Drug Cartels Threaten Mexican Energy Future More Than Oil Prices

By Global Risk Insights

Posted on Wed, 28 January 2015 23:12 | 0

As the oil and gas industry deals with a very unfavorable international market
environment, Mexicos current government can no longer ignore the risks posed by
the countrys challenging security scenario.

2014 has been a difficult year for Pea Nietos government, as it endures a
considerable public backlash resulting from a series of corruption scandals and its
mishandling of the case of the disappearance of 43 students in Iguala, Mexico. Over
the past six months, personnel of the oil and gas industry have also continued to be
targeted by criminal groups.

Adopted from its predecessor, Pea Nietos security strategy has enjoyed some
success in stabilizing key sensitive northern regions, but it is uncertain whether
progress can be replicated across the country.

Related: Low Oil Prices Have Silver Lining For Latin Americas Heavy Crude
Producers

Corruption within the police force at the regional and municipal level remains
endemic. Recent allegations of collusion between both military and police forces
and criminal organizations point to the uphill battle in attempting to reform the
countrys ailing security apparatus.

While the recent reforms announced by the government, largely as a result of the
Iguala incident, are designed to increase transparency and accountability, they are
likely to be ineffective. These reforms appear to be too vague and fail to address
key flaws in the process of recruitment and oversight of security personnel.

With no clear consensus in Congress about the exact content of these proposals,
observers expect delays. Moreover, the measures themselves could be weakened.

The recent formation of the National Gendarmerie (NG), a professional security

force that aims to protect strategic infrastructure as the government shifts towards
a more tactical security strategy, could finally stabilize security in sensitive areas.
Nevertheless, more time is needed to test the security forces operational
effectiveness and ability to resist infiltration by powerful criminal networks.

In addition to the constant threat of kidnapping and extortion to employees involved

in oil operations, the last 12 months have witnessed a growing security risk to the
industrys infrastructure. Most cartels have diversified their revenue portfolio away
from drug trafficking to include the lucrative illegal oil trade. Siphoning incidents on
pipeline networks are a constant occurrence in regions where security forces have
been unable to maintain a constant presence.

Recent security measures taken by the municipal and federal governments, which
include daily patrols, and developing a rapid incident response, have yet to yield
any significant progress. Local police forces remain infiltrated by criminal groups,
severely hindering operations by the military.
Is This The Most Lucrative Investment In Modern History?

A new type of investment just recently became available to individual oil & gas
investors. Because of the recent crash in oil and the timing of a new law, it could be
the most lucrative investment in modern history. I want to give you a step-by-step
guide (at no cost) on how you can get started and potentially retire from it.

Click here to get the free guide now.

Besides pipelines and E&P facilities, ports are currently facing a difficult security
scenario due to their strategic importance as the point of passage for both
precursor chemicals and drugs. Several reports indicate that criminal groups have
deep linkages with port authorities.

Currently, operators face the risk of extortion and industrial theft, while they remain
exposed to a myriad of illegal activities. Even as the Navy has been tasked to
manage security, this situation is unlikely to change in the near future.

Related: Mexico Proceeds With Oil Auction Despite Low Oil Prices

Throughout the last decade, Mexicos oil and gas sector has been able to cope with
the evolving security challenges. Until now, violence brought by drug trafficking and
operations by the cartels has been highly localized; companies have adapted well to
shifts in their local environment by implementing proper security measures for key
facilities and operations.

However, this status quo may be fading, resulting in large part from the evolution of
criminal networks and the partial institutional failure of the countrys security
forces.

As the oil and gas industry deals with a very unfavorable international market
environment, the risks that Mexicos challenging security scenario brings are a
luxury that the current government can no longer ignore.

By Sergio Rojas