Getting Energy From Mexico Jude Wanniski February 6, 2001

Memo To: Vice President Dick Cheney
From: Jude Wanniski
Re: Oil and National Security

It certainly makes sense, given your experience in the oil industry, for the President to ask you to chair a task force on energy. Let me remind you again, as I have before, that we did not experience energy crises before we broke the dollar/gold link in 1971. When there is a floating dollar relative to all things that come out of the earth -- yellow gold or black gold especially -- capital is not properly directed to match supply and demand for commodities at a steady rate. When the Fed made the dollar too scarce in 1997 by misreading economic signals, the dollar price of gold fell and was soon followed by a plunge in the oil price. Capital flows to the energy industry halted for two years, which is the chief reason energy prices now have soared. Yes, there has been some mismanagement in California by the current and past administrations, but again, most of the reason for the shortage of energy and high prices for all British Thermal Units is the absence of a commodity anchor for our dollar and monetary policies.

That aside, Mr. Vice President, your idea of having California in particular and the West in general tapping into Mexico’s energy supply is an excellent one -- even better than you realize. On the eve of President Bush’s visit to Mexico, you might inform him of something I'm sure he does not know about Mexico. At one time, Mexican citizens owned the mineral rights to the surface property rights. This ended with the 1917 revolution. As a result, the United States is now the only country in the world where citizens own subsurface rights. This is one reason why we have been energy rich in the past... Of 3.2 million oil wells drilled around the world in the last 140+ years, 2.5 million have been drilled in the lower 48 of our country. Little farmers and ranchers contracted with wildcatters. When I mentioned this to Ronald Reagan in 1980, when I was advising him during his presidential run, he laughed and recalled how he visited a wealthy Mexican at his country home and admired a giant block studded with silver nuggets, which sat outside the house. He said his host smiled broadly and said they had found it sitting above the ground, so it was legally theirs!

I think you might suggest to GWB that he ask Mexico’s President Vicente Fox if he has ever thought of changing the law back to pre-1917 rules, giving individuals the subsurface rights. There is little doubt in my mind that under the surface of Mexico -- which after all is a giant country with geophysical attributes similar to our oil patch -- there are hundreds of billions of barrels of undiscovered oil. The people of Chiapas own their little plots of ground. Underneath some of them is great wealth, which will not be discovered unless there is a situation similar to ours. When the state owns the subsurface rights, as Pemex does now, it only pokes a hole here and another there, taking minimal risks. The history of oil is that it is discovered when a great many people are looking for it in all sorts of unlikely places.

This is ultimately the answer to our oil "security problem." As a one-time student of geophysics [UCLA, 1957], you may recall I wound up writing the WSJ energy editorials in the 1970s, knowing there was no "shortage of oil and gas," that the big increase in the oil price was the result of the inflation caused by Nixon de-linking from gold. If Mexico can be persuaded to give their citizens subsurface rights to minerals, other countries in our hemisphere will follow suit. In a decade, we would not have to import a drop from the Middle East and we would not have to drill in Yellowstone Park looking for the marginal barrel. Our environmentalists would be thrilled to pieces. If it even becomes known that Bush asked Fox the question of whether or not he ever thought about this, the ball will be put into play. The OPEC countries know the world is still unexplored for liquid petroleum and natural gas. If you put all the oil ever produced in all the world into Lake Tahoe's cavity, it would not fill it up. That should give you some perspective.

By the way, China is unexplored. One of these days, China will make more surface property private and I bet it will include subsurface rights. It will have enough oil to become exporters, even with every Chinese family having a car in the garage. Please read Chapter 13 of my 1978 book, The Way the World Works. It is entitled “Energy in Abundance.” It was supply-siders, after all, who were the first to understand that the energy crisis of the early 1970s was not caused by the world running out of oil, but by the mismanagement of monetary policy. To prevent future problems of that nature, we have to rebuild the world monetary system with a gold link. To solve the separate problem of our national security, a good start can be made in Mexico, if the new government there sees the benefits to giving its people the subsurface mineral rights.