• A US-led complaint against Mexico’s energy policy has sparked considerable concern within the Mexican government.
• President Andres Manuel Lopez Obrador is “seriously analysing” the situation. He has attempted to defuse it by personally negotiating deals with companies that oppose his policies.
• A source familiar with Mexico’s efforts to resolve the dispute said that the dispute has reached an institutional level.

Despite President Andres Manuel Lopez Obrador’s defiant stance, a potentially costly US-led complaint against Mexico’s energy policy has sparked considerable concern within the Mexican government, officials and people close to the matter say.

The US Trade Representative demanded dispute settlement talks with Mexico last week, claiming Lopez Obrador’s push to tighten state control of the energy market is unfair to its companies and likely violates a regional trade agreement.

With rousing appeals to national sovereignty, Lopez Obrador said he would lay out Mexico’s position on the issue alongside an independence day military parade on Sept. 16, even as he sought to minimise any potential conflict with the US.

“Nothing will happen, nothing will happen, because we both need each other,” he said last week.

In reality, Lopez Obrador is annoyed, concerned, and frustrated by the squabble, and has attempted to defuse it by personally negotiating deals with companies that oppose his policies, according to a person familiar with the president’s thinking.

Separately, two Mexican officials expressed concern about the trade dispute, and a third stated that the president was “seriously analysing” the situation.

The president addressed the US demand a day after it became official, saying he had reached agreements with 17 of 19 American energy companies in June, without naming them.

The office of Lopez Obrador, a leftist who has sought to energise his electoral base in this and other disputes by claiming that opposition to his policies is being driven by corrupt domestic adversaries, did not respond to a request for comment.

However, the agreements he announced with energy companies did not prevent USTR from filing its demand. Canada soon followed suit.

During a 75-day consultation period, Mexico’s economy ministry has pledged to pursue a “mutually satisfactory” solution through “open, frank” dialogue.

If no agreement is reached, the USTR may request a dispute panel.

“This is very serious, and it must be handled very carefully,” said Alfredo Femat, chairman of the lower house’s foreign relations committee and a member of Lopez Obrador’s ruling MORENA party’s coalition allies.

Once the issue reached a panel, Mexico’s ability to broker an agreement would be lost, according to Femat.

According to a second source familiar with the situation, Mexican officials have expressed surprise to business leaders that the USTR demand was submitted just a week after Lopez Obrador returned from talks with US President Joe Biden in Washington.

Officials have stated that Mexico does not intend to change its laws, but is open to exploring other options, according to the source. The source also expressed concern that tariffs could target Mexican-made SUVs and pickup trucks.

According to a Mexican official, Mexico would argue to Washington that a trade war with one of its key trading partners risks harming the US economy at a critical time, with midterm elections in the US looming in November.

Last week, Lopez Obrador claimed that without the assistance of Mexico’s auto industry, the cost of a new car in the United States would rise by $10,000. He rejected the possibility of Mexico leaving the USMCA on Thursday. [L1N2Z91XM]

Mexico’s economy ministry referred to earlier remarks about how it hoped to resolve the dispute through consultations. A foreign ministry spokesperson echoed that sentiment, saying Mexico was confident that established mechanisms could facilitate an agreement but declining to confirm other details reported by Reuters.

Still, the first source familiar with Mexico’s efforts to resolve the dispute said that the dispute has reached an institutional level where the government cannot rely on case-by-case solutions.

However, if Lopez Obrador feels trapped, there is a risk that he will escalate the conflict, according to the source, who added, “He is not capable of backing down, because he has already gone too far.”

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