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Mexico: The Government's Offensive Against Fuel Thefts Expands, As Do Shortages

3 MINS READJan 8, 2019 | 22:33 GMT
The Big Picture

Foreign investors have been able to invest in Mexico's fuel stations for several years now, but thefts have caused shortages that threaten to limit profits and discourage further investment. The problem has prompted Mexican President Andres Manuel Lopez Obrador to move against corrupt employees of state-owned Pemex. But while the fight against insider theft makes progress, the problem of criminal theft from pipelines will remain.

What Happened

From targeting operations at a single refinery, Mexico's government has since expanded its offensive against the deep-seated problem of fuel theft in the country by sending troops to scrutinize fuel refining and transport operations nationwide. Soldiers were deployed to every refinery in Mexico by Jan. 7, raising the likelihood of more widespread fuel shortages as a result of disruptions caused by the greater scrutiny. Shortages in central Mexican states due to operations against the thefts continued, with customers at fuel stations in Guadalajara, Morelia and other major central Mexican cities experiencing long lines amid reported price gouging.

Why It Matters

The battle against criminal groups who profit from sales of stolen fuel is a key part of the new administration's approach to reducing losses at state energy firm Petroleos Mexicanos (Pemex). A 2018 estimate determined that fuel theft cost Pemex $1.6 billion. For comparison, that equals about 12 to 13 percent of the company's gross income for 2017. Moving against fuel theft may also enable the government to gather evidence that it can use to prosecute or remove key union officials at the company who are loyal to the opposition Revolutionary Institutional Party.

In the short term, Mexico's moves to combat fuel theft will cause significant business disruptions.

The shortage of available gasoline and diesel across the country will grind some businesses' operations to a halt, and it's unclear how quickly the government will conclude its refinery inspections to allow production and transport of fuel to return to normal. Though going after fuel thieves abetted by Pemex union members will have long-term benefits for the state's and company's finances, the shortages will also exasperate Mexican consumers.

In the event that the shortages persist for months, voters in areas most deeply affected will begin turning against President Andres Manuel Lopez Obrador. Eroding voter approval across the country could then push the Lopez Obrador government to bring other key legislative measures to a vote sooner rather than later. Some measures, such as reforming the constitution to allow more frequent, binding referendums require a two-thirds vote in both houses of Congress and a majority of state legislatures. If the government — now firmly under the control of Lopez Obrador's National Regeneration Movement party — waits too long to hold such votes and voter anger builds, the party risks losing the congressional or state majorities it needs to conduct the reforms in midterm elections slated for 2021.

Background

Fuel theft in Mexico has grown dramatically over the past decade as criminal groups began siphoning from pipelines as well as stealing whole fuel shipments from terminals and refineries with the help of Pemex employees. In late December, the Mexican government ordered an intervention in federally owned fuel infrastructure to curb theft of fuel from refineries.

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