Fuelling Organised Crime: The Mexican War on Drugs and Oil Theft

We show that the Mexican War on Drugs pushed drug cartels into large-scale oil theft. We propose a simple model in which government crackdowns on one criminal sector induce criminal organisations to invest in a new sector. When entering the new sector, challenger organisations with a residual share of the market in the traditional sector may leapfrog incumbent organisations. We bring the model to the data using detailed information on drug cartel presence, oil pipelines, and illegal oil taps across Mexican municipalities. In line with the model predictions, municipalities with oil pipelines witnessed a greater increase in cartel presence than municipalities without pipelines after the crackdown on drugs, and the effect is driven by challenger criminal groups. Within the subset of municipalities with oil pipelines, we observe more illegal oil taps where the political party in favour of anti-drug trafficking policy won local elections by a small margin. Due to specialisation in different criminal sectors, municipalities with pipelines did not witness a surge in violence, but they did experience a decline in socioeconomic conditions