Open Veins of Mexico

Open Veins of Mexico:  The Strategic Logic of Cartel Resource Extraction and Petro-Targeting

John P. Sullivan and Adam Elkus

Resource extraction and energy targeting remain important but mostly overlooked aspects of Mexico’s drug war and criminal insurgencies.  While most analysis understandably focuses on the extreme violence and insecurity challenging the state, Mexican cartels and gangs are forging a petroleum black market that augments its lucrative drug trade and extends their array of criminal enterprises.  While the gangs are not actually taking control of Petróleos Mexicanos—the state oil monopoly known as PEMEX—they are challenging its economic wellbeing and the state’s political base. Understanding PEMEX targeting and resource extraction provides a means for understanding the dynamics of state capture and the economies of violence in Mexico’s cartel wars.  This has both an economic and highly symbolic political impact.

As Jeremy Martin and Sylvia Longmire have noted, oil—as seen in the Middle East—is both a crucial industry and a key symbol of national sovereignty and power.  In Mexico, oil generates over 15% of current export earnings and accounts for 40% of the government’s budget.[1] National control over hydrocarbon reserves and production is enshrined in the Mexican constitution.  Indeed, President Lázaro Cárdenas’s nationalization of oil in the 1930s provoked a Latin American variant of the Middle East oil struggles that characterized the early postcolonial era in the Middle East.[2]

Not surprisingly, PEMEX has also become yet another target in the Mexican drug war. Gangs have stolen an estimated $236 million worth of fuel in the first four months of 2011, and are projected to make another $706 million on fuel this year unless PEMEX can halt the energy theft.[3] Martin and Longmire estimate that PEMEX suffers an annual $2 billion annual “theft tax,” though it is far from certain that all of it is due to cartel activity.  Despite these financial disruptions, PEMEX targeting is not as well known in irregular warfare and energy security discussions as the Niger Delta petro-insurgency.

PEMEX Extraction and the Black Market

Mexico's cross-border petrol black market has the potential to become a serious threat to Mexico’s stability—financial and otherwise. Petro-crimes currently involve drug cartels, corrupt government officials, and an undetermined number of oil refineries and companies in the US.  As a La Prensa San Diego feature noted, the petro-crime threat

has been steadily increasing since 2007.  In keeping with general corruption trends in Mexico, PEMEX security officials find more illegal takes every year. In the first semester of 2009, 190 illegal takes where found with at least 2 million and 88 thousand fuel barrels stolen, marking an astonishing 10% increase in comparison to the same period the year prior. PEMEX data analysis suggests 44.2% of those clandestine takes (tomas clandestinas) were found in Veracruz, 28 % in Mexico State but many others were found in Hidalgo, Chihuahua, Coahuila, Oaxaca, Sinaloa, Jalisco, Tlaxcala, Durango, Querétaro, Guanajuato, Michoacán, Puebla and Baja California.[4]

By late 2010, threats and violence by drug gangs are preventing government oil workers from reaching installations in northern Mexico and costing PEMEX $350,000 a day in lost production; shutting down the equivalent of about 100 million cubic feet of natural gas production per day or about $10.5 million per month in natural gas revenues.[5]  PEMEX reported 40,000 incidents–including accidents, criminal acts and attacks– between 2000 and 2010, according to Milenio. Last year’s incidents (2010) included 300 instances of criminals siphoning fuel from pipelines.[6]  This far in 2011, PEMEX is reported to have lost between 7-12 Billion Pesos to tomas clandestinas.[7]  By August 2001 a total of 769 tomas clandestinas had been identified, with the states of Sinaloa, Veracruz and Tamaulipas impacted (suggesting resource extraction is practiced by cartels other than Los Zetas since criminal enterprise in Sinaloa is controlled by the Sinaloa Cartel/Federation).[8]

