By Dave Graham
MEXICO CITY (Reuters) - Mexican President Andres Manuel Lopez Obrador's drive to strengthen state control of natural resources faces a key test on Sunday at mid-term elections that will determine control of Congress for the rest of his administration.
The leftist Lopez Obrador has upset many of Mexico's main trade partners and leading business groups by pushing through legislation to reverse the previous government's opening of the energy market to more private capital.
Though that has sapped investment, his argument that he is fighting for Mexico's poor against unscrupulous elites still resonates with voters, making his National Regeneration Movement (MORENA) heavily favored to retain the lower house of Congress.
"Mexico's a rich country, but we've allowed other people to come and take our riches from us," said Cesar Lopez, a 42-year-old MORENA supporter in the northern city of Hermosillo who is firmly behind the president's energy agenda.
Though voters tend to criticize this government's record on job creation and fighting crime, they are more skeptical of Mexico's former rulers, now in opposition. Lopez Obrador has also benefited from the vaccine rollout against COVID-19.
Opinion polls suggest MORENA may lose a few seats in the lower house, which controls the budget. But it should comfortably reach a majority with the help of political allies.
If it beats expectations, the alliance could even get a two-thirds majority allowing Lopez Obrador to pursue constitutional changes to back his statist vision in the second half of his six-year term. That prospect worries some investors.
He is barred from seeking re-election by law.
The president has put taking control of energy policy at the center of his economic agenda, arguing that past governments prioritized private interests at the public's expense.
That ambition has been cramped by a 2013-14 constitutional energy reform by his predecessor Enrique Pena Nieto, and many of MORENA's legislative changes have been frozen by lower courts.
His answer has been: see you at the Supreme Court.
Supreme Court rulings are still pending on Lopez Obrador's moves to give precedence over private interests to national power utility the Comision Federal de Electricidad (CFE) and its oil and gas counterpart, Petroleos Mexicanos (Pemex).
Pressuring the court to side with him, he has threatened to change the constitution if it does not.
Such a step could exacerbate disputes with allies by breaching Mexico's commitments under the United States-Mexico-Canada Agreement trade deal, business groups say.
Lopez Obrador's taste for using referendums to cancel infrastructure projects he opposes has further unsettled investors.
He has also sparred with mining companies, criticizing how many concessions were granted them by past governments.
Still, Lopez Obrador on Wednesday hinted he did not envisage many major legal changes in what remained of his term, saying the "constitutional reforms are pretty much done." Only very few remained, he added, without going into detail.
Lopez Obrador took office in December 2018 pledging to improve growth and reduce violent crime. Instead, the economy has shrunk for the past two years - contracting 8.5% in 2020 - and homicides have reached unprecedented levels.
Neil Herrington, senior vice president for the Americas at the U.S. Chamber of Commerce, said it was in Mexico's interest to create certainty for business and lift the economy.
An important signal towards restoring confidence would be for Mexico to walk back energy policies designed to tilt the playing field in favor of state-run firms, Herrington noted.
"U.S. investors across all industries are watching Mexico's actions on energy closely because they're convinced the outcome of the sector's current challenges will have a major impact on the country's broader economy and investment climate," he said.
Lopez Obrador argues that billions of dollars in power industry contracts awarded by predecessors ripped off taxpayers, and he wants companies to agree new terms more favorable to the state.
A few companies are believed to be pursuing international arbitration. But unless firms sell up, analysts expect most to reach some sort of deal with Lopez Obrador - just as natural gas pipeline operators did in 2019 during a similar renegotiation.
Mexico's economic fortunes in 2021 have been buoyed by U.S. stimulus spending under President Joe Biden, fueling demand for Mexican goods. Some 80% of Mexico's exports go to the United States, and exports are at record levels. Mexico's government says the economy could grow 6.5% this year.
Businesses have flagged concerns about Lopez Obrador's policies to Washington, but the focus of bilateral relations has been keeping a lid on illegal immigration.
U.S. reliance on Mexico to help stem migrant flows gives Lopez Obrador more latitude to pursue an independent economic agenda, Mexican officials say privately.
The president has wrapped his economic vision in a narrative that business, political and media elites connived to hog Mexico's riches, fueling poverty, inequality and violence.
Lopez Obrador is right to want to solve those problems, but his rhetoric is stoking serious division, argued Andres Rozental, a former Mexican deputy foreign minister.
"This polarization," he said, "is extremely damaging and worrisome for a country that needs to get its people together to get out of the rut that it's in."
(Reporting by Dave Graham; Additional reporting by Ana Isabel Martinez; Editing by Alistair Bell)