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]

Mexico Between the Global Automotive Reconfiguration and the USMCA

The negotiations between Mexico and the United States to renew the USMCA have not been smooth, and within these negotiations the automotive industry returns to the table, which is one of the most difficult pieces in this review process and in reaching agreements on issues such as what is produced, where, and under what conditions access can be gained to the largest market in the region, in a context where automakers such as Toyota, Nissan, and Stellantis have warned that a tightening of tariffs and rules could affect the viability of low-cost vehicles in the United States.

Mexico has consolidated itself as the most efficient manufacturing node within the North American system, where relatively low labor costs, geographic proximity, and a supplier network deeply integrated with the United States converge. This positioning has been reinforced by the establishment of production chains, which find in Mexico a viable platform to comply with the rules of the agreement without losing competitiveness. However, this advantage is not static, because it depends on the regional production model continuing to be compatible with the cost structure and demand of the U.S. market.

Consequently, the true point of tension is not in the immediate present, but in the evolution of the market. If regulatory and commercial conditions continue pushing toward more expensive vehicles, whether because of tariffs, standards, or business strategies, there is a risk that lower-price segments will lose relevance within the United States. In that scenario, some automakers could choose to abandon those niches rather than produce them under less competitive conditions, which would not necessarily imply a massive closure of plants, but it would imply a reconfiguration of the type of vehicles assembled in Mexico.

On the other hand, this transition introduces a deeper change in the logic of investment, where the emphasis begins to shift toward electric platforms, higher-value components, and more capital-intensive processes, which requires capabilities different from those that have historically supported the production of entry-level vehicles. In this process, the country faces the challenge of adapting without losing its role within the regional chain, which implies not only attracting new investments, but also transforming its industrial base to respond to a more demanding environment in technological and regulatory terms, including the capacity to meet the energy demand of these chains.

At this point, the cost differential becomes determining, since Chinese manufacturers operate with production structures that, in some cases, allow them to produce at a fraction of the cost observed in North America, at levels close to 20 percent, which introduces structural pressure on the rest of the industry. This contrast not only explains the current trade tensions, but also highlights the limits of a regional model that depends on rules to sustain its competitiveness against a competitor that plays under a different logic.

Thus, the challenge for Mexico is not only to remain within the system, but to evolve along with it, at a time when the industry is ceasing to be defined by its capacity to assemble vehicles at low cost and is beginning to be measured by its capacity to integrate into a new technological and industrial architecture.

This article was originally published by La Prensa OEM.
Date: April 30, 2026
Link: https://oem.com.mx/la-prensa/analisis/opinion-por-paul-alejandro-sanchez-29736372 [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]