Who’s Got the Power?

Dear all,

We welcome you to the Greater Caribbean Monitor (GCaM).

In this issue, you will find:

• The Rise of the Narco–Energy Industry

• No Country for a Sovereign State

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Best,

The GCaM Team

For years, Mexico’s criminal underworld made headlines for huachicol—the local term for fuel stolen from pipelines or trucks belonging to Pemex, the state oil company.

• But that crude method has since evolved into something far more lucrative and sophisticated. A recent investigation by the Financial Times uncovered that Mexican cartels are now smuggling massive volumes of diesel and gasoline across the U.S. border through ports, trains, and trucks.

• This new frontier in organized crime—fueled by regulatory loopholes and government complicity—is quietly becoming one of the most profitable operations in the country.

Panorama. According to the FT, illegal fuel may now account for between 16% and 27% of Mexico’s annual fuel consumption—an astonishing 172,000 to 290,000 barrels per day. At market value, that translates into a black market worth between $12 billion and $21 billion per year.

• The scale is staggering. An estimated 22,000 “irregular self-consumption points” exist throughout Mexico—nearly twice the number of legally licensed petrol stations.

• Some smuggled fuel is sold informally by the roadside, siphoned through hoses from rusted barrels. Other volumes are laundered through formal gas stations, where retail sales began surpassing official supply volumes in 2023.

Why It Matters. This isn’t just a crime problem. It’s a national security emergency. The vast sums generated by fuel smuggling feed directly into the operational budgets of Mexico’s most violent criminal organizations. It is also an energy security crisis in the making. As of 2023, oil accounted for up to 40% of Mexico’s electricity generation—much of it supplied by Pemex, the state-owned energy giant.

• Burdened by mounting liabilities, Pemex has become the most indebted oil company in the world. It is also a growing target for organized crime: in 2023 alone, the company reported losses exceeding 17,000 barrels of fuel per day to theft, amounting to more than $1.1 billion in damages.

• The erosion of Pemex’s supply integrity threatens the stability of Mexico’s entire energy matrix. As more power plants depend on petroleum-based inputs, and as cartels sink deeper into the fuel supply chain, the question of who really controls Mexico’s energy future becomes less rhetorical and more dangerous.

• The problem is exacerbated by a flawed tax policy that inadvertently incentivizes smuggling. Imported industrial lubricants—exempt from Mexico’s IEPS fuel tax—are routinely used to disguise illicit fuel shipments. In short: Mexico’s energy infrastructure is no longer just a target of criminal activity—it’s a revenue engine for it.

Between the Lines. Just south of Mexico, Guatemala presents a compelling contrast: an energy sector defined by stability and resilience. Despite persistent institutional fragility and political volatility, the country has built one of the region’s most reliable power grids.

• With oil making up just 1.7% of its energy matrix, Guatemala remains largely shielded from global price shocks—and from the criminal networks that increasingly target its northern neighbor.

• The roots of this success lie in 1996 reforms under President Álvaro Arzú, which ended the state monopoly and opened the sector to private investment. Unlike Mexico, where energy policy shifts with every administration, Guatemala has maintained a consistent, cross-sectoral vision for nearly three decades.

• Now, with up to $5 billion in new investment expected through public tenders (PEG 5 and PET 3), the country’s energy sector continues to attract attention. But risks are mounting. Criminal groups linked to Mexican cartels are expanding in Guatemala, particularly in logistics corridors. While the energy grid remains untouched for now, weak territorial control leaves it vulnerable.

What’s Next. Guatemala’s success is real—but fragile. As transnational smuggling routes stretch from Central America to the U.S., coordination between Guatemala, Mexico, and Washington will be critical. Energy security in the region depends not only on markets, but on enforcement.

• In early 2025, the U.S. government issued sweeping designations classifying major criminal groups, including Mexican cartels, as Foreign Terrorist Organizations (FTOs) and Specially Designated Global Terrorists (SDGTs). The implications go far beyond law enforcement—reaching deep into how companies in the region must now conduct business.

• Any firm operating in dollars, using U.S. banks, or transacting with American partners faces heightened risk. Under the new rules, businesses must ensure that their supply chains and operations do not—even indirectly—benefit designated groups. Failing to do so could trigger sanctions, asset freezes, or severe reputational damage.

• More broadly, the shift signals a growing recognition: extraordinary threats demand extraordinary cooperation. As transnational criminal networks evolve into billion-dollar enterprises, governments and companies alike will need to align quickly.

Bottom Line. Transnational criminal organizations have become the greatest threat to regional security. No longer confined to drugs, they now control migration routes, traffic people and weapons, and disrupt critical infrastructure—including energy systems.

