Just after the New Year, Libya’s tenuous Government of National Accord (GNA) announced it would declare force majeure on two of the country’s major ports. The issue: fuel smuggling out of both facilities has been depriving the GNA of revenue it desperately needs. Given Libya’s fragility as a state, stemming the illicit flow of fuel is not simply a matter of economics; it’s a matter of life and death.
It’s easy to consider fuel theft a distant, abstract problem, to be sorted out among petroleum industry majors and governments of developing countries. But, as Libya indicates, the reality is far more ominous. Downstream oil theft — the criminal misdirection of oil at any point after it heads to refineries — is the second most lucrative criminal activity in the world behind narcotics trafficking, and its impact is devastating.
As a contributing author of the first major report on global downstream oil theft, which was released by the international affairs think tank Atlantic Council in January, I spent months mapping the various aspects of this crime. Perpetrators range from small families eking out a living in border regions to transnational crime syndicates reaping huge profits and terrorist groups financing attacks. Even NGOs providing essential services in distressed regions often have to run their generators on black market diesel.
In Ghana, where cross-border price discrepancies make for easy money, retail stations in a small border town can move more fuel in a day than is sold in the capital of Accra. Tapping pipelines in Mexico has long been so lucrative that, until very recently, drug cartels relied on it as a major income stream.
Evidence suggests large-scale funneling of stolen Iraqi oil through Syria into Turkey, and from there across the Mediterranean and beyond. In 2012, theft and adulteration of fuel cost the E.U. €4 billion ($4.2 billion) in tax revenues. Nigeria loses an estimated 30 percent of its refined oil products to theft. In many of these cases, collusion by corrupt officials greases the gears.
The human cost of this criminal industry is staggering. Not only are governments deprived of the revenue; people living in underserved areas are preyed upon by black marketeers. In some cases, as in the Niger Delta Region, fuel theft has contributed to rampant criminality, intimidation, and environmental degradation. The people who profit from downstream oil theft often make money trafficking in narcotics, weapons, and human beings as well. And the toll extracted by the terrorist activities and violent insurgencies funded through fuel theft is all too evident in the news.
If we want to curb downstream oil theft in any lasting way, we will need to think big and collaborate.
Unfortunately, the perpetrators of downstream oil theft are frequently the very people entrusted with preventing it. The usual duality of cops and robbers can break down, with corrupt officials toggling between those roles as expediency dictates — or keeping one foot on each side of the line. Often, criminals are expert at exploiting existing legal and regulatory frameworks to facilitate theft, and at devising ways to circumvent such countermeasures as fuel dyeing and GPS tracking of trucks and ships.
If we want to curb downstream oil theft in any lasting way, we will need to think big and collaborate. Governments, industry players, and law enforcement agencies will have to coordinate at the regional level. Neighboring states can reduce price imbalances across borders to de-incentivize smuggling, and fill distribution gaps to close down black markets.
Many countries will have to find the political will to effect reform, not just in the security sector but also through conflict of interest laws and internationally recognized industrial standards. Legal problems within countries can be compensated for with international legal instruments against illicit financial flows, or with prosecutions elsewhere along often lengthy supply chains. Concrete countermeasures such as more rigorous metering, digital documentation to cut down on customs fraud and molecular fuel marking that resists “laundering” can combine to make large-scale fuel theft not worth the risks.
Though it will take time and tenacity to build deterrence, the project is feasible, and its dividends would be enormous. Even partial success could mean funding essential services and increasing access to fuel for large numbers of people, stabilizing troubled states, and narrowing a crucial income stream for criminal syndicates and terrorist groups. It would mean more safety, security, and stability across the globe.
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