Bold thefts and chronic resource extraction challenge and embarrass the state and strengthen organized crime.  One significant conspiracy netting $1 billion in siphoned oil, resold in U.S., has dealt a major blow to the Mexican treasury and public confidence. As the Washington Post reported, Mexican drug gangs are pilfering large quantities of oil from PEMEX to fund their enterprises, "Drug traffickers employing high-tech drills, miles of rubber hose and a fleet of stolen tanker trucks have siphoned more than $1 billion worth of oil from Mexico's pipelines over the past two years."[9]

According to a recent Wall Street Journal feature, "Mexican crime groups have virtually taken over the pipeline system of Mexico's state oil monopoly, stealing growing amounts of fuel and gaining an important source of new revenue as they fight other gangs and Mexico's government, according to the oil company."[10] The narco/petro-gangsters exploit cross-border black and grey markets for oil and derivatives to gain direct profit and revenue, but perhaps more importantly as a vehicle for money laundering to cleanse proceeds from other illicit businesses such as drug and human trafficking. Conveniently, they can exploit many of the pre-existing illicit networks and smuggling circuits, drug trafficking routes, and facilitating gangs.

Gangs, armed with large caliber guns have also hijacked PEMEX trucks at gunpoint. They extract fuel directly from pipelines that crisscross the country and have even built tunnels and their own pipelines to facilitate the clandestine taps.[11]A large segment of the oil rustling is attributed to Los Zetas, a criminal organization founded by former military commandos. The Zetas dominate the criminal “para-state” in the oil-rich states of Veracruz and Tamaulipas.  According to Eduardo Mendoza Arellano, a federal lawmaker who heads a national committee on energy, "The Zetas are a parallel government… They practically own vast stretches of the pipelines, from the highway to the very door of the oil companies."[12]

The cartels and affiliated gangs extract the hydrocarbons and derivatives (robo el hidrocarburos) in a number of ways.  They bribe oil workers for access, steal tankers, tap pipelines, etc. “Armed with basic drilling equipment and “borrowed” tanker lorries, traffickers have siphoned off an estimated $1 billion worth of oil from pipelines over the past two years. They dig tunnels to underground pipelines, puncture the pipes with hand drills, install valves, and divert the oil—often using garden hoses—to tankers.”[13] Bribes, intimidation, and violence reinforce the extraction--which results in a virtual cartel petro-tax where the gangsters essentially “taxes” PEMEX by controlling its distribution from the siphon points to the refineries.

This stolen oil is fueling Mexico's drug war.  The thefts are used to launder cash and expand cartel profits.  The Arizona Republic reports: "Mexico's violent drug cartels are getting into the oil business, tapping into underground pipelines and siphoning off tons of crude, gasoline and other fuels, some of which is ending up in the United States.... The stolen fuel has created a huge income stream, as much as $715 million a year, that gangs can use to buy weapons, bribe officials and bankroll their bloody battle against the Mexican government."[14]

The petro-extraction is not limited to oil alone.  As Southern Pulse noted, "Natural gas, petrochemicals, the hijacking of tank cars and pipelines, contamination of oil producing areas and the theft of equipment have also been reported. Organized crime, as well as company employees and union members have been implicated in these thefts, which since 2004 have been reported from 'nearly every state and have cut deeply into company profits,' according to one Southern Pulse source."[15]

Cartels have mastered technical expertise needed to foil sophisticated antitheft systems, but electronic wizardry alone does not explain the true depth of the problem. Physical security itself at PEMEX sites has been compromised, suggesting cartel control. Rampant kidnappings, bombings, and extortion meld with covert siphoning.

