The Geopolitical and Economic Risks of Cartel-Driven Energy Illicit Trade in North America

The U.S.-Mexico cross-border energy relationship has long been a cornerstone of North American economic integration. However, the rise of cartel-driven energy smuggling-spanning oil, gas, and electricity-has introduced systemic risks that threaten both infrastructure resilience and financial stability. From 2020 to 2025, organized crime groups like the Jalisco New Generation Cartel (CJNG) and Sinaloa Cartel have weaponized energy supply chains, exploiting vulnerabilities in border infrastructure, regulatory frameworks, and financial systems. For investors, the implications are profound: a volatile landscape where illicit trade distorts markets, erodes trust in institutions, and undermines long-term project viability.

Energy Infrastructure: A Cartel-Driven Vulnerability

Mexico's energy infrastructure remains a prime target for cartels, with pipeline thefts-known as huachicol-and smuggling operations costing the country billions annually. According to a report by the Atlas Institute, cartels have tapped into state-owned Pemex pipelines, siphoning off up to 17,000 barrels of oil per day in 2024 alone, generating $1.05 billion in illicit revenue for criminal networks. These operations are not limited to oil: cartels have expanded into natural gas and electricity smuggling, using falsified customs records and "dark fleets" of tankers to move cut-rate fuel across the U.S. border.

The physical infrastructure exacerbates these risks. U.S. ports of entry like Laredo, Texas, handle nearly half of cross-border container traffic but remain bottlenecked by aging systems and insufficient lanes. With 6.3 million loaded truck containers crossing the border in the first eight months of 2025, even minor disruptions-such as weather delays or increased inspections-can ripple through energy supply chains. Meanwhile, cartels are adapting to surface-level enforcement by leveraging underground infrastructure, including tunnels and sewer systems in border cities, to move contraband undetected.

Financial System Risks: Money Laundering and Regulatory Erosion

The financial systems of both nations face parallel threats. Cartels have infiltrated legitimate energy markets through shell companies, falsified invoices, and complicit brokers, generating over $20 billion annually in illicit fuel trade. The U.S. Treasury's Financial Crimes Enforcement Network (FinCEN) has identified financial typologies such as anomalous payment patterns and below-market pricing as red flags for smuggling-related money laundering. In response, the Treasury has designated three Mexican banks-CIBanco, Intercam Banco, and Vector-as "primary money laundering concerns," cutting off U.S. financial institutions from processing transactions with these entities.

Mexico's regulatory environment further complicates matters. Constitutional reforms under President Claudia Sheinbaum have centralized energy oversight, merging independent regulatory bodies like the Energy Regulatory Commission (CRE) into the National Energy Commission (CNE), now under the Ministry of Energy. While framed as a move toward energy sovereignty, these changes have raised concerns about reduced institutional autonomy and increased government influence, deterring foreign investment. The U.S. Trade Representative has warned that such reforms violate USMCA commitments on non-discrimination and free competition, signaling potential legal disputes as the 2026 USMCA review approaches.

Investment Stability: Project Delays and Compliance Costs

The combined impact of smuggling and regulatory shifts is evident in tangible investment losses and compliance adaptations. A Utah-based family, for instance, was recently charged with facilitating nearly 3,000 oil shipments between 2022 and 2025 through a Texas refinery, facing potential asset forfeitures of $300 million. Similarly, U.S. energy projects like Houston-based Ikon Midstream have been implicated in smuggling schemes, highlighting how cartels exploit loopholes in cross-border trade.

For financial institutions, compliance costs are rising. The U.S. Treasury has mandated enhanced anti-money laundering (AML) and know-your-customer (KYC) protocols, requiring banks to scrutinize transactions involving Mexican energy imports. These measures, while necessary, add operational complexity and financial burden, particularly for mid-sized institutions lacking the resources of global banks.

Long-Term Implications for Investors

The risks extend beyond immediate financial losses. Cartel-driven smuggling distorts market dynamics, undercutting legitimate businesses and eroding public trust in governance. For U.S. investors, the instability is compounded by Mexico's shifting regulatory landscape, where legal uncertainties and judicial reforms favoring state interests create a high-risk environment for private-sector participation.

Moreover, the U.S. military's expanded presence along the Southern border-including drone reconnaissance and potential kinetic operations-reflects a broader strategic shift to counter cartel influence. While this may deter smuggling in the short term, it also signals a fractured geopolitical relationship, complicating efforts to strengthen North American energy integration.

Conclusion

Cartel-driven energy smuggling represents a multifaceted threat to U.S.-Mexico cross-border investments. From infrastructure vulnerabilities to financial system risks and regulatory instability, the challenges demand a recalibration of risk assessments. Investors must prioritize due diligence, leveraging real-time compliance tools and geopolitical analysis to navigate this volatile landscape. As the 2026 USMCA review looms, the need for coordinated policy responses-both bilateral and multilateral-has never been more urgent.