Mexico Says Fuel Smuggling has Jumped

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A Mexican government agency complained recently that fuel smuggling in the country has more than doubled since 2018 and now accounts for a fifth of the fuel consumed in the country. The agency also said that one of the main avenues for evading import duties on fuels is to label fuels as base oils or to import base oils and to use them as fuel.

Estimates on the amount of smuggling come from the federal Tax Administration Service and are based on comparisons between fuel consumption estimates and the amount of revenue collected from taxes on gasoline and diesel. SAT officials said recently that the amount of untaxed fuel reached 102 million barrels in 2021, up from 45.8 million barrels in 2018, according to numerous local news reports.

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The agency said the increase smuggling appears at least partly due to a campaign by President Andres Manuel Lopez Obrador to a campaign against gasoline thefts. Lopez Obrador came to office in 2018 vowing to reduce fuel thievery, which was then rampant. SAT officials said theft of fuel has fallen significantly, and that perpetrators have turned to smuggling instead.

Local news reports also speculated that an initiative by Mexico’s navy to halt ship-borne smuggling of fuel appears to have pushed smuggled fuels to be imported overland.

SAT said smugglers label imported fuel as lubricants or base oils – or import base oils and use them as fuel – because base oils are not subject to the same duties as fuel. The agency said imports of products labeled as lubricants or base oils jumped significantly in 2021 despite there being no good reason for demand to have increased so much.

The United States is one of Mexico’s largest sources of base oil imports, and Mexico is one of the largest destinations of U.S. base oil exports. According to the U.S. Energy Information Administration, from 2012 through 2016, U.S. base oil exports to Mexico averaged 11,800 barrels per day. In 2017 and 2018 that volume jumped to 21,000 b/d and 28,000 b/d, respectively. For the next three years the volume was 35,000 b/y, 30,000 b/y and 34,000 b/d.

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