Monday, March 28, 2011

The Perilous Intersection of Mexico’s Drug War & Pemex

The stillness of early Sunday morning December 19, 2010 was shattered by a thunderous explosion. Residents across San Martin Texmelucan, a small town about 60 miles from Mexico City, were awakened to the latest, and one of the most deadly incidents, involving possible fuel theft at Pemex, Mexico’s national oil company. Many were more than just jolted awake: Over 100 homes were damaged or completely destroyed; 30 people perished and more than 50 were injured. It was a national calamity for a nation and state oil firm that sorely did not need it. Explosions, shootouts, deaths and violence have been increasingly seared into the collective minds of citizens in Mexico and the United States as the drug war persists. The battles between the government and competing cartels have been well-documented and the topic has coursed through the agenda of a series of high-level bilateral meetings between the two nations, most recently during Secretary of State Hillary Clinton’s trip to Mexico. But what has also percolated just below the surface is an alarming intersection between the drug violence and Mexico’s energy sector. For Mexico and Pemex, the increased intensity of the drug war and its damage is but the latest in a string of challenges, and a twist that has seemingly linked two previously unconnected drags on the nation...more

The article, from the Journal of Energy Security, continues:

The interconnection of oil and nationalism in Mexico is historic and constitutional. Indeed, the Mexican Constitution sets forth the basic facts that President Lázaro Cárdenas emphasized during the nationalization period of the 1930’s: “The nation is the only owner of the all the hydrocarbons reserves and production”; that “licensing and concessions are prohibited”; and that “Pemex is the nation’s operator and controls the first-hand sales and must not share revenues, production or reserves.” This fundamental political reality continues to affect development of the nation’s huge oil resource potential by restricting private—particularly foreign—investment. It has been said that in Mexico, oil is not merely a chemical compound but rather a fundamental element of sovereignty—a part of the national DNA. The story is well known but worth repeating: Oil is an essential part of the national treasury. Though diminished in relative terms for Mexico’s economy, oil still generates over 15 percent of current export earnings. Moreover, Pemex, due to its onerous fiscal and tax regime, accounts for about 40 percent of the government’s budget...As discussed previously, oil theft from Pemex pipelines, money laundering by way of service stations, and, worst of all, provocative kidnappings of the company’s executives and those of service companies working with the state firm, are all on the rise. Unofficial figures place thefts from the Pemex network at roughly $2 billion annually. And security experts point to this as an important source of revenue for drug cartels—especially as the Mexican government continues to crack down on them. Thefts from the Pemex network are not new, but the increase and the strain it is placing on the already-taxed company is important. And the illegal tapping has grown significantly in the areas where the drug war is the most pervasive. The spike in fuel thefts and illegal trading, as well as kidnappings, has led some to question whether Pemex is fully in charge of all its facilities across the nation. For some experts following the situation, the answer is a resounding no. Indeed, many analysts indicate that the physical security and monitoring of pipelines belonging to Pemex are severely lacking. According to Mexican daily El Universal, oil looting has occurred in almost every state in Mexico, while the Wall Street Journal, citing Pemex statistics, indicated that between January and November 2010, Pemex discovered 614 illegal siphons—368 in liquid fuels pipelines, 196 in oil pipelines, and 50 in liquefied petroleum gas ducts...

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