* Documents from the Mexican Federal Audit Office reveal Pemex in 2006 incurred $157 million in unexplained or unapproved expenses.

The company, put simply, is a racket, albeit one clothed in patriotism. One Pemex worker, on the condition on anonymity, recently explained it this way: "Pemex is a can of worms. If you do something right, they come after you; if you shut up about some irregularity, they reward you; and if you take part in corruption, you profit." Fox-era CEO Raul Leos stated that the proceeds from graft by company employees and union bosses were comparable to that of Mexican drug traffickers. He should know about corruption on a grand scale: In 2007 he was fined $80 million and banned from holding public office for 10 years for illegally transferring $170 million in Pemex funds to the oil workers union, plus another $12,500 to finance a more pressing domestic need -- his wife's liposuctions.

Corruption and its first cousin, inefficiency, are draining Pemex's coffers. It's a key reason why even as crude oil prices rose above $100 a barrel last year, the company actually went into the red. This has left less money available for investment in infrastructure and equipment. Worker safety has suffered accordingly, at times with tragic results. In October 2007, at least 21 workers were killed following a collision between the oil platform on which they were working and an undersea oil well. The workers drowned when their lifeboats broke up in a raging storm after they left the platform. Many persons in the aftermath accused the company of knowingly purchasing flimsy lifeboats to cut costs. As for infrastructure, this past spring Pemex had to shut down a leaking pipeline at its Ixtal oil field for a full month, a move that prompted the company to lower its overall annual production target by 6.5 percent. Such accidents have contributed to leaking revenues. Mexican Energy Minister Georgina Kessel estimates that Mexico is missing out on about 150 million pesos ($14.5 billion) of annual revenue due to shortfalls in production.

Reforming the Pemex behemoth is far easier said than done. Current President Felipe Calderon at least is taking tentative steps in that direction. Emulating Brazil's successful privatization program, he's urging the Mexican Congress to pass legislation enabling Pemex to establish performance-based contracts with private firms. Yet even though this initiative wouldn't apply to revenues from Mexican-produced crude oil, the union and the political Left have expressed vigorous opposition.

As for the political opposition, its most forceful voice is that of former Mexico City Mayor Andres Manuel Lopez Obrador, radical populist leader of the Party of the Democratic Revolution, who lost the 2006 presidential election to Calderon by a razor-thin margin (he insists to this day that he is the "legitimate" president). "Oil profit belongs to the Mexican people, and there's no reason to privatize it," he said at a February 11 press conference. He's also making veiled threats. At a February 24 rally before thousands in front of Pemex headquarters he warned privatization could lead to violence.

It's not as if violence hasn't happened already. On July 10, 2007, a domestic Marxist-Leninist guerrilla group, the Popular Revolutionary Army, claimed responsibility for separate explosions at Pemex pipelines that occurred that day and five days earlier. The upsurge in Leftist populism, in Mexico as well as in the rest of Latin America, is the unspoken reason why the Mexican government walks softly on the privatization issue. Current Pemex CEO Jesus Reyes Heroles began advocating loosening state controls only this past March, well over a year after his appointment.

The ultimate oil issue is the availability of oil itself, or more accurately, the ability of Mexico to acquire it. Industry experts believe about 30 billion barrels worth of crude oil lie beneath the deep waters of the Gulf of Mexico. Yet Pemex lacks the technology, money, and trained personnel to engage in deepwater exploration. And Mexico's constitution bars the company from entering into partnerships with foreign firms. Some analysts recently estimated that given the current rate of consumption, Mexico's oil production will last only 9.2 years and its exports will end even sooner. Even more optimistic assessments project production from Pemex's current oil fields to drop by 1.8 million barrels per day by 2021. The country is feeling the pinch. In April 2008, daily output fell to 2.77 million barrels, down from 3.18 million in April 2007. President Calderon knows what's at stake. In a recent televised address, he stated: "We must act now because time, and oil, is running out on us."

To make up for the projected 1.8 million barrel-a-day shortfall, company officials plan to step up production by 700,000 barrels in southeastern fields, 600,000 in Chicontepec, and 500,000 in deep water. Pemex also currently is drilling in an exploratory deepwater well in the Gulf called "Tamil 1." These are encouraging signs. Yet over the long run, the key to survival rests on breaking the plutocracy that lies at Pemex's foundations.

Record-high crude oil prices have been masking a potential disaster. Put another way, if prices were to dramatically drop, the Mexican government would have to increase subsidies to Pemex (the company needs $9 billion right now just to repair infrastructure), and raise taxes on everyone else, lest it be unable to provide many basic services. Take heed, America: Such a scenario may trigger even more immigration, including the illegal kind, to our country, in turn further raising pressure for amnesty. Mexico's oil industry corruption is our problem, not just theirs.