6 February 2019

Mexico’s Fuel Crisis Throws a Wrench in AMLO’s Big Plans

Paul Imison

Only six weeks into his presidency, Mexico’s Andres Manuel Lopez Obrador already faces his first major crisis. In part self-inflicted, in part a consequence of the corrupt and weak institutions he inherited from his predecessors, it is nevertheless a sign that governing Mexico will be a formidable challenge for the man who promised nothing less than a fundamental transformation of the country and on whom millions of Mexicans are resting their hopes.

Citizens across western and central Mexico, which includes the 25 million people living in Mexico City and the surrounding State of Mexico, have been waiting in line for hours for gasoline over the past month. The situation is the result of a federal crackdown on oil and gas theft by organized gangs, which has seen the government shut down pipelines and switch to transporting fuel by truck and rail, prompting both the closure of hundreds of gas stations and panicked buying throughout the region.

The crisis has provoked the first great tragedy of Mexico’s new administration. On Jan. 17, a pipeline in Hidalgo, which had been ruptured by fuel thieves, exploded as local villagers attempted to collect gas in plastic containers. At least 96 people died. 

Lopez Obrador, better known by his initials, AMLO, took office Dec. 1 with an ambitious left-leaning agenda, following a landslide victory in last July’s presidential race and majority wins in both houses of Congress for his party, the National Regeneration Movement, or Morena. Long a voice of dissent during the center-right and center-left administrations that have governed Mexico since its transition to democracy in the 1990s, AMLO rode a wave of public dissatisfaction with Enrique Pena Nieto’s outgoing administration, which was plagued by corruption scandals and drug violence.

The promises he made on the campaign trail throughout 2018 were hardly minor: the eradication of corruption, frequently cited by citizens as the principal challenge facing Mexico; the defeat of organized crime, whose clashes with security forces and rival groups have racked the country since the early 2000s; and a significant increase in social spending to combat inequality. The specifics of his proposals, though, were always vague. And while he currently boasts a 76 percent approval rating, critics compare the 65-year-old political veteran to the country’s populist leaders of the 1970s, as well as recent Latin American leftists like Venezuela’s late Hugo Chavez for his populist rhetoric and lack of long-term perspective. 

Ironically, however, AMLO’s six-year-term has begun, much like those of his predecessors, with a crackdown on organized crime—in this case, the fuel thieves, colloquially known as huachicoleros, preying on the country’s extensive network of oil and gas pipelines. Fuel theft has been growing in Mexico since the early 2000s. The government claims that more than $3 billion of crude oil and natural gas condensate was stolen in 2018 via a combination of pipeline tapping, armed raids and the intimidation or bribery of officials within the national energy giant, Pemex. 

“The phenomenon has grown exponentially in the last few years,” says Dwight Dyer, an independent consultant who has worked within Mexico’s Energy Ministry. “By the government’s own admission, the average daily loss of fuel to theft doubled between 2016 and 2018 from 26,000 barrels per day to 58,000.” 

Crucially, AMLO has put the regeneration of Mexico’s troubled energy sector at the core of his political agenda. A landmark 2014 reform under Pena Nieto opened the Mexican oil and gas industry to private exploration and drilling rights for the first time in 75 years. Yet Pemex has faced growing debt and declining productivity for nearly two decades and lacks the resources and technology to refine its own product and drill many of its own fields. Mexico currently sends the majority of its crude to be refined in the United States and imports 75 percent of its gasoline and diesel for domestic use. 

The crackdown on fuel theft “wasn’t among AMLO’s campaign priorities,” says one analyst. “It’s a strategy that has been more improvised than well-thought-out.”

AMLO has stated publicly that by curtailing corruption, Mexico could once again become self-sufficient in energy. He promised the construction of at least two new refineries and the renovation of six more to free up tax revenues. Leaving aside the economic sense of such a plan, which many view as unfeasible, the billions of dollars in stolen oil and gas and evidence of corruption permeating Pemex are considerable obstacles to this vision.

“Pemex is a profoundly inefficient company,” says Macario Schettino, an economist at the Technological Institute of Monterrey. “It’s always been run at the whim of the government of turn, rather than through long-term planning, and is increasingly producing less energy at greater cost.”

The spate of fuel thefts has received more and more media coverage in recent years. Yet what was once portrayed as the unique preserve of powerful drug cartels, which employed sophisticated technology to tap pipelines and syphon off fuel, is now understood as involving a far more complex web of actors, including corrupt Pemex officials and less organized but equally predatory rural gangs who sell the fuel on the local black market. 

“In many cases, these local gangs were trained by the cartels in how to carry out the theft,” says Dyer. 

In a bid to curtail the theft, Mexico’s federal government announced plans on Dec. 27 to unilaterally close six major pipelines, install troops at nearly 60 refineries and depots, and move to deliver fuel to gas stations by the less efficient and more costly method of road and rail. By the second week of January, much of western Mexico, where fuel theft is most rampant, was facing gasoline shortages.

So far, the economic impact on the country has apparently been minimal, although Barclays has warned that Pemex’s credit rating is at risk this year following a disappointing showing by company officials in a meeting with analysts and investors in New York. On Jan. 21, the International Monetary Fund cut Mexico’s GDP growth forecast by 0.9 percent, citing lower private investment as a result of uncertainty surrounding the plans of the new administration. 

The Mexican government has been cagey about how long the crackdown on fuel thefts will run in its current form. Critics have pointed to the lack of a concurrent strategy to investigate corruption, money laundering and legally constituted private companies also involved in the fuel theft racket. 

“The crackdown wasn’t among AMLO’s campaign priorities,” says Carlos Bravo, a political analyst at the Center for the Research and Teaching of Economics in Mexico City. “It’s a strategy that has been more improvised than well-thought-out.”

The potential political costs of the chaos caused by the crackdown remain unclear. AMLO has long been a highly polarizing figure, provoking extreme reactions among supporters and opponents alike. He has chalked up past presidential defeats to unfounded claims of electoral fraud, and has also criticized democratic institutions, such as the National Electoral Institute as biased. However, polls show that a majority of Mexicans, at least for now, support the fuel strategy.

“Communication between government and citizenry, and the level of transparency involved in the strategy, have been very poor,” Bravo says. “But the strategy has been very effective in presenting AMLO as an epic hero taking on crime.” 

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