Friday, February 11, 2011

Mexico Will Follow Egypt Into Collapse

Mexico seems likely follow Egypt into collapse within two years based on falling oil revenue and rising food prices:

* Mexicans spend about 22% of their disposable income on food. In 2010 corn prices increased 52% and wheat 47%. With the floods in Australia, ethanol in the U.S. and higher fuel prices it seems likely food will consume 50% of disposable income within a year. That is an average. There will be a critical percent of the population where food costs will exceed their disposable income. Hunger will amplify risks.

* Mexico's government gets about 40% of its revenues from oil. As noted in BP data complied at Energy Export Database Mexico's domestic consumption (black line) will force its oil revenues (green area) to drop to zero within a few years. Egypt's oil revenues dropped to about zero in 2010.

Without the ability to feed its people or fund its security forces, it seems unlikely Mexico will remain a viable government. Drug wars illustrate the strength growing in local war lords. The U.S. Joint Forces Command's JOE-2009 noted Mexico as at risk. U.S. border states will likely destabilize. Without cheap oil, the U.S. military is completely unprepared to defend these states from mass migrations.

Without oil from Mexico, one of the U.S.'s top three suppliers, the economic dislocation in the U.S. will be fundamental; even if oil could be purchased from the Middle East, the number of tankers required for the additional days of transport do not exist and cannot be built in time.