The world’s most indebted oil company is a headache for New Mexico’s leader.

After handing over the reins of power to Claudia Sheinbaum on October 1, outgoing Mexican President Andrés Manuel López Obrador raised his hand in a gesture of shared victory.

López Obrador, a hugely popular but controversial figure in Mexico, bequeathed more than just a presidential ribbon to his political protégé.

It inherits a nation and economy that is performing well in some areas but facing serious problems in others.

The good news from its government’s perspective is that Mexico has strengthened its trade position with its northern neighbor, displacing China from the US position. largest trading partner.

Mexico has benefited from “proximity”—that is, the movement of American and Asian firms from China to northern Mexico to circumvent punitive U.S. tariffs on Chinese exports.

“Mexico has always been attractive for capital flows because of our geography, our free trade agreements with North America, our labor force,” former Mexican trade negotiator Juan Carlos Baker Pineda told me before the election.

“But in the last few years, it increasingly seems that if you (a foreign firm) want to do business with the U.S., you need some kind of foothold in Mexico.”

The outlook is optimistic, he says, pointing to Amazon’s recent announcement that it would invest $5bn (£3.8bn) in Mexico over the next 15 years, as well as an additional $1bn investment from German carmaker Volkswagen . Mr Baker Pineda also cites promising plans from South African, Japanese and Chinese firms.

Critics are less convinced that moving production from Asia to northern Mexico will benefit the Mexican economy rather than simply support the companies involved. The key, according to Mr. Baker Pineda, is making the right “corporate and government decisions in this country to sustain this trend over the long term.”

When it comes to the pressing economic issues facing President Sheinbaum, the most pressing is the state-owned energy company Pemex. Its debts total around $100 billion, making it the world’s most indebted oil company.

“Debt is a problem not only for Pemex, but also for Mexico,” says Fernanda Ballesteros, regional manager for the Natural Resource Management Institute in Mexico.

In recent years, López Obrador’s administration has reduced the amount of taxes Pemex had to pay to the government. This was cut by 60-30%.

At the same time, the outgoing government provided Pemex with a series of cash injections that López Obrador said he would make I would like to see a continuation.

But a sustained decline in productivity at Pemex in recent years has made it even more difficult to finance the state-owned energy giant, which employs about 1.3 million people, according to the government’s own statistics.

“President López Obrador’s policies and priorities have been to double down on fossil fuels and give unconditional support to Pemex,” Ms Ballesteros says. She said the company is now poorly positioned to make the necessary transition to cleaner, more efficient energy sources in the coming decades.

“Over the past six years, 90% of Pemex’s infrastructure investments have been focused on the construction of the new Dos Bocas refinery in Tabasco and the acquisition of the Deer Park refinery in Texas.”

The government says it is on track to achieve its target of full fuel self-sufficiency by the first quarter of 2025. However, Pemex’s ongoing economic difficulties mean the Sheinbaum administration’s hands are tied in servicing its colossal debt.

Environmental expert Eugenio Fernandez Vazquez says Pemex is a “big challenge” for Sheinbaum. “Not only to deal with the oil industry, which is huge in terms of Mexico’s GDP, but also to take Pemex’s huge debt burden off the shoulders of the population,” he explains.

Sheinbaum must find a difficult balance, he adds, of getting Pemex to sell more of its products, “which are obviously based on fossil fuels and oil, while at the same time addressing Mexico’s climate change challenges and addressing pressing issues in our cities such like air pollution.”

For a president considered Mexico’s most environmentally conscious leader (Sheinbaum was an accomplished environmental engineer before entering politics), this must irritate him. Especially while simultaneously spending billions of public money to prop up a greenhouse gas emitting giant.

Returning to Mexico’s complex relationship with its northern neighbor, President Sheinbaum faces two very different potential partners in Washington – either the first female US president in Kamala Harris, or Trump’s second.

Whoever wins in November will have to deal with several complex cross-border issues, be it trade or illegal immigration, gun trafficking into Mexico or fentanyl into the United States.

Additionally, the United States-Mexico-Canada Free Trade Agreement (USMCA) is up for renegotiation in 2026, with changes ranging from minor amendments to major changes possible.

The USMCA was introduced in 2020 when it replaced the previous North American Free Trade Agreement between the three countries.

Sheinbaum also has to keep an eye on the peso. In the days following her election victory in June, the currency fell against the dollar.

This was largely in response to the outgoing president’s decision to pursue a major reform of the country’s judicial system, under which all 7,000 judges and magistrates in Mexico would be elected by popular vote. Sheinbaum also supports the plan.

Washington’s disapproval of the measure, publicly expressed by US Ambassador to Mexico Ken Salazar, suggests it could complicate and even jeopardize parts of the USMCA review. Relations between Ambassador Salazar and the new administration have already become noticeably colder.

Diplomatic differences aside, reconciling new constitutional rules with the legal requirements of a free trade agreement may prove far more difficult than initially thought.

However, these are the very first days of President Sheinbaum’s reign. As part of her predecessor’s legacy, she enjoys almost unprecedented levels of support as the ruling party maintains an unwavering position across the country.

Her key campaign promise – to expand López Obrador’s social programs in the form of pensions, family scholarships and student grants, and to build what she calls the “second floor” of his political project – has won her the support of millions of Mexicans.

She can also count on a loyal Congress, and after the reform, potentially control over the judicial system.

Taking office in such a powerful position is a luxury that both supporters and critics expect of her to properly overcome some of Mexico’s major economic headwinds.