In Mexico, there’s a 1 in 3 chance that the gasoline being pumped into cars has been stolen, smuggled or adulterated.

The scale of this black market economy, known locally as “huachicoleo,” is massive. Oil theft is now the second-largest source of revenue for organized crime in Mexico, just behind drug trafficking, according to a recent report by the US Drug Enforcement Administration (DEA).

For decades, fuel theft in Mexico involved criminals physically tapping pipelines owned by Pemex, the state-run oil company. But in recent years, they have adopted a more sophisticated method that involves smuggling fuel from the United States into Mexico, said David Mora, an analyst with the International Crisis Group in Mexico.

This oil is moved legally across the border from the US via truck, train or boats, and once in Mexico, criminal networks exploit regulatory loopholes, underreport quantities and disguise fuel as industrial lubricants.

By doing that, they can bypass a number of taxes in Mexico, and gain a significant advantage over legal distributors. 

PETROIntelligence, a Mexican company that provides market intelligence and consulting services for the energy and transportation sector, estimates that Mexico lost more than 177 billion pesos per year (about $10 billion) in potential taxes for imported gasoline. The calculations were based on an estimate by Mexico’s Tax Administration Service (SAT) that contraband fuel makes up 30% of total fuel sales.

The operation is highly sophisticated. “Nothing improvised or to be looked down upon,” said Samuel León, a Mexican researcher and author of a book on oil trafficking. “It involves entrepreneurs on both sides of the border, politicians, retail sellers and the infamous armed wings of the criminal networks.”

This illegal fuel enters the legitimate market through gas stations that often unknowingly purchase it. 

Alejandro Montufar, director of PETROIntelligence, said many of Mexico’s gas stations are small, family-owned businesses without the expertise or resources to verify their fuel’s origins.

The Mexican government currently lacks an effective system to trace the origin of fuel sold at service stations, making detection of fraud even harder.

And even when gas station owners do suspect something is wrong, criminal groups coerce or intimidate them into buying stolen fuel. 

“Most Mexicans are hardworking, decent people — they don’t want to be part of this,” León said, “but then a group of men shows up at the gas station with tanker trucks and says, ‘We’ll sell you this at a discount, and it’s either plata o plomo — take the money or take the bullet.’”

Fuel theft is also deeply embedded in impoverished communities. In Puebla, organized criminal groups have opened fuel pipelines and created makeshift pools of diesel. They invite local residents, including women and children, to fill buckets in exchange for small payments.

This tactic not only distributes the stolen fuel but also creates a human shield. When uncorrupted authorities arrive, they’re faced with a volatile scene: flammable fuel, civilians present and no safe way to intervene, making enforcement very challenging.

Mexico’s fuel tax system has unintentionally encouraged smuggling. The government imposes a fluctuating tax on fuel imports — known as IEPS — which rises when international fuel prices fall, and drops when global prices go up. While the tax helps stabilize consumer prices and generates revenue, recent trends have made smuggling more profitable.

To estimate the extent of the black market, energy analyst Alejandro Montufar tracks changes in tax policy. He’s found that when the IEPS tax is temporarily reduced or lifted, legal fuel sales spike — revealing just how much smuggled fuel had been filling the gap.

Beyond economic damage, this illegally imported fuel poses risks to consumers. Montufar explained that illegal fuel often does not meet Mexico’s minimum quality standards. Higher ethanol content or chemical incompatibilities with Mexican vehicles can lead to engine damage and increased pollution.

Mexican President Claudia Sheinbaum has promised to tackle fuel smuggling aggressively, particularly under pressure from President Trump. His administration is concerned that the money made from the black market for gasoline is fueling drug cartels in Mexico that produce and distribute fentanyl.  

In early July, authorities seized about 4 million gallons of stolen fuel from two abandoned tanker trains in Coahuila, marking the largest haul during Sheinbaum’s term, so far. In Veracruz this June, officials uncovered a clandestine mini-refinery producing adulterated diesel and solvents, seizing around 130,000 gallons of crude, plus another 317,000 gallons in the state of Nuevo León, highlighting structural vulnerabilities.

Yet, the challenges to eliminate this criminal branch of the economy are substantial. Deep-rooted corruption, massive financial incentives and entrenched cartel influence make meaningful enforcement elusive.

As Mexico grapples with violence and widespread disappearances, the booming illicit fuel market represents another dimension of the crisis persistently creating instability across the nation.