Talks With Rebels Have Consequences for Colombia’s Oil Sector

Courtesy of STRATFOR (subscription required), a detailed look at the impact of a recent escalation in militant attacks on oil pipelines in eastern Colombia which have taken about 3 percent of Colombia’s daily oil production offline, according to government figures:

The attacks have affected the Bicentenario and Cano Limon-Covenas oil pipelines. The renewed targeting of oil infrastructure is probably tied to the ongoing negotiations between Bogota and the Revolutionary Armed Forces of Colombia, also known by its Spanish acronym, FARC. The rebel group, likely in conjunction with the smaller National Liberation Army, or ELN, is probably using the attacks as leverage ahead of the country’s presidential election on May 25.


FARC and the Colombian government began the 23rd round of peace talks in Havana on April 4 to negotiate an end to the country’s five-decade insurgency. Talks are currently focused on the third point of the negotiating agenda, which is FARC’s withdrawal from drug production and trafficking. Such an agreement will be difficult to negotiate, let alone implement, given the group’s reliance on producing cocaine for revenue. Furthermore, even if the government reaches a peace agreement with FARC soon, it will have to hold similar talks with ELN. The government has chosen to negotiate separately with each group, and the ELN has been known to use attacks on Colombia’s oil infrastructure to achieve its political goals.

Targeting Pipelines

Although rebel groups have used explosives to target Colombia’s oil pipelines for decades, the recent attacks against the pipelines in the Colombian departments of Norte de Santander and Arauca — combined with protest activity — have proved particularly disruptive. On April 7, a local oil workers’ union announced that Occidental Petroleum Corp. had laid off approximately 500 contractors at the Cano Limon oil field due to a slowdown in oil extraction. That reduction in activity came after the Cano Limon-Covenas oil pipeline was shut down March 25 because of repeated militant attacks (rebels have hit the pipeline at least 18 times since January). Media reports indicate that the field’s storage facilities, which have a capacity exceeding one million barrels of oil, are already full.

Attacks Against Oil Infrastructure by Colombian Militants

The Bicentenario oil pipeline, a 230-kilometer (143-mile) pipeline inaugurated in November 2013, was taken offline Feb. 20 after repeated attacks. Occidental considered declaring force majeure on oil shipments in 2012 — the last time such a move was reported as a result of attacks on the Cano Limon-Covenas pipeline occurred in 2002.

The closure of the two pipelines owned by Ecopetrol has prevented Colombia from transporting at least 35,000 barrels of crude oil per day, according to government figures. Open source reports suggest that figure may actually be closer to about 86,000 barrels, or 8 percent of the country’s daily production. The exact figure is unclear, but since Colombia’s total daily oil production stands at slightly more than one million barrels, the amount taken offline is in any case relatively small. However, indigenous protesters have prevented repair crews from reaching the sections of both pipelines affected by the explosions, delaying repair efforts. Local populations have long opposed oil drilling in the area, and the current protests seem motivated by concerns over the pollution caused by oil exploration and transport.

The attacks highlight the FARC and ELN’s growing reliance on pipeline sabotage as a means of pressuring the government. Both rebel groups routinely target petroleum infrastructure because of their relative military inferiority against the Colombian government. Because these groups lack the manpower, weapons and supplies needed to conduct major offensives against militarily superior government forces, they have shifted over the past five years from attacking harder military targets to targeting vulnerable oil pipelines. While only 31 attacks on oil infrastructure across Colombia were reported in 2010, 204 were reported in 2013.

The issues being discussed in Cuba are likely influencing the current wave of attacks. The weakened rebels are essentially making use of one of their few remaining levers to apply pressure to the state. Bogota and the FARC have reached a crucial juncture in peace negotiations. Although the content of the talks in Havana is closely guarded, it can be assumed that some of the attacks stem from FARC efforts to push for amnesty for the group’s leaders, and for protection for units involved in drug production and trafficking. The attacks likely also portend impending negotiations between Bogota and the ELN, which may be capitalizing on the FARC attacks to edge into separate peace negotiations with the government. For Colombian President Juan Manuel Santos, the attacks present a significant political risk ahead of elections. His administration is already negotiating to avert agricultural protests that could spread across the country. An extended oil cutoff could narrow the gap between Santos and Green Party candidate Enrique Penalosa.

Why Negotiations are Difficult

The third point of negotiations is particularly hard to navigate because of the FARC’s and ELN’s deep involvement in the Colombian drug trade. Since the late 1980s, when funding from their Soviet and Cuban benefactors ended, the groups have profited from charging coca farmers a tax to produce coca leaves. They have also turned to owning and operating coca plantations, and they produce and sell cocaine for shipment to markets abroad, including the United States. This extensive involvement in the drug trade has provided the militants with the funding needed to continue their decadeslong insurgency against the government. The groups’ deep connections to drug trafficking complicate any eventual peace deal because of the numerous criminal charges against FARC and ELN leaders in Colombia and the United States. The prospect of extradition is a particularly thorny issue for negotiators. Numerous FARC and ELN leaders, including two of the negotiators at the Havana peace talks, have arrest warrants in Colombia and extradition orders from courts in the United States related to narcotics trafficking. The militants are highly unlikely to agree to any peace deal proposed by the government so long as extradition remains a pending issue. The second phase of talks, which finished in November, focused exclusively on the nature of the FARC’s future political participation and ended with no agreements on extradition.

