As the Arab oil embargo came to a close five years ago the Central Intelligence Agency circulated secret reports that Mexico harbored an oil bonanza of some 20 billion barrels - enough to reduce substantially U.S. dependence on Arab oil.
Last month Mexico's president, Jose Lopez portillo, pegged his country's possible oil reserves at 200 billion barrels, an estimate on which American oil experts concur. This would rank Mexico as a rival only to Saudi Arabia among the world's most oil-rich nations.
Yet the significance of a potential oil colossus along the southern border of the United States seems to have registered little impact on top Carter administration energy and foreign policy makers.
When asked at a press conference last month about the impact of Mexican oil finds on the U.S. relationship with Arab oil-producing states. White House national security adviser Zbigniew Brzezinski replied equivocally:
"I don't have a clear notion of how any potential developments in the area of energy, in Mexico, will affect the world economic energy situation. I don't have an informed judgment to make."Nonetheless, the National Secuitry Council staff, over which Brzezinski presides, is working on a Presidential Review Memorandum (known as PRM-41 within the bureaucracy) outlining a possible linkage of energy, trade and immigration policies to encourage higher Mexican oil and gas production. The document is due on President Carter's desk in November.
Within and outside government, questions have been raised as to why the administration had not responded faster and more aggressively to the prospect of a Saudi Arabia-sized oil reservoir on the doorstep of the United States.
"Why hasn't Mexico become an issue vis a vis our leverage on the Persian Gulf?" asked jerome Levinson, general counsel of the Inter-American Development Bank.
"Every barrel of oil and cubic foot of natural gas Mexico markets is a bonus for every country entering the market to buy," observed International Energy Agency analyst James Reddington.
"Mexico will be a factor in the world oil market," predicted Irving Trust vice president Arnold Safer. "Mexico is already selling some oil on the Gulf Coast to U.S. markets that is undercutting crude from Nigeria and the Middle East."
Since the Arab boycott the stated objective of U.S. policy has been to reduce dependency on imported oil, principally from the Middle East and other members of the OPEC cartel. Mexico has refrained from joining OPEC, the Organization of Petroleum Exporting Countries.
But since oil prices quadrupled in 1973 the trend of drilling and exploration in the less developed countries outside OPEC, particularly Latin America, Africa and Asia, has drifted downward, according to a personal study just completed by a U.S. Geological Survey geophysicist, Bernardo Grossing. Promising areas in these regions remain unexplored, Grossling found.
The richness of Mexico's promise is already being demonstrated. Hydro-carbons - oil or natural gas - are being found in four out of every five wells drilled there as compared to one out of every five in the United States. Individual Mexican wells can produce an average 20,000 barrels a day, the largest rate outside the Middle East, as compared to 16 barrels a day in the United States.
Mexico is now pumping 1.5 million barrels a day and is expected to nearly double that by the early 1980s. Production could well go to four or five million barrels a day by the mid and late 1980s, according to State Department and International Energy Agency forecasts.
More importantly, the U.S. government and some major oil companies concede that if Mexico's reserves turn out to be in the 150 billion range, the country could join the ranks of major oil exporters pumping as much as eight billion barrels a day in the next decade.
But even if the oil in Mexico jumps to the top of the priority lists of U.S. Government policymakers there is no guarantee of access to the potentially massive tap.
Unlike Saudi Arabia and Iran, the Mexican government has pursued a determinedly independent course of developing its oil and gas richesse.
For one thing, it nationalized the American oil companies drilling in Mexico 40 years ago and turned over control of oil production to the state-run corporation Petroleos Mexicanos (Pemex). This means the major international companies such as Exxon, Texaco and Mobil, which share in production revenues in the Middle East, would stand far less to gain in Mexico - if they were welcome at all.
Mexico has given the cold shoulder to overtures by the major international companies for offshore drilling concessions."We discussed it at length and we told them we appreciate their efforts, but that we did not need their help," Pemex Director General Jorge Diaz Serrano said recently.
In evidence of that, Mexico is having little trouble attracting capital and is now borrowing from internationl investment banks at preferential rates. One reason for the favorable interest is that Pemex could pay off all its loans in three years from oil income alone.
While Mexico's oil potential has as American Ambassador to Mexico Patrick Luccey says, "unfolded beyond our expectations," Washington's handling of bilateral energy questions - especially a proposed natural gas sale of 2 billion cubic feet a day - as well as trade and migration questions have become ensnarled in a succession of debates.
"It's clear we would like to make a deal," says an administration official, "but politically whether we can do it is a tough question."
Sources close to President Lopez Portillo also say that Mexico is actively interested in pursuing high-level exchanges of oil and gas assurances for U.S. concessions on trade barriers and immigration.
Jack Ray, president of Tennessee Gas had a hand in the talks. He calls Energy Secretary James Schlesinger's performance "an absolute debacle . . . Schlesinger displayed an arrogant sort of attitude about it."
James Flug, head of Energy Action, a consumer lobby on energy issues normally critical of Schlesinger, commends DOE and State for refusing the Mexican gas offer.
At stake was a contract negotiated by a consortium of six American pipeline companies for 2 billion cubic feet of gas a day, equivalent to 5 percent of U.S. daily consumption. The gas was to be sold at a price indexed to the price of oil products, starting at about $2.60 per thousand cubic feet. This is higher than the $1.99 the administration has proposed in its energy bill, and also higher than the $2.16 paid Canadian producers.
Officially, State Department officials such as Deputy Assistant Secretary Steve Bosworth say, "The Mexican gas deal is on the backburner."
Unofficially, the administration says that the talks can start up once the energy bill passes Congress.
In the interim, DOE has approved a purchase of liquefied natural gas from Indonesia at the same pricing formula asked by the Mexicans.
Portillo, who drew political fire from the left in Mexico, has pledged, "We will not lower our prices."
The ultimate significance of the gas deal, some argue, is that the gas is associated with oil. By buying Mexican gas at any price, it's said, the United States can create conditions that will stimulate more aggressive oil production.
Beyond that, Latin experts and the Mexicans themselves admit, there are still questions about whether Mexico will be willing to deplete its oil resources to slake American consumer appetites.