Washington’s focus on disrupting narco-trafficking in Latin America, through a combination of coca crop eradication, enforcement and seizures is placing pressure on criminal organizations to find other sources of income. This has seen criminal organizations and non-state armed groups at all levels across the region move to generate much-needed revenue from less hazardous ventures.
One illicit activity, which has exploded in popularity in Latin America since the start of the COVID-19 pandemic is the theft of crude oil and derivative products such as gasoline. The pandemic has exacerbated many of the structural weaknesses that exist in the region, notably fiscally weak governments, entrenched poverty, ingrained inequality and high degrees of lawlessness. That has precipitated a sharp increase in crime across Latin America, which many regional governments are struggling to contain. The proliferation of oil theft is aided by pipelines passing through remote terrain making them easily accessible, the view is that it is a victimless crime and the fact that it is less risky to profitably dispose of petroleum than illegal substances such as cocaine.
Colombia has experienced a sharp uptick in the volume of petroleum theft since the pandemic began. Toward the end of September 2020 Colombia’s national oil company Ecopetrol stated it had found almost 900 illegal valves on pipelines during the first eight months of the year compared to 747 for the same period a year earlier. The national oil company estimated around 2,500 barrels per day of oil and derivative products were being stolen. In January 2021 Ecopetrol announced that during 2020 crude oil theft had surged by a worrying 46% year over year to 2,638 barrels per day. Most of that petroleum was stolen from the Cano Limon-Covenas pipeline, a frequent target for sabotage by leftist guerillas including the National Liberation Army (ELN – Spanish initials) which has also been linked to crude oil theft and trafficking. Based on a 2020 average Brent price of $41.96 per barrel that equates to around $40 million or 0.02% of 2020 gross domestic product, although the proceeds are likely considerably lower with the oil stolen being sold at a deep discount to market prices.
Colombia is experiencing a security crisis, precipitated by the pandemic and a weak state presence in many regional areas, which is impacting oil industry operations including exploration activity and potentially production volumes. Violence is rising as evidenced by the increased number of massacres and murders of community leaders as well as activists, especially in rural regions. There has also been a notable increase in oilfield invasions, which since peace negotiations with the FARC commenced in 2012 have been rare events. When those factors are combined with Colombia’s long-history of lawlessness and violence, a renewed crackdown on cocaine trafficking and the failed implementation of the 2016 FARC peace agreement, it is likely that the theft of crude oil will continue to rise. Colombia’s national police claim (Spanish) that over a third of all crude oil stolen in the Andean nation ends up in Venezuela. The near-failed Latin American state is an ideal location to dispose of illegally acquired petroleum. Venezuela shares a highly porous border with Colombia, while Caracas exerts little control over territory outside of the major cities, making it easy to transport illicit cargoes between the countries. The petrostate’s large but deteriorating petroleum industry and high levels of corruption, combined with a notable increase in the dark voyages of oil cargoes since Washington ratcheted up sanctions in 2019, makes it easy to sell crude oil regardless of its origin.
It is not only Colombia which has been impacted by a sharp increase in oil theft. Argentina experienced petroleum theft on a never seen before scale during 2020. A sophisticated scheme (Spanish) was uncovered by authorities where an organized group had tapped the 325,000 barrel per day Rosales-La Plata pipeline operated by national oil company YPF. The pipeline, which carries light sweet Medanito and heavy sweet Escalante crude oil grades, connects the Port of Rosales to YPF’s La Plata refinery. The volume of crude oil siphoned from the pipeline was not announced but Argentina’s federal police arrested 21 suspects, including YPF employees, and found a YPF cistern containing 20,000 liters of crude oil. This, however, was a rare event for Argentina with the country not previously having experienced large scale petroleum theft like Venezuela, Colombia or Mexico.
Theft of petroleum and gasoline soared in Brazil where a deep recession before the pandemic triggered a spike in illicit activities. According to news agency Reuters, theft from Petrobras pipelines in the states of Rio de Janeiro and Sao Paulo during 2018 surged to 261 incidents compared to a single case in 2014. During June 2020 former Petrobras CEO Roberto Castello Branco stated that oil theft was costing Petrobras’ logistics business Transpetro more than $28 million annually. Incidents of theft are reportedly falling because of a crackdown by Brazilian authorities and Petrobras.
Those numbers pale into insignificance compared to Mexico, where the robbery
of crude oil and fuels which began in the 1990s has become a highly organized and lucrative activity. It is estimated that the theft of petroleum and refined products costs Mexico’s national oil company Pemex a stunning $3 billion annually. A crackdown by President Lopez Obrador, who took office in December 2018, has seen the volume of stolen crude oil plunge significantly over recent months. Official data shows (Spanish) there has been a sharp decline in the volume of crude oil and derivative product theft in Mexico over the last two years. By December 2020, the theft of petroleum products from Pemex had fallen to 5,640 barrels daily compared to a whopping 74,000 barrels per day at the end of December 2018.
The theft of crude oil and derivative products is a significant problem for the oil industry in many Latin American countries, notably Colombia where the incidence is rapidly rising, and Mexico. While the war on drugs and violent offences are a top regional priority for Washington and regional governments, the theft of petroleum is a low priority crime which has been placed on the backburner in many jurisdictions. Not only is it perceived to be a victimless and non-violent crime but declining fiscal income across Latin America because of the pandemic’s economic fallout is forcing governments to prioritize spending and distribution of hard-pressed security resources. That means already thinly stretched and underfunded regional law enforcement agencies are focusing on containing high impact crimes linked to significant violence such as narco-trafficking. The near collapse of the Venezuelan state is further destabilizing Latin America and amplifying the conditions which are allowing petroleum and gasoline theft as well as trafficking to thrive in the region. A long history of regional lawlessness and weak states combined with rising regional poverty due to the pandemic means it will remain a key risk for Latin America’s oil industry for some time to come despite recent crackdowns.
By Matthew Smith for Oilprice.com
