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Cartel Entry Into Mexico’s Illicit Fuel Market Brings About New Security Challenges – Mexico Analysis

Executive Summary

Fuel thefts have emerged as a leading cause for increased rates of violent crime in states with major oil pipelines.

The increase in violence stems from the entry of cartels into the illicit fuel trade, due to its lucrative, low-risk nature.

Security threats stemming from such thefts and related attacks on both state-owned and private oil companies are likely to increase going into 2019.

Avoid nonessential travel to states with an extreme or high risk of cartel and gang-related violence, especially in central Mexico, which is the heart of the fuel distribution system.

Current Situation

On December 22, Mexican authorities announced that an additional 4,000 soldiers will be deployed to protect assets of the state-owned oil company, PEMEX, throughout the country in the coming weeks. Military officials took over 73 strategic pipelines, six refineries, and several fuel monitoring centers across the country, which are responsible for observing the levels of fuel in pipes and ensure the functioning of the distribution system, and closed pipelines. The announcement came after a December 4 report outlining fuel shortages in 57 gas stations in the States of Mexico and Guanajuato due to thefts and attacks on the Tula-Azcapotzalco and Salamanca-Azcapotzalco pipelines. On November 7, Jalisco State reported fuel shortages in 500 stations due to the closure of a pipeline over illegal taps.

On January 9, five employees of the state-owned oil company, PEMEX, were arrested for failing to report the drop in pressure in gasoline ducts, an indication of a sudden loss of fuel from the pipeline. The Secretary of Energy also said that ongoing fuel shortages would resolve over the coming days as several pipelines were scheduled to reopen following investigations.

Several states in Central Mexico, as well as Mexico City, continued to experience fuel shortages as of January 13. Long waiting times were witnessed at fuel stations across the region, with a number of stations reportedly running out of supply. Furthermore, businesses are facing shortages of goods due to trucks being unable to obtain the necessary fuel to facilitate transportation.

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Timeline of notable oil-related crimes prior to December 2018

July 28 – Five security personnel were reportedly killed in Puebla by local oil-theft gangs.

August 4 – Local oil syphoning gangs set two trucks on fire on the Mexico City-Puebla highway to block the road in response to security forces detaining the head of one of the gangs.

September 20 – The Cartel Jalisco Nueva Generacion (CJNG) claimed the killing a worker of the national oil company, PEMEX, in Salamanca, accusing him of informing the local Santa Rosa Lima cartel of the CJNG’s oil syphoning operations in the area. Authorities had stepped up security at a PEMEX-owned oil refinery in Salamanca in July, following allegations of cartels stealing oil with the help of several refinery workers.

October 6 – Five individuals were shot dead near Salamanca, Guanajuato in a suspected cartel dispute over control of the illicit oil trade in the state.

November 29 – A PEMEX pipeline located in the municipality of Cardenas, Tabasco, exploded during a fuel theft operation, causing the deaths of two and injuring several others.

 

Background

In the first ten months of 2018, the number of illegal taps on oil pipelines rose 45 percent from the same period in 2017 to over 12,500 nationwide. Fuel thefts have led to a 30 percent decrease in deliveries to centrally located fuel stations, and according to President Andres Manuel Lopez Obrador (AMLO), have cost the country over USD 3.5 billion annually.

In June 2018, 15 trucking firms contracted to the national oil company, PEMEX, ceased operations due to repeated threats to their drivers and vehicles. Trucking unions have accused PEMEX of indifference, as it receives insurance payouts, while drivers pay deductibles in the event of theft. PEMEX has said that it will shift from pipelines to other modes of gasoline delivery due to the rise in fuel thefts and subsequent decrease in the amount of fuel being delivered to gas stations, despite such modes being more expensive.

The center of the violence lies in the so-called ‘Red Triangle’ region in Puebla, encompassing the municipalities of Acajete, Acatzingo, Palmar de Bravo, Quecholac, Tecamachalco, and Tepeaca. It acts as a transit zone for 40 percent of the fuel distributed from Mexico City to the rest of the country. The most affected states are thus primarily located in the country’s central region, including Puebla, Hidalgo, and Guanajuato.

While fuel thieves, locally known as ‘huachicoleros’, have operated in the country for years, violence increased in 2017, following the government liberalizing fuel prices, which created a lucrative black market for cartels. Today, huachicoleros operate both as part of local standalone gangs and as extensions of powerful cartels, with the most notable being the CJNG. Further, the ongoing splintering of larger gangs since the government’s ‘War on Drugs’ strategy in 2011 has led to increased cartel disputes over the fuel trade, catalyzing more violence.

