Fuel Theft in Latin America: A Fail-Safe Trade?

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Oil and gas theft in Latin America is a low-risk, high-profit enterprise for gangs looking to diversify their criminal portfolios. But as organized crime increasingly intersects with the energy trade, it’s not clear how much law enforcement can do to resist the power of market forces.

Mexico, Colombia, Venezuela and Bolivia are among the most important fuel producers in the region. All are reportedly facing critical levels of oil and gas theft, resulting in billions of dollars of losses. This kind of petty thieving has been around for decades, but, especially in countries with active criminal cartels, the business appears to be shifting from small-time robbery into organized crime.

The organized groups moving into the trade include the Zetas in Mexico and the Rastrojos in Colombia. Tackling this problem doesn’t necessarily mean increasing monitoring of hot-spot areas for theft. What needs urgent attention is the role played by corrupt officials, who may be deliberately ignoring, if not abetting, the trade.

In Venezuela and Bolivia, meanwhile, much of the contraband fuel trade boils down to market forces. Law enforcement measures can do little to solve this problem while the conditions are in place to make the business so profitable.

Mexico

Pemex, Mexico’s state-owned petroleum company, said that oil theft was up nearly 265 percent in the first trimester of 2011 compared to the same period last year. The company reportedly discovered 710 pipeline taps in 2010, many concentrated in the states hardest hit by drug violence, as this map by InSight illustrates.

Most reports from Mexico signal that oil smuggling is increasingly controlled by organized criminal groups, spearheaded by the Zetas. In 2009, the group sold at least $49 million in stolen Pemex oil to U.S. refineries. This can be explained, in part, by the increased pressure the group is facing in Tamaulipas state, where the Zetas are fighting the Gulf Cartel and are looking for new, low-risk sources of money.

But even as oil smuggling grows worse in Mexico — costing Pemex an estimated total $1 billion in losses over 2008 and 2009 — it should be noted that Pemex has also leaked away billions through corruption. As the Institute for the Analysis of Global Security (IAGS) recently observed,”On some levels Pemex is not just a victim of oil-thieving DTOs; sometimes, it’s directly involved.” This includes one case in February 2010, when authorities seized four tons of marijuana at a Pemex facility, according to the IAGS. Given Pemex’s long history of endemic corruption, it is worth asking whether the current spike in oil tapping may be occurring in collusion with low-level officials.

Pemex is currently considering ways of cutting down on oil theft, like new technology to measure pressure decline in pipelines. But the more difficult (and perhaps important) fight may be increasing transparency initiatives within the notoriously bureaucratic company. Pemex funds propped up corrupt politicians from the Institutional Revolutionary Party (Partido Revolucionario Institucional – PRI) for decades, the same office-holders who cut deals with drug cartel godfathers like Pedro Aviles and Miguel Angel Felix Gallardo. President Felipe Calderon has admitted that corruption affects Pemex in “diverse areas,” while petitions for former Attorney General Eduardo Medina Mora to step up investigations of Pemex corruption went nowhere.

The Zetas may be draining millions from the Mexican economy with illegal oil siphons, but this is no less serious than the millions misplaced by Pemex in bribes and contract scandals — just less visible.

Colombia

Unliking the declining Pemex, Colombia’s state-controlled oil company Ecopetrol is seeing solid growth: April was a record month with the production of 903,000 barrels per day.

But along with the increased oil production have come more reports of oil siphoning from the Caño Limon Coveñas and Trans-Andino pipelines. According to one estimate by Ecopetrol, theft of crude from trucks and other transport networks resulted in the loss of 369 barrels a day in 2010, compared to an estimated 189 barrels per day in 2009. In departments like Putumayo and Nariño, police report routine discoveries of primitive oil refineries believed to be run by the Rastrojos, who use the crude for the processing of cocaine, or else sell it on the contraband market.

