HOUSTON, TEXAS (By George Baker, 30.Jun.2026, Words: 715) — The current 2026 review of the United States-Mexico-Canada Agreement (USMCA) presents a pivotal opportunity for North American energy sector to its assert its role a pillar of trade and investment policy.
Energy availability underpins manufacturing infrastructure and regional committed competitiveness across all three countries. Nearshoring creates unprecedented demands on electrical grids, midstream logistics, and retail distribution American and Canadian trade authorities are therefore doing Mexico a disservice by excluding energy from the 2026 USMCA Review.
As the closure of the Strait of Hormuz reminds everyone, the world economy depends on the abundant and affordable supply of hydrocarbons. Since 2004, however, Mexican oil production has been in decline, from 3.3 million barrels per day of liquids (crude oil and condensate) in 2004 to 1.7 million barrels a day in 2026. Not a single commercial barrel has been produced from deep water or shale formations. Over the same period, U.S. hydrocarbon production increased by 250%.
Mexico’s much-heralded Energy Reform of 2014-18 promised to turn around Pemex’s declining oil and gas production and upgrade an inadequate fuel distribution network. Emblematic of the enthusiasm of international oil companies, on 31 Jan. 2018, Royal Dutch Shell won nine of 19 oil properties that were awarded in the auction, paying well above expected bids. These were meant to be 40-year investments but 5 years later Shell would relinquish these leases and by 2025 withdraw from Mexico entirely. The business reason for the withdrawal was not the lack of oil or a market for refined products: Shell was not alone in scaling back or terminating its presence in Mexico. The common reason was the hostile turn in energy policy by the populist and irredentist president who was elected 1 Jul. 2018. Prior to formally assuming office on December 1, President-Elect Andrés Manuel López Obrador (AMLO) sent an envoy, the Oxford-educated economist, Jesús Seade, to Washington to redirect the course of the discussions concerning energy.
The 2 unfortunate outcomes of AMLO’s influence on the final form of agreement were the elimination of NAFTA’s Chapter 6 (Energy) and the introduction of Chapter 8 (Mexican Ownership of Hydrocarbons). Chapter
6 contained guardrails against executive overreach. Chapter 8 simulated constitutional language but in fact dated only from the Hydrocarbon Law of 2014 — which ignored ninety years of hydrocarbon legislation. Chapter 8 introduced an aura of sovereign immunity against interference by the US Trade Representative (USTR). Only once in the years since 2019 has USTR asked for consultations regarding treaty violations in the electricity and fuels markets (upstream malpractices were not cited).
Its letter of 20 Jul. 2022, was ignored in Mexico and a formal dispute-settlement panel was not convened. This precedent means that no investor in Mexico’s hydrocarbon sector will receive USMCA-based protections by USTR so long as a chapter on energy is missing and Chapter 8 is retained. Without treaty compliance enforcement, the informal economy in the oil product markets will grow in parallel with executive overreach. Stolen, smuggled and adulterated gasoline and diesel consumed in Mexico has been estimated to be as high as 27% of the total market — a loss to public finances in the range of US$8-US$16bn. Profits support the illicit drug trade.
The 2026 USMCA Review offers an opportunity for course correction; but, given USTR’s long, documented record of tolerance of policy and regulatory malpractice in Mexico’s energy sector, the agency will not act to put energy on the review agenda without specific White House guidance. That guidance, however, is unlikely as it predictably would cause indignant objections from the Mexican delegation that to even raise the topic of energy is to infringe on Mexico’s sovereignty. Such objections, in turn, would likely risk progress in the areas of rules of origin, agriculture, and digital trade.
Ye, leaving the energy sector unaddressed in the 2026 review means that international oil companies will not return to Mexico, and the country’s formal economy will continue to underperform, weakening the competitive edge of the North American economic bloc.
In contrast, by insisting that energy be included in the 2026 USMCA Review — over the objections of Mexican delegates — US and Canadian policymakers have the opportunity to rebuild and safeguard a competitive, North American energy landscape — in the process, nudging Mexico back to a vision of open-market solutions and an institutional architecture of independent energy regulators.
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George Baker was a guest at the inauguration of AMLO. In 2014, during the roll-out of Mexico’s Energy Reform, Baker was a Scholar and Expert at Rice University’s Baker Institute of Public Policy.