Assessments & Forecast

Military deployment, consolidation of illicit fuel gangs to lead to increased violence

Given the rampant corruption in local police forces, the proposed deployment of military personnel, who are perceived to be less entrenched in organized crime and huachicolero gangs, is likely to hinder these groups’ operational capabilities, as they are often reliant on cooperation and assistance from law enforcement. However, as seen with previous instances of an enhanced role of the military in domestic security issues, violence emanating from clashes between security forces and fuel thieves is likely to ensue. Thus, an improvement in the overall security situation seems unlikely in the medium term.

Moreover, with the entry of larger cartels into the illicit fuel trade, who have significantly more resources and connections, smaller huachicolero gangs will likely be forced to cease operations or declare allegiance to one of the rival cartels in the region. This will translate into turf wars becoming more two-sided and thus more deadly in the medium term, with opposing sides reverting to increasingly violent tactics to gain control of the region’s fuel trade.

Fuel thefts have now expanded to include truck robberies and hold-ups targeting fuel transport vehicles, with such attacks carrying a higher chance of turning violent and leaving casualties. Attacks on PEMEX pipelines and buildings also involve high casualty rates, especially in the event that fuel theft gangs seek to exact revenge on corrupt workers who shift allegiances.

Illicit fuel trade to become more lucrative to cartels with entry of foreign companies, complexities of drug trade

With one of AMLO’s campaign promises revolving around the legalization of drugs, such as marijuana, and bolstered security on the US border narco-trafficking groups may increasingly seek to divest into other revenue-generating operations, due to the increasing volatility within the drug trade. As a number of the larger cartels have splintered in recent years, local gangs affiliated to these groups have attempted to seek more reliable sources of revenue which offer a comparatively lower risk to the perpetrators compared to trafficking drugs, for which they may be targeted by rival groups. Gasoline, in particular, has emerged as a viable option, due to the elimination of issues such as smuggling the product across country borders and the availability of a much broader market than illicit drugs and thus has begun to be capitalized on by cartels.

Further, Mexico opened its markets to foreign oil companies for the first time in 2014, and the 2017 removal of fuel subsidies to PEMEX has made for a competitive market into which investors are keen to enter. Given the government’s increasingly aggressive approach to combating internal corruption in PEMEX, huachicolero gangs and cartels may seek to infiltrate or attack foreign-owned assets. This assessment is bolstered by the increased number of kidnappings targeting foreign workers in 2018, as they are seen as more likely to elicit higher ransoms and thus prove more lucrative targets.

Recommendations

Avoid nonessential travel to states with an extreme or high risk of cartel and gang-related violence, especially in the vicinity of the Red Triangle region.

Those with continuing essential operations in such states are advised to maintain an adequate private security contingent in order to secure any facilities or transport plans. Minimize employee exposure to areas with a known cartel presence.

Avoid non-essential travel on state highways due to the heightened risk of armed robberies and kidnappings, especially during the late night and early morning hours. If confronted by muggers, it is advised to cooperate fully and not engage in any behavior that could raise tensions and lead to violence.

Update your office or company of your travel plans and whereabouts. Use travel-tracking or satellite monitoring applications to indicate your location. In the event of an abduction, use the panic button on such apps.

In the event that a facility or operation begins to be targeted by cartel members, it is advised to evacuate all personnel immediately from the site, while avoiding any interaction with the criminal groups where possible.

Remain cognizant of local media updates regarding areas with a significant cartel presence, given the dynamic nature of the violence.

 

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Israeli attack on Iran: Unlikely in the near term

By Ron G.

Throughout the last few months and even more so in the past few weeks, discussions of a possible Israeli strike on Iran has come to the forefront of the agenda for many politicians, security analysts, and entities with interests in the region. Despite the increased rhetoric on all sides of this issue, which has been enhanced with the coverage of a frenzied media, the reality is that the probability of such an attack against Iran likely remains low for the near term.

Iranian uranium conversion facility outside of Isfahan (AP)

The increased chatter regarding an Israeli strike  on Iran’s nuclear facilities is a direct result of decisions by both the United States and the European Union to impose sanctions on the Islamic Republic. The decision to enforce such sanctions by the aforementioned powers likely arose due to three primary factors: the understanding that negotiations with Iran surrounding its nuclear program are futile, persistent pressure from leadership within the United States’ security and political leadership, and the over-implied threats by Israel that the military option is ‘on the table’.

Continue reading Israeli attack on Iran: Unlikely in the near term

Egypt’s Anti-Western Future: Rhetoric or Reality?

By Ron G. and Daniel N.

Despite the risks, both the SCAF and the Muslim Brotherhood have much to gain by exploiting anti-western conspiracies which are rooted in Egyptian Society.

