HomeNewsAnalysisMexico's Oil Reform May Help Organized Crime
ANALYSIS

Mexico's Oil Reform May Help Organized Crime

GULF CARTEL / 10 FEB 2014 BY PATRICK CORCORAN EN

Mexico's landmark oil reform is poised to bring a flood of new companies into the nation's energy industry, adding a new set of targets for organized crime.

The basic aim of the historic reform passed in December is to open Mexico's oil industry, among the most closed off in the world since the government's expropriation of privately-controlled assets in 1938, to a far wider range of private sector actors. The first of these new participants in the local oil industry emerged last month, when President Enrique Peña Nieto announced a partnership between Mexico's national oil company, Pemex, and the Russian firm Lukoil.

The precise scope of private-sector activities in Mexican hydrocarbon production remains to be seen, and to a certain extent depends on the enabling legislation that is set to be passed later this year and will accompany the reform. But everyone is in agreement that the arrival of Lukoil is just a start, and augurs a new era of private firms operating inside Mexico.

Others expect US companies -- like those which have established operations in Texas to take advantage of the recent boom in oil and natural gas production along the shale basins that stretch into Mexico -- to shift their operations into the neighboring Mexican state of Tamaulipas. Mexico's shale-based reserves are some of the most potent in the world, according to the US Energy Information Administration (EIA), and Pemex is investing heavily in developing the Tamaulipas area

Most of the public attention on the oil reform has focused on the political consequences, but the sudden entry of a raft of new firms unfamiliar with Mexico could present a juicy new target and a revenue boon for organized crime. Tamaulipas, for instance -- in addition to holding vast reserves of gas and oil -- is one of Mexico's most conflictive states. There, the feared Zetas criminal group has been battling for control of this lucrative trafficking route with their progenitors, the Gulf Cartel, for four years.

Both groups also make money from theft and resale of hydrocarbons, and control of licit and illicit mining operations. As illustrated in this map below, shale areas coincide exactly with the Zetas' areas of operation. mexico shale area zetas

To be sure, as InSight Crime and other outlets have reported, stolen oil has become a major source of revenues for organized crime groups in Mexico. According to a report from Pemex boss Emilio Lozoya in November, robberies of fuel cost the company more than 15 billion pesos (or roughly US$1.13 billion) in 2012 and the first nine months of 2013. The figure is apparently rising, with more than half of the 15 billion coming from January to September of 2013.

While the Zetas remain the group most often associated with the theft of Pemex supplies, other gangs appear to have followed. Sinaloa, the home state of Joaquin "El Chapo" Guzman's famed Sinaloa Cartel, is among the national leaders in siphons detected in Pemex pipelines, which are a principal form in which the groups remove the hydrocarbons; in 2011, no state detected more of these illegal taps.

SEE ALSO: Coverage of Oil Theft

After removing the crude from pipelines or via other methods, the criminal groups' ability to move it on and profit from the theft depends in large part on outside, independent companies and gas stations. A 2011 lawsuit filed by Pemex in the Southern District of Texas demonstrates this perfectly. The company alleged that 12 individuals and companies in the US bought Pemex supplies stolen by Mexican criminal groups:

"The condensate at issue in this lawsuit is the sovereign property of the United Mexican States [Mexico]. It was stolen in Mexico and then transported into and ultimately sold to large end-users in the United States. This lawsuit is directed at some of the individuals and entities who traded in the stolen condensate within the United States prior to the filing of this lawsuit," the lawsuit reads.

"Some of the Defendants knew, or at least should have known, they were trading in or transporting, stolen condensate. Others were ignorant that they were purchasing stolen goods. In either case, however, the Defendants took possession of Mexico's sovereign property without right or title. All Defendants are therefore liable for their individual usurpation of Mexico's patrimony."

The allegations represent just a small part of a complex and sophisticated network that has emerged around stolen Mexican oil and gas. Two owners of US oil supply firms pled guilty to criminal charges of trafficking stolen Pemex fuel around the same time. 

Regardless of the economic arguments in favor of the reform, the increased number of actors will create more opportunities for scams like those laid out in the Pemex case, in both Mexico and the United States. 

SEE ALSO: Mexico News and Profiles

In this sense, the disappearing centrality of Mexico's oil industry has been an advantage. While Pemex is a sprawling organization with many points of vulnerability, it is still a single company. Compared to an industry broken up into dozens of producers, this presumably allows it to better track lost supplies, coordinate across different geographic regions and different areas of the supply chain, keep tabs on employees suspected of organized crime ties, and implement responses. 

As other actors enter the fray and the relative influence of Pemex shrinks, the panorama will be complicated. As a result, the ability of a determined response by Pemex officials to clamp down on the theft will be reduced. The ability of criminal groups to find targets and partners in the private sector, in contrast, will increase, and groups like the Zetas will likely be better able to cloak their activities and more capable of siphoning profits from Mexico's oil industry. 

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