As Cartels Target Oil, Fragile Mexico Faces Dire Strait

History has shown us that there are always unintended consequences when a power vacuum is left unfilled. Whether in Iraq, Libya, Egypt, or the Sinaloa Cartel, taking out the bad guy and expecting peace is almost always naïve. That vacuum will be filled, or the organization of crime will simply become less organized, often to more dangerous effect.

Under President Felipe Calderon from 2006-2012, Mexican authorities adopted a policy of targeting the most powerful cartel leaders, going straight for the head of the snake. The years-long saga of Joaquín "El Chapo" Guzmán’s numerous escapes and captures served as the typification of this strategy, and the results in the wake of the 2016 detention from which he has not found escape show that, while logical, the strategy has not stanched the rate of crime throughout the nation.

In fact, crime is again on the rise, it just looks different. Instead of a few large, ruthless cartels who rely primarily upon a few means of income – drugs, extortion, kidnapping – organized crime has become fragmented, largely by state lines. This has meant an increase in clashes between the now larger number of organized crime groups, and a wider array of criminal activities used to sustain these less profitable, more numerous organizations. Mexico had seen a steady decrease in homicides from 2011 to 2014, but since has seen a significant trend in the wrong direction.

‘Intentional homicides set a new record last year. The previous record of 22,409 was set in 2011. The number of intentional homicides had declined each year since then, but the trend reversed in 2015. In 2017, there were 25,339 intentional homicides, a 23 percent increase from the previous year and 13 percent higher than the old record.’ (Geopolitical Futures)

With criminals having less allegiance to one particular group, the situation is more volatile than it was under the crime boss structure. This has meant fewer established means of transporting drugs, and a rise in the bevy of other kinds of crime including kidnapping, assassination, auto theft, prostitution, extortion, money laundering, software piracy, resource theft and human trafficking.

A rise in these other forms of crime, along with the persistence of the drug trade, mean that Mexico spends more on security, a domestic defense figure that is an estimated 6.8% of its GDP, according to GPF. The violent crime also results in the death of workers, business security costs, and other expenditures that decrease Mexico’s GDP by an additional 18%. Outside investment in businesses, which Mexico badly needs, is also thwarted by the nation’s inability to contain its domestic criminal factions.

One development which illuminates the Mexican government’s massive quandary is these mini-cartels’ turn toward oil pipelines for profits. As these criminal organizations stay more contained within their state, they take advantage of what sources of income are immediately available. In the cases of many states, that means getting their claws into the archaic Mexican oil infrastructure, a phenomenon that has the potential to bleed the nation dry.

The target of these oil thieves is primarily Pemex, the state-owned oil company that, while it generated $52 billion in 2016, estimated losses of $1 billion from oil thieves. For the company that is responsible for generating about a fifth of the government’s revenues, the prospect of these losses remaining the same or worse is unacceptable. With more gangs vying for the same drug markets, it’s only logical that they have increasingly targeted oil, for which there is a built-in domestic market.

And, according to Reuters, there are sure signs that organized criminals are tapping more and more into this valuable resource.

‘Between 2011 and 2016, the number of unauthorized taps discovered on Mexico’s fuel lines nearly quintupled, according to a recent report by the federal auditor. Repair costs surged almost tenfold, to 1.77 billion pesos ($95 million).’ (Reuters)

Accounts of Pemex employees being harassed, beaten, and nearly killed should they not give up information that would help cartels more effectively siphon from the state’s GDP are abundant, and the publication of these accounts makes it even less likely that outside investors will put their money into a system plagued by criminals.

It’s a self-compounding problem. The easily-tappable, old infrastructure makes it easier for criminals to gain entry to pipelines than they could in more modern oil transport systems. But that ease of theft also means that it is unlikely Mexico can secure the foreign investment it needs to make pipeline security upgrades.

The oil refineries are also an indicator of how dire the oil theft situation in Mexico is.

‘Together, the refineries have accumulated annual operating losses of about $5 billion in recent years. Production of refined products, meanwhile, fell to just over 700,000 barrels per day in 2017. That’s about half the production levels at the refineries’ peak in 1994.’ (Reuters)

As the Mexican state continues to see losses resulting from resource theft, the people of Mexico will continue to live in the poverty that has led so many to flee to the United States. The increase in violence will have the same effect, and the loss of potential foreign investment in the oil sector will mean fewer legitimate jobs than there could be. Which, in turn, means that more people are likely to turn to crime, further bleeding the state and keeping quality of life low.

Mexico’s oil problem is not just Mexico’s. Border security cannot happen overnight, and right now the serious changes Americans have anticipated aren’t happening at all. So, for now, Mexico’s problems are, at least by virtue of a shared border, America’s problems. Unfortunately, Mexico has no apparent solution to its oil theft problem, and America can do little to help.

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