Egypt continues to reel from the aftermath of the recent high profile raids against foreign-backed NGO’s by state security forces.   Egyptian human rights watchdogs have condemned the raids as an effort by the SCAF to subdue the groups which are fomenting criticism against its policies, while ignoring the large amounts of funds being illicitly transferred to Islamist parties from the Persian Gulf.  The United States and European Union have also stepped up their criticism, with Washington hinting at cutting off its longtime financial aid package.

Soldiers stand guard during a raid on a pro-democracy NGO headquarters in Cairo.

The American threats have sparked an outcry amongst Egypt’s conservative groups, including the Muslim Brotherhood’s Freedom and Justice Party, which is slated emerge the dominant party in parliamentary elections. The FJP’s legal advisor, Ahmad Abu-Baraka, said on Sunday that the party will ask the newly-elected parliament to abolish the US aid, which he claimed “serves as a means to interfere with Egypt’s internal issues’; reportedly adding that ‘America and its money can go to hell”. 

American foreign aid to Egypt is estimated at roughly 2 billion dollars annually, with $1.3 billion infused to military support. Egypt has enjoyed this financial support since the signing of the peace treaty with Israel in 1979, in which the aid was a crucial factor in keeping the country’s crumbling economy functioning at a basic level. Most recently, governmental officials have warned that Egypt’s national economy is currently facing its most serious crisis in years. Since the January 2011 revolution, the economy has suffered repeated blows to tourism and foreign investment as a result of the unrest, in addition to ongoing attacks on its natural gas pipeline in the Sinai Peninsula. Continue reading Egypt’s Anti-Western Future: Rhetoric or Reality?

Yemen’s Greatest Challenge

By Gabi A.

Getting the oil flowing again is a basic requirement for the success of any future government.

An oil pipeline in Northern Yemen.

Even as fears of continued factional conflict continue to attract media attention, the question of economic stability and sustainability in Yemen has barely received the consideration needed to avoid a spiral into the status of a failed state. The interim government in the country faces difficult political challenges in the weeks ahead as it prepares for what many observers are hoping will be the country’s first free election. The head of the interim government, Vice President Abed Rabbo Mansour Hadi, is already facing calls to resign as protests continue to rage in the streets of the capital city of Sanaa with demonstrators facing off against forces loyal to now supposedly deposed President Ali Abdullah Saleh.

The destruction brought on by the nearly-ten-month uprising against the regime of Saleh has wreaked havoc not only on the delicate political system but also on the nation’s oil production infrastructure that provides the lifeblood for the economy. Oil exports are responsible for somewhere between 60-70% of government revenues and 90% of overall national exports.      Continue reading Yemen’s Greatest Challenge

What’s Behind the Iranian Naval Drills

By Max Security’s Intelligence Department

Upcoming naval exercises are the Islamic Republic’s language of choice for highlighting the detrimental impact of a Western military strike on the global economy.

The Strait of Hormuz. (Google Earth)

Iranian officials announced that their armed forces will commence a 10-day naval exercise on December 24, stretching from the Persian Gulf to the Gulf of Aden. The announcement comes after several US defense officials issued strong warnings against the Islamic Republic’s nuclear ambitions, while Saudi Arabia announced its intentions to form a unified foreign policy for Gulf Cooperation States. In addition, Israel has announced increased military cooperation on a number of fronts, including renewed cooperation with the Turkish air force, and large scale anti-missile drills with United States scheduled for the Spring of 2012.

The upcoming maneuvers are meant as a message against the West and its regional allies, who in recent days have increased their rhetoric against the Islamic Republic. Naval exercises, missile drills, and land maneuvers are common forms of response after opponents make provocative statements. Continue reading What’s Behind the Iranian Naval Drills

Erdogan’s Cypriot Quagmire

Turkish warships on maneuvers in the eastern Mediterranean. Turkey has since backtracked on recent threats against Cypriot natural resource exploration.

By Jay R.

As the Arab Spring has forced successive leaders from their posts, Turkey has been positioning itself to be the hegemon of influence in the region. This effort can be seen through the visits of Prime Minister Erdogan to Egypt and Libya, in addition to his nation’s strong stance against Assad’s Allawite regime in Syria.

Turkey has also been the sole voice of contention with regard to Cyprus’s natural gas exploration efforts in the eastern Mediterranean – a voice that has threatened a gamut of responses from the severing of its ties with the European Union to an all out attack on Cyprus’ drilling installations. This last stance however may have been the bite that was too much for Turkey and quite possibly the reasoning behind its recently softened position on the issue.

Turkish-Cypriot relations persist in contradiction to the rest of the world, as it is the only nation that recognizes the breakaway Turkish Republic of Northern Cyprus, while not acknowledging the Greek-administered Republic of Cyprus. This lone fact has led to the espousal of anti-Greek Cypriot rhetoric – rhetoric that seems to have backed Turkey into a corner of which it is now trying to break out of.

Continue reading Erdogan’s Cypriot Quagmire