Corruption, Co-opted Officials and State Capture

Of course, such targeting is impossible without inside help, and Martin and Longmire suggest that infiltration is rampant. One incident they cite is particularly troubling. In February 2010, Mexican military officers seized more than four tons of marijuana at PEMEX facilities in Reynosa. The military responded to reports of armed criminal activity at a fuel supply station, and were met with heavy weapons fire. Soon after, cartel operatives fled—revealing drugs loaded on trucks. Are PEMEX employees not just cartel targets but also co-conspirators?[16]

According to Alejandro Gertz, now a congressman and rector of the University of the Americas, who conducted an investigation of security problems at PEMEX in 2004, the biggest problem was corruption and collusion between PEMEX employees and the thieves. "These are territories where the organized crime infrastructure, inside and outside of the police forces, has established power — a parallel power, a parallel government," said Gertz. "That territory is in the hands of a parallel power that has penetrated the government at all levels."[17]

Corruption is a key additive in the petro-extraction racket.  Not only are PEMEX workers and officials corrupted by cartels, but insider trading and collusion help fuel a lucrative cross-border enterprise.  For example, a Texas oil executive says his company was one of several that bought stolen Mexican petroleum and sold the illicit products to large corporations including German chemical giant BASF. These racketeer-influenced transactions, which were uncovered by a joint US-Mexican investigation, involved several American and multinational corporations.[18]

Not only does petro-extraction enhance criminal enterprise, the petro-targeting and related violence also cripples the state and the state’s oil monopoly. For example, in September 2010 the Los Angeles Times recounted a series of kidnappings that compromised PEMEX operations in the strategic Burgos Basin.  According to that report, “The kidnappings of five petroleum company workers along with 30 others have terrorized the oil community, paralyzing segments of the business. Months later, families have still heard nothing…Now the cartels have taken sabotage to a new level: They've hobbled key operations in parts of the Burgos Basin, home to Mexico's biggest natural gas fields.”[19] “How is it,” a relative of a kidnapped oil worker asked, “that PEMEX, supposedly the backbone of the nation, can be made to bow down like this?”[20]

Petro-Insurgency meets Criminal Insurgency

How does this clandestine oil trade fit with narcotrafficking and narco/criminal insurgency? Journalist Ioan Grillo examined cartel extraction of petro-resources in a Time report, Grillo observed that:  “[O]il theft has become increasingly common in Mexico amid a breakdown in law-and-order in certain states. Last year [2010], the government oil monopoly Petroleos Mexicanos or Pemex detected 712 such pipeline taps—a fivefold increase compared to the 136 spotted in 2005. It represents a significant loss of government income at a time when revolution in the Middle East has pushed crude oil prices to nearly $100 a barrel.”[21]

The clandestine nature of Mexico's illegal oil market makes it impossible to know exactly how much it is worth.  PEMEX officials state they are losing less than 1% of their oil to the bandits. However, energy analyst David Shields believes that figure is an underestimate; he calculates that the fuel black market is now worth $2 billion to $4 billion annually.[22] Whatever the figure, the potential illicit profits are vast and sustain a range of cartel incursions into the realm of the state.

An interesting parallel to the narco/petro criminal insurgency in Mexico is found in the Niger Delta.  The threat actors in Nigeria's oil producing areas are exemplary of the non-state gangsters that complicate criminal insurgencies. According to a recent RAND report:[23]

Adding to the complexity of this environment is a rich array of militias, gangs, armed youth groups, vigilantes, “cults” (a type of criminal gang with origins in Nigeria’s university population), and insurgents operating in the region. The conflict in the Niger Delta is difficult to characterize as an insurgency in any traditional sense, given the layered and highly variegated nature of the region’s militancy. It is impossible to categorize any group as purely criminal or purely political or to attribute “greed” or “grievance” as the primary motivation for taking up arms. Indeed, clear taxonomies of any kind are difficult to come by in the case of the region’s armed groups.

Militants exist along a spectrum, with some tending toward the purely criminal and others toward the more purely political. However, some groups that appear to be largely criminal have political, social, and even environmental agendas, while some ostensibly ideological organizations engage in extensive criminality.

