Congressional majority gives new Mexican president chance to formally dismantle energy liberalization

President-elect Claudia Sheinbaum Pardo will have a better chance of revising Mexico's constitution, including the formal dismantling of the 2013 energy market liberalization, as her congressional allies appear to be gaining a supermajority.

As was expected, Sheinbaum won Mexico's presidential election on June 2, according to preliminary results. What was not so expected was an overwhelming majority in congress, which will give the new president the power to change the constitution, something her predecessor and mentor Andrés Manuel López Obrador tried repeatedly, and unsuccessfully, during his term.

According to preliminary estimates from the national election institute released June 3, Morena and its allies could obtain as many as 380 seats in the 500-seat lower House of Congress, securing the two-thirds majority needed to revise the constitution.

"Constitutional reforms are coming," Ana Lilia Moreno, who heads the regulation and competition program at think tank México Evalúa, wrote in her social media accounts, noting that the outgoing president will still be in office for one month. "Fasten your seatbelts," she said.

"It is hard to know what exactly they are going to do, but if one pays attention to the government´s discourse, we can expect some kind of legal change that reduces the counterweights to the government´s decisions," said Arturo Carranza, head of energy projects at consultancy Akza Advisors.

Sheinbaum had run her campaign largely promising a continuation of Lopez Obrador policies. In energy, Lopez Obrador was able to halt Mexico's 2013 energy liberalization, for instance stopping upstream oil and gas bidding rounds. But he was not able to completely dismantle the liberalization as that would have required a change to the constitution.

Mexico's crude production has fallen under Lopez Obrador's administration, and S&P Global Commodity Insights expects total Mexican output to remain at roughly 1.6 million b/d until 2030, citing a lack of upstream investment.

While observers expect changes to the constitution under Sheinbaum, they disagree on how profound those changes will be.

In her first speech after the results were made public, Sheinbaum tried to reassure the industry and the investor community regarding the rule of law, one of the main complaints during this period.

"We will respect the free enterprise and facilitate and promote private investments both national and international," Sheinbaum said on national television late June 2.

However, she has often mentioned she intends to carry out the 20 modifications to the constitution announced by López Obrador in early 2024, who was seeking to return the constitution to a state similar to before the liberalization of the energy sector in 2013.

The modifications include the elimination of independent bodies such as the National Hydrocarbons Commission (CNH) and the Energy Regulatory Commission (CRE), reforms to the judicial system and a change in the legal nature of state utility CFE so it no longer seeks profits, just meets the interests of the nation.

López Obrador has criticized regulatory bodies as expensive and corrupt and has advocating moving the functions of the CNH and CRE to the Energy Secretariat.

However, critics have warned that eliminating those independent regulators is bad for transparency and competition.

On June 3, during his daily morning press conference, López Obrador said that he will try to coordinate with Sheinbaum on how to make the government transition and discuss the proposed constitutional changes in the following days.

During the Lopez Obrador administration, the judicial system has acted as a counterweight to the presidency, blocking most of the initiatives of the president, including countless modifications to the law and the constitution in terms of energy to benefit the state utility CFE and the state oil and gas company Pemex.

Lopez Obrador has advocated appointing top members of Mexico's judicial system by popular vote, which his critics believe would weaken the political independence of the judicial system.

There are other changes that the market could expect, based on what the members of Sheinbaum's team have said publicly.

Alonso Romero, who serves on Sheinbaum's team as energy advisor, has often spoken about the need to undo the restrictions imposed on CFE.

During the 2013 liberalization, CFE was broken into six subsidiaries. Romero has often claimed that CFE ought to be integrated vertically again to eliminate inefficiencies to make the company competitive.