MEXICO'S CARLOS FUENTES, perhaps the most versatile of all contemporary Latin American writers, has frequently been in the limelight -- as often as not for extra-literary reasons. Owing to his publicized leftist sympathies, Fuentes was denied entry to the United State in 1963 and again in 1969.However, the resulting international protests caused the State Department's intermittent vigilance to be relaxed and Fuentes is even now teaching in this country.

Fuentes has also attracted attention as an outspoken critic of his native Mexico. He denounced the Mexican police attacks against student demonstrators in August of 1968 on the eve of Mexico's Olympic Games, and in an interview published the following year he refeRred to his country's government as an "autocrac y."

All this is intended to show that Funetes has a background in international politics and a political commitment that, traditionally, few North American writers bring to their work. Moreover, he is the author of the broad-canvas account of the Mexican experience, Where the Air Is Clear (1959), and the brilliant Death of Artemio Cruz (1962), one of the finest Mexican novels of our time. Possibly, there is no othere writer who so accurately perceives the Mexican character, as well as the international role that the nation is likely to play in coming decades.

So when he undertakes to write a fictional account of the "first adventure of the Mexican secret service," one cannot fail to take note of his uncommon credentials. In fact, the great merit of The Hydra Head is that Fuentes has raised a popular lieteary form -- the espionage novel -- to the level of high art. He has done thf this through his inspired, always incisiv e evocation of Mexico on the point of emerging as one of the great oil-producing nations of the world.

The novel deals, quite simply, with a plot to keep the recently discovered and extensive Mexican oil reserves for the Mexicans -- away from the encroaching demands of the U.S., and away from economic entanglements with Arab and Israeli oil interests.

How is this to be accomplished? Fuentes' protagonist, Felix Maldonado, a Mexican converted to Judaism and married to a Jew, is moved into a bureaucratic position that places him under a ruthless figure known only as the "Director General" who is committed to bringing the Mexican oil under the sway of the Arab faction. O the other hand, Maldonado's former unibersity mentor, Professor Bvernstein, is the undercover head of an Israeli mission operating to gather crucial information that could be exploited in its own political negotiations. Maldonado thus is the man in the middle.

Maldonado's own chief goes by the code name of Timon of Athens and they communicate by means of quotes from Shakespeare. The master set of data related to the oil reserves under Tabasco and Chiapas has been ciphered through laser technology and set into a small crystal sphere. this, in turn, is placed in a ring setting, and we now have our "Maltese falcon." The struggle for possession of the ring is joined and Maldonado's perilous odyssey begins when the Director General suggests that he lend his name, if not his life, to an enterprise (the assassination of the president of the Republic) calculated to further Arab interests. But the Israeli organization has other plans for Felix....

A powerful reality occupies the center of The Hydra Head : the discovery of the Mexican petroleum fields at about the time of the Arab oil embargo is factual. Fuentes cites a "potential two billion barrels of oil." But that figure has since been readjusted upward to include proven reserves of 16.6 billion barrels, and estimated potential reserves of some 120.6 billion barrels. If this were the case, it would represent double the reserves held by Iran and four times those of the U.S.

But, as in most of Fuentes' work, there is also much artifice. He is a tireless experimenter with narrative techniques and points of view. We discover, for example, after some 100 pages that the seemingly omnisicent narrator of Maldonado's story is, in fact, his chief, Timon, who has "reconsturcted" the information reported to him by his agent. This tends to strain credibility, and the breaking point is approached when we are told that the last seven chapters are Timon's conjectures regarding what Maldonado will probably do when he finally realizes how he has been use. It really seems an unnecessary gimmick.

Also, I'm puzzled over one matter. Why does Maldonado return to play his role, under a new identity, in the planned presidential assassination on September 31? I am aware that Fuentes has stated that his narrators reserve the right to leave certain questions unanswered, certain ambiguities unresolved. Well, if that's a part of the game, so be it.

Characteristically there are many things "going on" in a Fuentes novel. The Hydra Head is dedicated to the memory of four actors who specialized in espionage firlm roles -- Conrad Veidt, Sidney Greenstreet, Peter Lorre and Claude Rains and we recognize all of them in characters Fuentes has created here. There are fond echoes of Chandler and Ambler, too, and what might be the first "hard-boiled" Mexican dialogue. Margaret Sayers Peden's translation, I should mention, is excellent throughout -- precise and comfortably readable.

All in all, it's a dazzling performance -- one of the most successful books of Fuentes' 25-year career.