• In parts of Mexico and Guatemala, these groups are already challenging the authority of the state. As they grow more organized and more violent, no country can tackle the threat alone.

• The answer isn’t just force—though that remains necessary. It’s also about shared intelligence, stronger institutions, and regional cooperation to dismantle the incentives that allow criminal economies to thrive.

• Fuel smuggling is not just a crime—it’s a symptom of state weakness. Unless governments act together, sovereignty will continue to erode.

Fritz Alphonse Jean, president of Haiti’s Presidential Transition Council, has acknowledged the use of foreign paramilitary forces in the government’s war against criminal gangs.

Panorama. While Jean declined to specify which private military company is assisting the country’s overwhelmed security forces, reports last month pointed to the alleged involvement of Erik Prince—the former Navy SEAL and founder of the controversial U.S. security firm Blackwater.

• Blackwater, whose private army was implicated in the 2007 massacre of Iraqi civilians, has also reportedly been linked to drone strikes targeting gang strongholds in Port-au-Prince.

• "When there is weakness, we look for others to support the national police," Jean stated.

Why It Matters. Haiti has long struggled to build a functioning modern state. Today, it lacks a legitimate monopoly on the use of force—an essential element of statehood. That power currently lies, albeit unlawfully, in the hands of organized crime. Since the assassination of President Jovenel Moïse in 2021, armed gangs have become the country’s dominant force.

• Roughly 200 gangs operate across the country. In the capital, Port-au-Prince, criminal groups—most notably the G-9 alliance and the “Family” faction led by Jimmy Chérizier—now control nearly 80% of the city.

• These groups not only dominate key infrastructure such as ports, airports, and fuel terminals, but also maintain deep ties to transnational drug trafficking and elements of Haiti’s political elite.

• Years of rule by a corrupt bureaucracy dependent on foreign aid—and the absence of a military since its disbandment in 1995—have allowed organized crime to gradually seize control of the country, displacing the state in the process.

Historical Context. Haiti’s crisis is centuries in the making. The country never developed a professional bureaucracy. As the French colony of Saint-Domingue, it was once the richest in the Caribbean, known as “the pearl of the Antilles.” But its economy and governance structures were purely extractive and heavily reliant on France.

• Unlike Spanish colonies, which developed local administrative systems, Saint-Domingue depended entirely on the French metropole. Haiti’s independence, won through a slave revolt rather than a creole-led political movement, destroyed colonial infrastructure—plantations, ports, and the broader economic base.

• To secure diplomatic recognition, France imposed a debt of 151 million francs in 1825 (equivalent to roughly USD 21 billion today), which consumed up to 80% of Haiti’s national budget until 1947.

• Over time, the Haitian elite became dependent on foreign assistance, while the Duvalier dictatorships entrenched authoritarian rule through the use of the Tonton Macoutes, a brutal paramilitary force.

What’s Next. The Duvalier era dismantled what little remained of institutional governance and left behind a corrupt security apparatus with no capacity or mandate for state-building. The dissolution of the military created a vacuum, soon filled by armed gangs. Today, the Haitian government faces the daunting task of reclaiming territory and restoring order in a country largely under the control of criminal organizations.

• The road ahead is grim. Haiti must dismantle a political culture shaped by extractive colonialism, rebuild a professional civil service from scratch, and reestablish a legitimate security presence in a fragmented and gang-dominated territory.

• By contrast, neighboring Dominican Republic, governed under a more structured Spanish colonial model, has followed a starkly different path. Despite having fewer natural resources, it now ranks 83 places higher than Haiti on the UN Human Development Index.

• Haiti is not a failed state—it is the failed attempt at a state that never truly existed.

What We’re Watching 🔎 . . .

China has influence over ports across Latin America, US think-tank reports [link]

Michael Stott, Financial Times

A study by the Center for Strategic and International Studies (CSIS) has revealed that Chinese companies operate 31 active ports across Latin America and the Caribbean—more than twice previous estimates—raising alarms in Washington over potential security threats. These ports are seen as strategic nodes for global trade, many located near sensitive military installations.

Kingston Port in Jamaica, managed by China Merchants Port, was identified as the most critical risk point in the Western Hemisphere, despite the Trump administration’s previous emphasis on security concerns surrounding the Panama Canal. Meanwhile, a disruption at Mexico’s ports of Manzanillo or Veracruz could cost the U.S. economy an estimated $134 million and $63 million per day, respectively.

While Beijing continues to frame its port investments as purely commercial, analysts warn that such infrastructure could support Chinese military operations in the event of a conflict. The $1.3 billion construction of the Chancay megaport in Peru, along with China’s delay in approving the global asset sale of CK Hutchison to BlackRock and MSC, further fuels skepticism over the strategic intent behind China’s growing port footprint in the region.