There are additional problems complicating a potential agreement, according to details regarding the progress of talks that have emerged over the past few months. In January, the FARC suggested that the government fund a voluntary crop substitution program for Colombia’s rural farmers. The militants’ negotiating team asked for an end to the aerial spraying of coca plants, which has been a principal means of eradicating illicit crops for more than a decade. The rebels also demanded greater funding for rural communities from the national budget and from mining and oil royalties, with FARC negotiators further demanding that troop presence and resource extraction be prohibited in areas where these crop substitution programs are carried out.

These issues have drawn out negotiations. The government is more likely to prioritize funding for rural development to avert future unrest than it is to concede on security issues such as drug trafficking. Given its close security ties to the United States, Colombia cannot agree to some of FARC’s less practical demands, such as ending all coca eradication or ignoring criminal charges against militant leaders. Negotiators will therefore probably first seek a deal on points that can be more easily agreed upon and enacted — areas such as the crop substitution programs. While negotiations over the nature and implementation of such agreements will likely continue for months and even years, FARC spokesmen at the Havana talks said April 7 that the current round of negotiations could result in a preliminary agreement on crop substitution.

Possible Talks with Another Rebel Group

In addition to the intractable discussions in Havana, imminent talks with the ELN in the coming months probably triggered some of the recent attacks. Indeed, many of the incidents occurred in the Arauca department, which has long been an ELN stronghold, suggesting the group’s likely involvement. The strikes on the Bicentenario and Cano Limon-Covenas pipelines may signal that the government and ELN are moving toward negotiations, and ELN is seeking to press its agenda, although exactly why the ELN would seek to pressure the government through attacks right now remains unclear. A similar spike in attacks occurred in 2012 as the FARC increased militant pressure on the government ahead of negotiations. Attacks on oil infrastructure that year rose to 151, up from 84 in 2011. The Santos administration has been pursuing separate negotiations with the ELN for more than a year, although contacts do not appear to have progressed beyond occasional meetings between representatives.

Rumors emerged in September and December 2013 that talks with the ELN would be imminently announced. In November 2013, ELN commander Nicolas Rodriguez Bautista claimed that the rebels had already formed a negotiating team. In January, Ecuadorian President Rafael Correa said he was willing to facilitate dialogue between the ELN and the Colombian government. In March, a rumor emerged that former Colombian Attorney General Jaime Bernal Cuellar had held a meeting with unidentified ELN representatives in Quito. Still, talks have yet to materialize.

The ELN is smaller and less widespread than the FARC, but a report in December 2013 indicated that the group had enacted a formal alliance with the FARC to pressure the state through attacks. Regardless of the precise reasons for this lengthy delay in starting negotiations, any peace process with the ELN will likely face many of the same setbacks as the talks with the FARC. Most of the ELN’s high command face criminal charges in Colombia and the United States for war crimes and drug trafficking, and these problems will need to be settled once negotiations begin in earnest.

The difficulty of ongoing negotiations with the FARC and impending talks with the ELN means that attacks on oil infrastructure will persist for the foreseeable future. However, the pace of the attacks may falter. The rebel groups and the government have a major interest in reaching an agreement, and too much pressure by the militants could dissolve the talks. An extended campaign targeting Colombia’s oil infrastructure could force the government to accept some of the FARC’s demands, but it could also conceivably cost Santos the presidency. Santos currently leads Penalosa in the first round of voting, but at least one poll has indicated that Santos could lose the presidential election in the second round of voting by five percentage points. Such a situation presents greater risks for the FARC, since a new administration could choose to replace the negotiators in Havana with whom the rebels have already sealed agreements. The FARC is engaging in a risky strategy by disrupting oil shipments, but from the rebel leadership’s point of view, the importance of the issues being discussed in Havana likely outweighs the need for caution.

With the militants’ strength declining, attacks on lengthy and vulnerable oil pipelines — particularly those close to the Venezuelan and Ecuadorian borders — will continue. Even if FARC attacks subside once a satisfactory agreement is reached, there is still uncertainty concerning the pace and geographic spread of ELN attacks once talks with that group reach the difficult topic of drug production and trafficking. Consequently, Colombia’s oil sector will remain at risk of further disruptions in the coming years as the insurgency attempts to reach a negotiated settlement with the government.

This entry was posted on Wednesday, April 9th, 2014 at 9:18 am and is filed under Colombia.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

Comments are closed.

Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.