Like Mexico, it is difficult to track how far low-level local officials are turning a blind eye to Colombia’s contraband oil trade. However, evidence of prior links between the United Self-Defense Forces of Colombia (Autodefensas Unidas de Colombia – AUC) and the illicit oil trade have been well documented. At the height of the AUC’s power between 2001 and 2003, an estimated $10 million worth of crude disappeared from Colombia’s pipelines. During this time, paramilitaries charged fees for every truck that left the Campo Rubiales oil well in Meta department, reports Verdad Abierta. According to testimony by one former paramiltary commander during the Justice and Peace process, Ecopetrol allowed the AUC to siphon oil in northern Colombia in exchange for protecting the pipelines from thieves.

The question now is whether the AUC’s heirs — which the Colombian government has labeled “bandas criminales,” or BACRIMs — are exercising similar hegemonic control over the contraband oil industry. While in Mexico the spike of fuel thefts appears to indicate that more organized criminal groups are moving into this market, the case is not so clear cut in Colombia. There are routine reports of authorities discovering illegal refineries, particularly in departments with a high level of BACRIM presence and cocaine production, like Nariño and Putumayo. But it is not clear whether this business has become a key complement to BACRIM finances, the way that gold mining is for the FARC in northern Antioquia.

If the BACRIMs’ criminal portfolio continues to overlap with Colombia’s energy sector, this could represent another attractive, low-risk source of income for the criminal groups. Like in Mexico, the BACRIMs may be driven further into fuel smuggling if the security forces continue to up the pressure in these areas.

And if the BACRIMs follow the footsteps of the AUC and attempt to buy the silence of local business and political officials, the cash flow from oil sales may soon join their profits from drug trafficking.

Venezuela and Bolivia

Venezuela reportedly loses 100,000 barrels a day to contraband trade, with smugglers taking oil across the border into Brazil or Colombia. Bolivia, meanwhile, reportedly lost an estimated $55 million in 2008 due to fuel smuggling. President Evo Morales has also stated that the illicit oil trade costs Bolivia $150 million in losses each year.

Unlike Mexico and Colombia, however, the problem in these countries does not appear to be connected to organized crime. Venezuela has seen cases of the theft of oil production equipment, but has not reported oil siphoning on the same scale as Mexico and Colombia, where criminal groups are under pressure to expand into new trades.

What does, in part, help prop up the contraband business is cheap, government-subsidized fuel prices. In Venezuela, gas has been sold as cheap as 12 cents as gallon, as part of the government’s policy that subsidizes the oil trade by up to $8 billion. Bolivia saw riots last year after Morales attempted to hike fuel prices by 70 percent, after locals became accustomed to buying gasoline as cheap as beer and water.

These artificially low prices, in turn, have fed the black market. Especially across the porous borders between Bolivia and Brazil, or Venezuela and Colombia, the ease of smuggling and the amount of profit to be made have led to a widespread contraband fuel trade. It’s hard to say whether any government policy — particularly those related to increased law enforcement — can reduce the illicit trade, so long as the incentives for selling subsidized fuel in a higher-price market remain so attractive.

Conclusions

The contraband fuel trade has long prospered in parts of Latin America with low state presence. But as more countries become concerned about their energy security and dwindling oil supplies, governments will likely become less willing to turn a blind eye to the illicit business. In Mexico, the biggest risk is that the industry falls into the hand of organized criminal groups like the Zetas, and there are some signs that this is already happening. In Colombia, the gasoline trade was an important source of funding for the AUC, but now appears to be mostly controlled by small-time operators. And when it comes to the cross-border trade, the price of subsidized fuel is still low enough in Venezuela and Bolivia to encourage contraband.

Each of these four countries needs to develop their own strategy for tackling fuel theft. But it’s worth remembering that this is not simply a narrative of criminal groups increasingly moving into this black market. The business is driven by market forces, and helped along by state and business officials who cover up the illicit trade with a conspiracy of silence. In that sense, the role that law enforcement can play in solving the problem may be a limited one.

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