Unless one has been in hiding these past few months, the most defining aspect of our daily national life, beyond the inevitable rah-rah of the presidential campaign, has been soaring crude oil prices, manifested in $4 per gallon-plus prices at the retail gasoline pump. Countless explanations can be offered for this turn of events. Yet one in particular merits more attention: corruption in the oil industry south of the border.

For better or worse, Mexico is America's third-largest foreign supplier of crude oil, right behind Canada and Saudi Arabia. This cauldron of political instability provides us with around 1.25 million barrels a day, a figure down by around 200,000 from a year ago. Corruption, including from within the union representing most oil workers, has a lot to do with the drop -- and likely future drops.

It's been a fact of life for 70 years: Mexico's oil industry is a state-run monopoly. Back in 1938, in a pique of nationalist fervor, their government, led by President Lazaro Cardenas, expropriated (i.e., stole) the assets of American and Anglo-Dutch petroleum companies against whom Mexican workers were striking. The government quickly reorganized this wealth into an entity called Petroleos Mexicanos, or more simply, Pemex. Just to make sure the company wouldn't get any ideas about asserting its independence, the government amended its constitution of 1917, granting to itself complete authority over the processing and distribution of oil and natural gas. Each year, believe it or not, Mexicans celebrate the date of this event -- March 18 -- as a national holiday. It's called Oil Expropriation Day.

The enforced commingling of industry and state power has been a mixed blessing at best. Having been shielded from competition, Pemex has managed to incur high operating expenses, despite engaging in relatively little exploration. The result is an entire economy, and not just an industry, in perilous straits.

As Pemex goes, so goes the Mexican economy. The company generated nearly US$200 billion in revenues in 2006, making it the tenth-largest oil-based enterprise in the world. But there's a downside to this. About 60 percent of those revenues go for paying taxes and royalties to the Mexican government. Indeed, 40 percent of the government's revenues come from Pemex, most significantly a 71.5 percent levy on the value of all oil and natural gas produced. This alone puts the corporation at the whim of each successive six-year presidential administration. "It's effectively a government department of the moment," observes Matthew Shaw, senior Latin American analyst for the Edinburgh, Scotland-based energy industry consulting firm, Wood Mackenzie.

To understand oil corporatism, Mexican-style, it's necessary to grasp the role of organized labor. Pemex's work force in recent years has averaged about 150,000 employees, roughly three-fourths of whom belong to the Union of Oil Workers of the Mexican Republic. Yet collective bargaining, as we know it here in America, doesn't exist. There are a few reasons for this.

First, the distinction between firm, union and government is blurred. Of the 11 persons who sit on Pemex's board of directors, six also are members of the Mexican president's cabinet and the other five are union officials. Undoing this arrangement would require a constitutional amendment, and few people are willing to go that extra mile. That's one reason why Pemex executives seem to go through a revolving door. Over the past eight years, for example, the company has changed CEOs four times and chairmen five times.

Second, while Pemex has all the appearances of a real business, at least from the looks of its gleaming high-rise headquarters in Mexico City, the reality is that it isn't permitted to behave like one. Aside from paying heavy tribute to the government, the company doesn't have the freedom to hire and fire at will. Indeed, it often finds itself, thanks to union and government pressure, paying employees for doing little or nothing. Example: At the Pemex ammonia processing plant in Ciudad Camargo, closed for a half-dozen years, paid workers still show up, waiting for something to do. The concept of productivity doesn't seem to register. Worse yet, Mexico's Finance Ministry has the authority to set Pemex's prices, budgets and debt levels.

Third, efforts at reform are hardly a match for the political resistance. Mexico's previous president, Vicente Fox, learned the hard way. Things looked promising when he took office in December 2000. After all, he was the first president in over 70 years not to belong to the Institutional Revolutionary Party (PRI), long Pemex's prime benefactor. What's more, Fox knew the business world well, having served years earlier as a Coca-Cola executive. He had an ambitious agenda to modernize Pemex, vowing to bring in private investment, shift a portion of the tax burden onto non-Pemex sources, modify labor laws, and sell company stock to the general public. He appointed Raul Munoz Leos, at the time president of DuPont's Mexican operations, to head Pemex, with instructions to run it like a private company. But the reform effort went nowhere. Furious opposition from the union, Mexican Congress, the Finance Ministry and officials within the company made sure of that.

All of this has enabled union and company officials alike to treat Pemex like a private bank. And this bank has paid well, if not necessarily legally. Here are a few examples over the years of corruption on an eye-popping scale:

* In a scandal that came to be known as "Pemexgate," then-CEO Rogelio Montemayor Seguy approved as much as $200 million in questionable company payments to the union, most of which ended up in the PRI's 2000 election campaign war chest. Montemayor fled Mexico for the U.S., and eventually was arrested in Houston and extradited back to Mexico. He managed to avoid prison.

* A labor official, Jorge Diaz Serrano, went to prison in the 80s on charges that he'd pocketed tens of millions of dollars from a secret deal to buy oil tankers.

* Former union chieftain Joaquin Hernandez Galicia was convicted and sentenced to prison in 1989 after acquiring enough weapons to outfit a private army.

* Pemex employees routinely siphon off gasoline for personal use. Mexican officials estimate the annual value of lost sales at around $1 billion. Continued...