Mexico just opened up oil-sector investment to private companies for the first time in decades. Now, with slumping oil prices, the country is forced to cut $8.4 billion from its 2015 budget.

The Associated Press reports Mexico had hoped that by opening up investments to private companies, more oilfields could be opened and newer production technology could be developed.

Because of the continuing decline in oil prices, however, Mexico will have to slash $8.4 billion from its 2015 budget, and most of the cuts are expected to come in the energy sector.

The reform in oil-sector investment has led to partnerships. These partners will not be paying as much as expected due to the fall in oil prices. Some partners may delay their exploration projects as well.

"If we continue for the next year in the scenario that we're currently in today, it will have an impact because (state oil company) Pemex, i.e. Mexico, will not be getting the same revenues that it's getting out of their current production," Jorge Pinon, an oil and energy analyst at the University of Texas, said. "That's simple arithmetic."

Mexican President Enrique Pena Nieto and his Institutional Revolutionary Party (PRI) are heading into midterm elections in June, and the cuts from the budget are adding even a more black eye to his reputation; Mexicans are already protesting the disappearance of 43 college students, who were allegedly killed in September, and Nieto and his wife have also been criticized for buying luxury properties from government contractors.

"Given the very mediocre performance of the economy in the last two years, they were hoping for a better showing in order to arrive at the ballot box with something to show," Dwight Dyer, a senior analyst for Mexico and the Americas at Control Risks in Mexico City, said. "This puts significant pressure on the PRI electorally."

Oil peaked at $115 last year, but has taken a beating this year, falling all the way to $44 a barrel in January. It has recovered slightly and is currently trading around the $49 range.

Still, Peno says that is not nearly enough for the Mexican oil projects to be profitable. He says oil needs to hit $77 or more for those projects to cash in.

Dyer said the price per barrel on oil will not kill energy reform, but investments will be lower.

Related