Dec 23, 2016 | 09:00 GMT

6 mins read

The Evolving Threat to Colombia's Oil Industry

The Shrinking Threat to Colombia's Oil Industry
Forecast Highlights

  • If the Revolutionary Armed Forces of Colombia (FARC) completes its demobilization in 2017, some of its former members will form smaller criminal groups that will continue to threaten oil production in several regions of Colombia.
  • Demobilized rebels that turn to extortion of companies involved in oil production and related activities could renew attacks against oil infrastructure and interests in southwestern Colombia.
  • New criminal groups will be smaller and less powerful than the FARC, making them more vulnerable to government intervention.
  • Criminal activity against the oil sector would likely be limited to certain regions and not felt at a national level.

If it proceeds as planned, the demobilization of Colombia's largest rebel group, the Revolutionary Armed Forces of Colombia (FARC) will improve the country's overall security picture. This, in turn, will help its oil and natural gas sector, which is bedeviled by insurgent attacks on operations in the country's hinterlands. But it will also open avenues for other criminal groups to extort money by threatening the country's petroleum infrastructure and production.

Most of Colombia's oil exploration and production occurs in central Meta department, in the country's southwest near Ecuador and in northeastern regions near Venezuela. That production has been subject to periodic politically motivated attacks by the FARC and other insurgent groups. If Colombia's congress can pass legislation over the next year to facilitate FARC's withdrawal from combat, its long-running insurgency will be defunct within two or three years, thereby reducing the overall security threat to oil and natural gas activity.

Neutralizing FARC will not remove all security risks to energy activity in the country, however. The persistence of the smaller National Liberation Army (ELN) insurgent group and the growth of criminal clusters in areas of former FARC influence will continue to pose dangers. Some former FARC members will no doubt continue their criminal activities, while separate criminal organizations, such as Clan del Golfo, formerly known as Clan Usuga, will fill the vacuum left by departing FARC forces in some areas. Where that occurs, attacks on oil infrastructure and personnel for the purposes of extortion will continue to be a risk.

The Threat Posed by the ELN

Northeastern Colombia will remain a problem spot for oil companies given that it is an area of heavy ELN activity. Despite this, state-run energy firm Ecopetrol and U.S.-based Occidental Petroleum Corp. have already established operations in the region. Of the 42 attacks against oil pipelines recorded in Colombia in 2016, 38 took place in the northeast, mostly in the departments of Norte de Santander and Arauca, according to Colombia's Ministry of National Defense. These areas have historically been strongholds for the ELN. Even if a separate peace deal negotiated between the Colombian government and the ELN succeeds, the group's Domingo Lain Front would likely continue its activities, hoping to exploit opportunities for extortion and cross-border smuggling. Since the 1980s, ELN has extorted money from oil, petroleum services and construction companies by threatening exploration, production and transportation activities. The most recent trend of attacks in the region has apparently been focused on private and public interests in the departments of Arauca and Norte de Santander.

Even if the ELN talks make rapid progress, the group would not demobilize for at least another couple of years at the earliest. Meanwhile, the militants would continue to threaten oil infrastructure, both as negotiation leverage and to maintain a source of revenue. The Bicentenario and Cano Limon-Covenas oil pipelines, the two most important in the area, will remain vulnerable to attack during this period. And if the talks fail, the Domingo Lain Front, which has several hundred members, would remain a node of criminal activity and a threat to companies operating in Arauca. The ELN unit's heavy involvement with coca cultivation and cocaine processing also poses a risk to oil transport — particularly as there is every indication that Colombia's coca crop will expand over the coming years. The ELN in this region (as well as cocaine producers in Colombia's southwest) pilfer crude oil to refine into gasoline for use in the production process for the illicit drug. The amount of oil siphoned off is relatively small, but as cocaine production increases, so will the volume of such thefts. Such activity will bring the ELN into conflict with Colombia's armed forces.

Increasing Risk in the Southwest

The situation is somewhat different in the rest of Colombia. In the country's southwest, another oil production hub, FARC's demobilization could actually increase the incidence of extortion and violence against the petroleum sector. When FARC implemented a unilateral cease-fire in mid-2015 to prove its commitment to peace talks, the number of attacks against pipelines and other infrastructure fell off sharply. Once the rebels are fully demobilized, likely after the first quarter of 2017, some of its former members may return to areas the group once controlled to form new criminal organizations. Some of these criminal groups could ally with other organizations such as the Clan Golfo and expand extortion of oil producers and service companies, an activity likely to be a main source of funding for them.

Criminal alliances will occur mainly in areas of shared interest regarding drug trafficking, like in the remote Guaviare department, where coca production is strong. But such alliances already appear to be forming in Meta department, home to the Rubiales oil field, Colombia's largest. Extortion has been a longstanding issue in that department, and as demobilization strips FARC militants of the political incentive to limit their attacks against infrastructure or private interests, violence could increase. Violence could also increase as nascent criminal gangs strive to establish their presence and compete with other criminals for a share of extortion and drug trafficking revenue.

It is unlikely, however, that any uptick in violence after the FARC deal is complete will be felt nationally. Instead, it will be limited to certain regions and involve criminal groups much smaller than the FARC during its heyday. The weakness of these groups relative to the bigger organization they descended from will make them easier for the government to target and combat. However, they will most likely maintain a persistent presence in oil-producing areas.

Lead Analyst: Reggie Thompson

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