per liter. If the price of crude oil increases, producing and importing gasoline costs more, and if logistics becomes more expensive, the margin is compressed.

A service station cannot sell indefinitely below its economic cost. It can hold out for a few days, it can compensate with other products, it can reduce its margin, it can wait for government support through incentives. But it cannot turn a recurring loss into a business model.

In addition, the low price sends the wrong signal to the consumer. When fuel is made artificially cheaper, the incentive to save, change habits, optimize routes, or migrate toward more efficient options is reduced.

The policy seeks to contain inflation, but at the same time it protects the consumption of those who use the most gasoline. That point matters because the gasoline subsidy is not progressive. It does not mainly benefit the poorest households, but rather those who own a car, travel more kilometers, or consume more liters.

This article was originally published by La Prensa OEM.
Date: May 26, 2026
Link: https://oem.com.mx/la-prensa/analisis/economia-101-controlar-el-precio-de-la-gasolina-produce-escasez-30199808 [Online]

The Oil Resurgence of America, Without Mexico

America, as a continent, is experiencing an oil resurgence. Not only in the United States, which with the Shale revolution over the last 20 years increased its production to such a degree that it has become a net exporter of natural gas, reduced its crude oil imports and, for months, surpassed the production of Saudi Arabia and Russia.

We can observe the same case in Canada, where it not only has the second-largest proven reserves globally, but has also increased its oil production to such a degree, particularly in the province of Alberta, that it has given rise to major infrastructure projects for the export of gas and petroleum products.

But it does not stop there. Brazil has become one of the main players outside OPEC, increasing its production by taking advantage of its discoveries in ultra-deep waters and making use of the state machinery and Petrobras. This development now positions it as the main oil producer in Latin America.

Following the development in the Southern Cone, the results of investments in Guyana are beginning to be seen, a country without oil resources that now produces more barrels than other economies. Similar situations can be observed in Colombia and Argentina. Vaca Muerta has boosted Argentina’s natural gas production, and in Colombia new rounds have been developed under a model similar to Brazil’s, while Ecopetrol, the national company, also serves as one of the main players in the country’s oil sector.

Although Venezuela is a particular case, it is expected that by 2030, now under the new governance conditions established with the departure of President Maduro, the country’s resources will begin to be developed more rapidly, surpassing Mexico.

The oil resurgence of America, however, is leaving Mexico out. The country not only faces a decline in oil production that over the last 20 years has fallen by more than 60%, but the projections under the institutional mechanisms and announced projects do not allow the country to recover its position.

From what can be observed across the continent, the institutional designs are varied, from open-access mechanisms such as in the United States, to licensing-round models such as in Colombia, from countries without state-owned companies such as Guyana to countries with a strong state-owned oil company that leads the sector such as Brazil. The correct recipe is not the protection of resources through a state monopoly, but a clear model that allows development by taking advantage of public and private resources and promoting the development of essential infrastructure and markets.

Even if Mexico’s oil-sector design were changed today, the delay we have compared with other countries in America is evident and is such that the results would not be observed quickly, but perhaps until after 2030. However, the longer it takes us, as a nation, to make those decisions, the more difficult it will be for our country to begin getting back on track.

This article was originally published by La Prensa OEM.
Date: April 24, 2026
Link: https://oem.com.mx/la-prensa/analisis/opinion-por-paul-alejandro-sanchez-el-resurgimiento-petrolero-de-america-sin-mexico-29654153 [Online]

Fuel Subsidies Return, but With the Same Fiscal Risk as Always

The disruptions in the Strait of Hormuz have caused shocks in global energy markets, which have resulted in fuel shortages in several net-importing countries, which have had to implement fuel rationing measures at service stations. In Thailand, service stations recorded panic buying and applied limits on sales or bans on filling containers. In Indonesia, authorities confirmed sufficient diesel reserves after stopping their imports of this product, although they warned about pressure on subsidies that could affect other budgetary programs.

Countries such as Sri Lanka established mandatory gasoline rationing through a QR code system that limits weekly purchases to 15 liters per private vehicle. Pakistan, for its part, reduced the workweek to four days for public employees and cut fuel allocations for government agencies by 50 percent.

Mexico, however, maintains a degree of security in fuel supply thanks to its proximity to the United States market and to its local oil production, which allows stable flows of refined products through regional supply chains. However, the price has increased significantly in the last month; diesel went from an average price of $26.35 pesos on February 28 to $28.73 on March 27, registering an increase of more than $2.00 at the pump. Similarly, premium gasoline went from $25.70 to $27.77, while regular gasoline still remains, in general, at the voluntary cap of $23.99.

Considering the effects on the international price, the SHCP has had to publish new subsidies since March 13, in order to avoid a greater increase in prices, beginning with a 35.21% reduction in the IEPS on diesel, which increased to 70.28% for this week. This means that, in addition to the $2.00 increase in the average price of diesel, the Treasury stops collecting an additional $5.17 pesos per liter, plus its corresponding 16% VAT. The situation is more moderate for gasoline, where the subsidy for this week is $1.55 for regular and $0.45 for premium.

Although the mechanism seeks to contain the transfer of international increases to the final consumer through weekly tax subsidies, the current policy follows the pattern applied in 2022 and 2023, when IEPS subsidies generated a total revenue loss of up to 297 billion pesos.

The current adjustments to the IEPS respond to the same logic of balancing domestic prices and external volatility derived from the disruption in Hormuz; the underlying idea is not to pass on the full effect and generate inflation, as is beginning to be observed in freer markets such as the United States. However, it still represents a fiscal risk for the country’s public finances, which no longer have as many export surpluses as in previous years.

The evolution of maritime flows will determine the duration of these measures in Mexico and in the rest of the affected countries. However, an easy end is not in sight soon, so it is possible that we will first see additional subsidies for diesel and gasoline.

This article was originally published by La Prensa OEM.
Date: April 6, 2026
Link: https://oem.com.mx/la-prensa/analisis/opinion-por-paul-alejandro-sanchez-campos-regresan-los-estimulos-a-los-combustibles-pero-con-el-riesgo-fiscal-de-siem-29348527 [Online]