FEATURE | Inside the “dark fleet” fueling a Mexican cartel’s oil smuggling empire

The Port of Ensenada did not respond to a request for comment.

Denmark-based Torm, which manages one of the world’s largest fleets of tankers, including Torm Agnes, said it stopped doing business with Ikon Midstream just weeks after the Ensenada incident. Narcotics remain the principal money-maker for Mexico’s cartels. But illegal fuel and stolen crude oil have become the largest non-drug revenue source for these criminals, the US Treasury Department says.

Narcos have built this lucrative sideline by effectively embedding themselves inside North America’s vast energy sector and mastering the logistics of moving petroleum products by truck, rail and most recently tanker. Some US officials have taken to calling the tankers carrying illegal fuel a new “dark fleet,” a term more often associated with illicit shipping of Russian or Iranian crude oil designed to evade sanctions.

Fuel smuggling has grown so fast that bootleg imports now account for as much as one third of Mexico’s diesel and gasoline market, swiping profits from some of the biggest names in the oil industry, five current and former Mexican government sources told Reuters. Illegal fuel entering the country is now valued at more than $20 billion a year, according to one of the people who helped Mexico’s treasury calculate the size of the illicit trade.

Law enforcement agencies on both sides of the border are alarmed. The US government is offering rewards of up to $10 million for information on cartel fuel crimes. In Mexico, tanker smuggling has sparked a corruption scandal now rocking the country’s navy, which runs the ports and has long been considered one of the most trusted institutions in the country.

In a September seven press conference, the head of Mexico’s Navy, Raymundo Morales, said the institution had launched an internal investigation and “will not tolerate corruption under any circumstances."

To uncover the inner workings of fuel smuggling into Mexico, Reuters spoke to more than 50 people with knowledge of the racket. They include five people who have had dealings in illicit cargos, Mexican and US law enforcement officials, current and former oil industry executives in both countries, as well as energy traders and compliance specialists. Many of these people spoke on condition of anonymity out of fear for their safety.

Reuters is the first to publish a full account of Torm Agnes’ journey, from loading in Canada to discharging at Ensenada and at another Mexican port from which it beat a hasty retreat.

The account is based on information from seven people, all of whom were either involved in the logistics of moving the cargo or are investigating the journey’s fallout, as well as tanker-tracking data and satellite images, internal shipping documents, customs data and port records.

Through those documents and sources, Reuters pieced together in previously unreported detail how the alleged scheme works and how it exploits loopholes in the vast and complex US energy sector, touching a host of entities including oil majors, shipping companies and government agencies.

Aiding the cartels are US players who help procure and transport the products, some unwittingly, others actively participating, authorities say. Texas State Senator Juan Hinojosa said his oil-producing state has become a hotbed for shady operators.

“The cartels have infiltrated many legitimate businesses along the border and further north,” said Hinojosa, a Democrat who sponsored legislation in March that aims to crack down on unlicensed motor fuel depots near the border, toughen regulations on fuel transporters and boost punishment for scofflaws. The bill is stalled in the Texas senate but could be revived in the future.

The fuel smuggling scheme largely boils down to a lucrative tax dodge. Mexico slaps a levy known as IEPS on a wide variety of goods, including imported diesel and gasoline. Mexico is a major crude oil producer, but it imports these fuels because its ageing refineries can’t meet local demand. Crooks evade the tax, charged by the litre and often costing upwards of 50 per cent of the cargo’s value, by declaring the foreign fuel to be some other type of petroleum product that’s exempt from the duty.

US and Mexican officials say smugglers typically utilise shell companies and falsified cargo documents to cover their tracks, and they pay bribes to corrupt port and customs officials to get their shipments through.

They also unload in a hurry in dicey locations, bypassing Mexico’s nearly two dozen marine terminals set up for safe discharge of fuels, authorities and industry experts say. This allows smugglers to get the illicit cargo to their customers quickly, with minimal oversight and regulations.

Bootleg diesel is then sold at a discount in the Mexican market to thousands of unlicensed diesel stations, factories and mines. The smuggled gasoline goes mainly to unbranded filling stations. Cartels also steal fuel and crude oil outright from Pemex and sell some of it in the United States, helped by crooked importers that are undercutting American producers, the US Treasury Department says.

Pemex did not respond to a request for comment about losses linked to fuel theft and smuggling.

Other oil companies are feeling the pain, too. In May, British multinational Shell disclosed the sale of its retail fuel business in Mexico. That exit was due in part to the difficulties of competing with cheaper narco fuel, five Shell sources told Reuters. Gas stations buy smuggled fuel at a discount of five per cent to 10 per cent below the price of legitimate imports, according to two sources familiar with the trade.

Shell declined to comment on its reasons for the sale.

Torm Agnes was transporting diesel it had picked up in Canada when it started its journey to Mexico, seven sources familiar with the deal told Reuters. By the time the vessel reached Ensenada, its cargo had transformed – at least on paper – into a petrochemical used to make industrial lubricants, according to cargo documents and port records reviewed by the news agency.

If that diesel, worth some $12 million, had been declared to customs authorities it would have been subject to nearly $7 million in tax when entering Mexico, according to a Reuters calculation based on the volume of diesel and the tax rate at the time. The petrochemical, however, was exempt from the levy.

Denmark-flagged Torm Agnes was one of several tankers in recent years that carried fuel but declared its cargo as lubricants to avoid taxes and customs controls, according to an undated summary of the alleged smuggling scheme from government security forces seen by Reuters. The document's authenticity was confirmed by two security sources.

Mexico’s government has not said how much fuel smuggling has cost the country in lost IEPS revenue, but the source who used to help the treasury calculate the size of the illicit trade said it was nearly $4 billion in 2024. The opposition PAN party has put the number higher still – at around $10 billion – calling it “the largest corruption scheme in the history of Mexico.”

Neither Mexico’s tax authority nor its customs agency responded to requests for comment.