The Movement for the Emancipation of the Niger Delta (MEND) is exemplary in this regard. MEND portrays itself as a defender of minority rights against brutal and rapacious government authorities. In so doing, MEND taps into a deep strain of popular resistance to the economic, environmental, and political maladies that emerged in the region following the discovery of oil.  Attacks on oil pipelines and other facilities, as well as kidnappings are a prominent feature of MEND’s violent repertoire. Simultaneously, MEND pursues criminal and highly lucrative activities to a degree that makes it difficult to characterize the organization as a pristinely “political” movement.  Here, we see the an example of economies of violence in criminal insurgency.[24]  Similar dynamics are emerging in the assault on PEMEX.

One way to see the dynamic is a cycle of substate authority-building. The stage is a  “contested zone” rich in resources (oil, minerals, drugs) with weak state governance dominated by a criminal enterprise (cartel, gangs, or warlord).  The criminal enterprise strives for resource control and extraction.  This is manifested by the development of an illicit supply chain augmented by domination of the criminal turf and political sphere (through corruption and intimidation) to yield territorial control.  As a consequence, a “cycle of violence” where competitors (the state and rival gangs are attacked) so the gang can freedom of maneuver and operate without interference.  In addition to extracting the core resource (in this case drugs), it seeks to expand into other enterprises and extract revenue or “street taxes” from other gangs and legitimate businesses (in this case the state oil industry). Finally, the gangs or cartel seeks to co-opt and/or capture the state in a utilitarian quest to sustain its independent reach and capacity to operate with impunity.

Conclusion: Strategic Logic of Resource Extraction and Petro-Targeting

Cartels have diversified far beyond drug transport routes.  Kidnapping, personal protection, oil targeting, and a myriad of other illicit “services” comprise sources of cartel revenue. Oil smuggling is a $7.7 Billion enterprise.[25]  Petro-extraction in Mexico is not new, but when combined with cartel assaults on the state for territorial control, the market share for both black market oil and power shifts in favor of the gangsters. While their core enterprise is still drug smuggling, cartels are far more than merely the dope-pushing bandits of popular imagination. As cartels penetrate farther and farther into the architecture of the Mexican state, they will become less-and-less tied to their original “narco” focus.

And as the recent story of “narco-tanks”[26] and the expansion of cartel warfare into Guatemala and other parts of Central America indicate, the stakes of the battle are higher than before.  Any resource that can generate additional funds for cartel operations can and will be tapped.  Given PEMEX’s recent financial woes, the fact that cartels now see it as a source of war funds is a most worrying development.  The Mexican state is enhancing penalties for those involved in petro-extraction as part of its quest for greater security. Now oil theft can result in an 18-year criminal sentence—stiff in Mexican terms.  The impact of proposed elevated prison terms has yet to be realized.[27]

Perhaps the worst blow to the Mexican state is psychological.  Oil is crucial to Mexico’s national sovereignty in both symbolic and practical ways.  Cartel disruption and control over segments of PEMEX demonstrates that the Mexican state is incapable of securing one of its most precious national resources and a crucial symbol of its own post-colonial, post revolutionary independence.  Targeting PEMEX is a direct assault on the state’s economic engine and legitimacy.

John P. Sullivan is a career police officer. He currently serves as a lieutenant with the Los Angeles Sheriff’s Department. He is also a senior research fellow at the Center for Advanced Studies on Terrorism (CAST). He is co-editor of Countering Terrorism and WMD: Creating a Global Counter-Terrorism Network (Routledge, 2006) and Global Biosecurity: Threats and Responses (Routledge, 2010). His current research focus is the impact of transnational organized crime on sovereignty in Mexico and elsewhere.

Adam Elkus is an analyst specializing in security and international politics. He is currently associate editor at Red Team Journal. His articles have been published in Defense Concepts, West Point’s CTC Sentinel, Small Wars Journal, The Atlantic, World Politics Review, and other publications. He blogs at Rethinking Security and the Huffington Post.