Every day, $3 million worth of fuel is smuggled into Colombia from various neighbors who can’t seem to keep their borders under control. Even worse, this is the gas that fuels the mighty cocaine industry.
Although only a handful of ingredients—aside from the coca plant—are used in the manufacture of cocaine, fuel is critical, whether it’s diesel, kerosene, jet fuel or just plain gasoline.
This demand for cross-border fuel is causing headaches for Latin American countries--particularly Ecuador, which is taking a big hit from the illicit exporting of its dirt-cheap, heavily subsidized gasoline to ‘Cocaine Central’ Colombia, where it is used to make the drug.
And the list of ingredients, which include sulfuric acid, caustic soda, and gasoline or a gasoline equivalent, are the number-one expense in the manufacturing of cocaine. This means that drug cartels are motivated to find the cheapest source of gasoline possible.
“It's not the coca leaf, it's not the workers, and it's not the cost of building the cocaine laboratory. The number one cost is the chemicals," Jay Berman, then Chief of the Drug Enforcement Administration’s Andean division said back in 2011.
And it is often a shortage of these “precursor chemicals” as they are called, that routinely shut down cocaine labs—not the shortage of the coca leaf.
For this reason, Colombia has rationed and regulated gasoline, kerosene, and other precursor chemicals to kick its narcotic habit. But it has not been enough, thanks to its neighbors who have plenty of cheap gasoline.
It takes approximately 38 liters (or 10 gallons) of gasoline to manufacture just one kilogram of cocaine.
This means that Colombia’s cocaine manufacturing process each year consumes 9.21 million gallons of gasoline.
The Ecuador Conundrum
Smuggled gasoline has created a crisis for Latin American countries such as Ecuador, which has particularly cheap gas, courtesy of extremely generous government subsidies. Attempts by Ecuador to end these fuel subsidies earlier this year ended in disaster, after violent protests erupted in the country.
Eventually, Ecuadorian President Lenin Morena reversed his decision to end the cuts to the subsidies, once again lowering the price of gasoline to make it more palatable for the country’s poor—and more lucrative for fuel smugglers who can almost double their profits by selling the cheap fuel across the border into a more expensive market. Related: The Truth About The World’s Deepest Oil Well
It is this way in which Ecuador effectively subsidizes not just gasoline for its downtrodden citizens, but the drug trade of its northern neighbor, Colombia.
How cheap is cheap? A Colombian drug lab would have to pay $0.716 per liter of Colombian gasoline, if it weren’t for Ecuador’s cheaper gasoline of $0.489 per liter.
Data source: GlobalPetrolPrices.com
Ecuador estimates that about 431 million liters of fuel are smuggled annually into Colombia, for a total annual loss of $212 million per year.
Venezuela’s Gasoline Too Good to Quit
As one can imagine, smuggling gasoline from its eastern neighbor, Venezuela, which can be bought for less than a penny per liter, is even more lucrative for the drug trade—except that crisis-stricken Venezuela is struggling to produce gasoline, so Venezuelan fuel may be harder to come by.
But even as recently as last year, Venezuelan authorities in Zulia seized 772,000 liters of oil that were en route to Colombia—an amount worth millions of dollars, according to Venezuelan Attorney General Tarek Saab.
Still, some routes previously used to smuggle gasoline from Venezuela to Colombia--such as the highway between Cucuta and Puerto Santander--now looks deserted in the wake of PDVSA’s downward spiral as it is unable to export crude thanks to US sanctions.
For Venezuela’s military, who are supposed to be keeping smugglers in check, the pricing disparity is tempting—and the drug trade banks on precisely that.
Venezuela’s situation is dire. The country’s estimated annual losses are measured in billions of dollars, according to Colombia Reports, and at its height, Venezuelan authorities have estimated that the gasoline smuggling trade moved as many as 50,000 barrels per day-- all at the expense of the government doling out the subsidies. Related: Forget OPEC: China Now Moves The Oil Markets
Based on a 40,000-liter gasoline tanker truck, what costs $40 in Venezuela or $19,500 in Ecuador costs, on average, $28,600 in Colombia.
How Its Done
Fuel smuggling in Latin America is a thriving business, and one that relies heavily on manpower. it’s a low-tech process most of the time, with multiple means of transporting the precious commodity across borders.
In Venezuela, for instance, the smuggling can be on a very small scale, with a single smuggler carrying a 50-litre tank on his or her back. Others carry fuel oil in plastic bags across the border. Others strap barrels of fuel to their motorcycles.
Image source: Al Jazeera
Image source: Al Jazeera
Other fuel smuggling operations are conducted on a grander scale, but still often low tech. Some of these operations consist of large caravans of cars, each carrying about 50 gallons of fuel.
But no matter how it’s done, the fact remains: fuel price discrepancies between neighbors creates an environment that incentivizes smuggling. And what’s more, this smuggling fuels the cocaine trade, which makes its way to North America.
Any headway these countries make to curb fuel smuggling outside or inside of its borders will have a trickle down effect on the drug trade.
By Julianne Geiger for Oilprice.com
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