The Russian invasion of Ukraine and the European Union’s dependence on Russian natural gas demonstrate that energy supplies’ diversification is critical to establishing energy security. The European Union is dependent on Russian natural gas, and that dependency has forced the United States and Europe to maintain, until now, loopholes in their otherwise harsh economic sanctions on Russia. The European Union intends to increase its imports of liquefied natural gas in tankers from the United States and Qatar in the short term. European leaders also want to accelerate their transition to renewable energies.

Mexico is a significant importer of natural gas and a significant gasoline buyer, so it will also be affected by the armed conflict. However, it is still too early to estimate its magnitude. The most significant sign of nervousness in the markets is seen in the price of Brent crude. In addition, Mexican crude oil is also on the rise. Although Mexico has other sources of electricity generation, such as renewable energy plants, coal, and fuel oil plants, it is estimated that about 60% of Mexico’s electric power requires natural gas, so demand pressures for this product could lead to further increases in electricity rates.

However, according to the President, Mexico is prepared for the effects of the crisis. If the price of imported gas rises sharply, the country will start up all electric power generation plants that do not require gas to avoid increasing the cost of electric power. Furthermore, Mexican President Andres Manuel Lopez Obrador has reiterated that fuel and electricity prices in Mexico will remain stable even in the adverse international context and despite the invasion and war in Ukraine.

As a result of the effects of the Ukraine crisis on Mexican energy practices, the government plans to produce more electricity with water. So, the country plans to increase hydroelectric plants to their total capacity. Increasing hydroelectric plants to total capacity will contribute to Mexico’s climate policies and commitments and, paradoxically, impact Mexico’s energy practices to reduce emissions.

Furthermore, if imported gasoline costs increase due to higher crude oil prices, the government will resort to a subsidy granted to fuels, better known as the Special Tax on Production and Services. This subsidy would help prevent the price increase from being passed on to consumers.

Mexico may have enough elements to face the economic difficulties this conflict may cause regarding oil and gasoline prices. However, from a global perspective, war can lead to significant economic and environmental capital losses, many of them irreversible. This is critical for countries like Mexico, which are highly vulnerable to climate change and its impact on human populations and ecosystems.

This Post was submitted by Climate Scorecard Mexico Country Manager Pablo David Necoechea Porras