Inside the Illicit Venezuela-Colombia Gas Smuggling Trade
Aug 24 2016, 10:44am
Take a deeper look into the “kamikaze” gas smuggling trade investigated on last night’s episode of Black Market: Dispatches
Last night, Black Market: Dispatches explored the contours of the massive illicit gas smuggling network running from Venezuela to Colombia. Attempts to measure the scale of this trade are mostly educated guesswork, but reports estimate that between 25,000 and 130,000 oil barrels worth of gas or crude can cross the border into Colombia every day—with the cumulative traffic valued at between $1.5 and $3 billion per year.
Over the border, Venezuelan smugglers pass their gas off to local distributors, who run it to pimpineros, informal retails named for the five-gallonpimpina jugs in which they sell their gas at a fraction of the Colombian market price. Selling dozens of pimpinas a day, these hawkers supply up to 15 percent of all the gas used in Colombia. This gargantuan black market employs more than ten thousand people on both sides of the border.
And that’s just one (if perhaps the largest) element of Venezuela’s total illicit gas trade, which is also vital to neighboring regions of Brazil, Guyana, and a few Caribbean islands. Given the size of this market, it feels like there should be some epic tale as to how it developed into a cornerstone of the regional economy. But in truth the whole sector was born of dirt-simple economic forces that snowballed with run-of- the-mill corruption, organized crime, and impunity.
While both Colombia and Venezuela produce and export oil, Venezuela has the world’s largest crude reserves and is among the top producers in the world, miles ahead of Colombia’s supply. This bounty and a history of state subsidieslong kept gas prices in Venezuela low. But over the last two decades, local officials essentially froze domestic gas prices at already low rates, drastically widening its price gap with its neighbors year by year. This subsidy system, which now costs the state about $15 billion a year, meant that (until a few months ago) locals could buy a liter of gas for $0.01. Going by the artificial official exchange rate (about a tenth of a cent to the dollar’s black market value), that figure represents cheapest gas prices in the world—cheaper than water—while Colombians paid about $0.50.
“You worry about buying bananas,” says Pedro Mario Burelli, an ex-board member of state oil firm Petróleos de Venezuela (PDVSA) and current a financial advisor. “You worry about milk. You worry about sending your kids to school. But gasoline is not an element in your budget.”
There’s always been smuggling across Venezuela’s long and porous borders, so as long as there’s been a price differential, there’s likely been an illicit gas trade in the region. But as people realized they could fill up massive cars with gas for a few dollars, then drive it to the border and sell it for hundreds or thousands even (by using the unofficial exchange rates), smuggling expanded to the point that in 2014 it sucked up an estimated 16 percent of all the gas produced in Venezuelan refineries and sent over national borders. “It’s almost impossible for that temptation not to occur once you have set a policy course where raising the price of gas is impossible,” says Burelli.
Colombians picked up the trade on their end to make up for the scarcity of work in regions hit by the after-effects of border tensions and paramilitary instability. Their margins are smaller, but a single gas run can now net a distributor or seller up to $200. Similar factors are at play in often remote, infrastructurally and financially constrained cross-border towns in other nations as well.
It’s unclear how quickly this market escalated, but some say that it grew more organized on the Venezuelan side in the early 2000s as President Hugo Chavez radically altered PDVSA’s structure and finances, reducing checks and balances and using its profits to fund his projects. Chavez, who also reportedly weakened the judiciary’s independence, made it much easier for not just small smugglers and gangs, but officials as well to enrich themselves by abetting smuggling infrastructure and scale.
In addition to this, “Chavez, in his desire to buy the military, began to turn a blind eye to a lot of things that were happening in the military,” claims Burelli. “It was a way to muddy up the entire system to neutralize dissidents and keep others on a short leash.”
Meanwhile in Colombia, powerful organized criminal enterprises had sprung up over the years, likewise increasing the efficiency and scale of smuggling operations on their end of the border. “Smugglers occasionally get crude oil by perforating the pipelines on the Colombian side,” says Adam Isacson, a policy expert at the Washington Office on Latin America who visited a border region with substantial gas smuggling networks last month. “In Catatumbo, they have [even] fashioned micro-refineries [to process that crude] that do enormous environmental damage.”
Smuggling in general spiked over the past couple of years, as an ongoing economic crisis in Venezuela has increased incentives for people to get involved in illicit trade—especially as the state expanded its subsidies to a wide swathe of new consumer products, which citizens decided to hawk for liquid assets and vital supplies more readily available in Colombia. The spread of smuggling as a means to acquire (by the state’s own estimates) about 40 percent of all consumer goods in the nation finally prompted a crackdown from the regime of embattled Venezuelan president Nicolás Maduro.
In recent years, Maduro has attempted to regulate gas sales and other goods in border regions, send more cheap gas to Colombia to blunt demand, and divert gas to alternative uses—and has arrested smugglers, busted purported crime rings, and seized illicit goods shipments. Most notoriously, after a purported attack on Venezuelan soldiers last year by Colombian paramilitary forces (who Maduro largely blames for the nation’s problems), Venezuela unilaterally closed its border with Colombia, deploying 17,000 soldiers to control major checkpoints.
Colombia has likewise attempted to reign in—or, at least, control—its illicit gas trade. They’ve busted up a few alleged smuggling rings and instituted heavier fines and new jail time for traffickers caught with too many pimpinas. But they’ve also attempted to regularize the trade via cooperatives of illicit traders, intending to mainstream them into the official oil industry—a move that’s been met with heavy resistance from unofficial illicit gas trade groups, that are organizing for the defense of their members against new laws and agitating against cooperatives.
Crackdowns and attempts at regulating goods on both sides of the border did lessen the flow of gas and knock some small-scale smugglers down. But they haven’t really hurt the large, organized networks behind the trade, who’ve just adjusted to new bribes and routes. “However they’re supplying the Colombian market,” says Isacson, “they’re still doing it fully. I think I saw only one functioning gas station, and that was far from the border. Everybody gets gas from pimpinas [and] the price of illicit gas remains low. I was told that it only went up when protests on the Colombian side blockaded roads, making it scarcer.”
Ultimately the price differential between Venezuela and its neighbors is just so steep that, even with a few more risks and roadblocks and even after the state’s first hike in domestic gas prices in 20 years (from $0.01 to $0.60 per liter, which is still cheaper than Colombian gas using the black market exchange rate), illicit gas is still an alluring business. Black market entrepreneurs will find a way to bribe or weasel their way through absurd levels of crackdown on either side of the border. Perhaps the only way the market could dry up would be if Venezuela radically normalized its oil prices to reflect the global market value. But that’s unlikely to happen, given how earth shaking the recent shift has been and how polarizing gas subsidies are in local politics.
“It’s going to take the emergence of somebody with Chavez’s charisma but with a straight head and set of principles who can sell some pretty tough medicine,” says Burelli. Until then, this gigantic and peculiar black market in a vital yet oddly mundane commodity will likely hold steady or grow unabated.