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Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

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Colombia’s Oil Industry In Jeopardy As Cocaine Production Soars To New Record

  • Colombia faces a new period of unrest and insecurity as cocaine production hits new highs.
  • Colombia’s newly elected President Petro must act decisively to curb violence, lawlessness and illicit activities in a country that is falling once-again into chaos.
  • Petroleum is Colombia’s largest export accounting for 35% of all exports for the first seven months of 2022.

Leftwing Senator Gustavo Petro’s electoral victory, which he was inaugurated as Colombia’s 34th president, saw a wave of optimism sweep across the strife-torn country. The term of President Petro’s predecessor Ivan Duque was marred by a spike in violence and crime, nationwide anti-government protests, a surge in the activity of illegal armed groups and soaring cocaine production. Fallout from the 2020 COVID-19 pandemic, which caused Colombia’s GDP to contract by 7% that year and spiraling poverty, contributed to rising lawlessness, crime and violence. Alarmingly, cocaine production, which is a key driver of violence and illicit activity in Colombia, keeps soaring to new highs. This is symptomatic of a weak state that lacks a credible presence in many rural regions causing the internal security environment to deteriorate. Escalating insecurity will potentially roil Colombia’s post-pandemic economic recovery, one of the strongest in Latin America, while impacting the Andean country’s economically vital energy patch. For these reasons, Petro must act decisively to curb violence, lawlessness and illicit activities in a country that is falling once-again into chaos. A key indicator of Colombia’s deteriorating domestic security is the recent announcement by the United Nations Office on Drugs and Crime (UNODC) that domestic cocaine output (Spanish) hit yet another record during 2021. That occurred despite decades of U.S. funded counter-narcotics operations, leaving Colombia as the world’s number one cocaine producer. UNDOC estimates that 2021 cocaine production grew 14% year over year to 1,400 metric tons, while the amount of land utilized for coca cropping surged by a whopping 43% to half a million acres. Burgeoning cocaine production, along with the vast profits that narcotics trafficking generates, was responsible for funding the immense escalation of Colombia’s multiparty asymmetric conflict during the 1980s. 

Related: Baker Hughes Shows Weak U.S. Drilling Activity

Cocaine profits have long funded various armed non-state groups in Colombia with soaring production responsible for a surge in the number of illegal armed groups, combatants and related violence since 2018. The vast earnings generated by cocaine in Colombia are thought to be as high as $12 billion annually, which is equivalent to 4% of the Andean country’s GDP. It is cocaine production and coca cropping, the leaf of the coca plant being a necessary precursor, as well as associated violence which is responsible for the 260,000 plus deaths that have occurred during Colombia’s armed conflict. Most of those casualties were civilians who also suffered forced displacement by various illegal armed groups, with it thought that as many as 8 million people having been forced to leave their homes. 

The recent spike in Colombia’s cocaine production, along with the associated escalation in violence linked to illegal armed groups was responsible for a sharp uptick in the number of civilians displaced during 2021. According to the UN, at least 74,000 Colombians were displaced during that year, which is more than double 2020. The volume of direct attacks against civilians during 2021 also trended higher, rising by 37% year over year to total of more than 2,400 occurrences. These worrying events underscore the growing violence gripping Colombia, most of which is associated with coca cultivation and the manufacture of cocaine. Massacres, which are another symptom of growing cocaine production, lawlessness, rising insecurity and an ineffective state, have surged since 2018. Colombian peace think-tank Indepaz recorded 85 massacres, which is the murder of three or more people in a single event, up until 9 October 2022. That is 10 greater than the same period a year earlier and more than double the 36 massacres recorded during 2019 before the pandemic.

It is the marked increase in cocaine production and associated violence from various illegal armed groups engaged in the manufacture of the narcotic that poses the greatest threat to the Colombian state, civil society and the economy. This becomes particularly apparent when the regions where coca is grown and much of the related violence occurs are also those rich in hydrocarbons. The Catatumbo region, located in the northwest near the Venezuelan border, is Colombia’s second major coca cultivating area and the country’s deadliest conflict zone. Aside from being a hotspot for the resurgent civil conflict, Catatumbo is also one of Colombia’s top oil producing areas with it believed to contain anywhere up to 17 million barrels of undiscovered oil reserves. The crucial 210,000 barrel per day Cano Limon Covenas oil pipeline passes through Catatumbo leaving it vulnerable to sabotage and the application of illicit valves used to steal petroleum. The escalation of cocaine related conflict in the region has seen such incidents rise significantly since 2020. 

Colombia’s southern Putumayo department is listed by UNDOC as being the fourth largest zone for coca cultivation. The region, which borders northern Ecuador, has long had significant presence of the now demobilized Revolutionary Armed Forces of Colombia (FARC – Spanish initials). Since the 2016 peace agreement between Bogota and the FARC a series of smaller illegal armed groups, mainly dissident FARC elements, and criminal organizations have sprung up in Putumayo. Those groups are primarily focused on coca cropping and cocaine production in a region that, because of its proximity to Ecuador, contains well-established extremely lucrative trafficking routes. As a result, violence is spiraling out of control in Putumayo with frequent clashes between various armed groups sparking massacres. Putumayo is also home to the Caguan-Putumayo Basin, Colombia’s second most prolific hydrocarbon basin with the country’s hydrocarbon regulator the National Hydrocarbon Authority (ANH – Spanish initials) estimating it contains oil reserves in excess of 365 million barrels.

While Petro plans to transition Colombia away from dependence on fossil fuel extraction by ending contracting for hydrocarbon exploration and banning hydraulic fracturing, the oil industry is currently an important economic driver. Petroleum is Colombia’s largest export accounting for 35% of all exports for the first seven months of 2022, valued at $13.8 billion. Hydrocarbon extraction also accounts for around 3% of Colombia’s GDP and generates a fifth of Bogota’s fiscal revenues. Those numbers make eliminating Colombia’s petroleum industry near impossible, particularly with Petro planning to significantly boost spending on social programs and poverty alleviation. In fact, his plans to hike taxes for Colombia’s oil industry will make it a more important source of income, particularly in a global economy besieged by an energy crisis and rampant inflation where guaranteeing energy security is now an imperative. Rising violence and conflict in Colombia fueled by soaring cocaine production will impact the economically crucial petroleum industry and roil the country’s post-pandemic economic recovery, further hurting an already suffering population.

By Matthew Smith for Oilprice.com

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