Mexico’s 1917 Constitution (especially Article 27) established the principle that the nation owns subsoil resources, including petroleum. This legal idea later became the key foundation used to justify stronger state control over oil.
In the late 1930s, conflict grew between foreign oil companies operating in Mexico and Mexican oil workers over wages and labor conditions. The dispute helped push the federal government toward direct intervention in the industry.
On March 18, 1938, President Lázaro Cárdenas signed an order expropriating the assets of nearly all foreign oil companies operating in Mexico. The decree stated compensation would be paid under Mexican law, but control of the properties shifted immediately to the Mexican state.
On June 7, 1938, the Mexican government created Petróleos Mexicanos (PEMEX) by decree as a state entity to manage the newly consolidated oil industry. This marked the institutional start of state-led oil production, refining, and sales under a single national company.
Within weeks of its creation, PEMEX began operating the expropriated facilities and taking over day-to-day petroleum production and distribution. The transition required replacing foreign management expertise with Mexican administration and new supply arrangements.
After the expropriation, foreign companies and some governments pressured Mexico, and PEMEX faced difficulties selling and refining oil due to lost commercial relationships and technical constraints. These early challenges shaped Mexico’s push for stronger state capacity in oil and energy.
On December 2, 1939, Mexico’s Supreme Court upheld a decision supporting the expropriation’s legality in key litigation (amparo) linked to petroleum properties. This strengthened the government’s legal position and reduced uncertainty over state control.
In 1940, the United States and Mexico moved toward a structured approach to settle claims, including a Mexican deposit toward compensation and a joint engineering appraisal process. This was an important diplomatic step toward normalizing relations after expropriation while keeping PEMEX in control of operations.
In 1941, Mexico published a petroleum law regulating Article 27 in the oil sector, reaffirming that hydrocarbons belong directly to the nation and placing the industry under exclusive federal jurisdiction. The law strengthened the long-term legal framework for state control alongside PEMEX’s operational monopoly.
After stabilizing operations, PEMEX expanded beyond inherited facilities by planning and constructing new infrastructure. A major milestone was the Salamanca refinery project, developed on land acquired during the 1940s and built to increase domestic refining capacity under state ownership.
In July 1950, the Salamanca refinery (Refinería Ing. Antonio M. Amor) began operations, becoming the oldest refinery built by PEMEX itself. The project signaled a shift from merely taking over expropriated assets to expanding state-led industrial capacity.
By the 1950s, PEMEX had become a central institution in Mexico’s development strategy, operating as the state’s primary instrument for controlling production, refining, and sales of petroleum. This period set the pattern for Mexico’s resource nationalism: the oil sector remained closely tied to federal policy and public revenue, shaping the country’s economic system beyond 1960.
Mexico: Oil Nationalization and the Creation of PEMEX (1938–1960)