Wednesday, January 25, 2012



Note: This is the Stratfor report in original english. A "must read"

Some comments:
Still believe that NW Mexico is not all that secure for the Sinaloa
cartel. Things continue to be unsettled in Sinaloa and Sonora.
Suggest keeping close eye on the CPS.

The cartels continue to fight over the "plazas" or corridors into the
U.S. because the corridors work.

Interesting, but not in this report are the successes of the Mex.
army in Northern Sonora / Baja Calif. against drug smuggling,
although have heard that the Army commander for area may be replaced.

Cartel expansion into Central and South America continues, bringing
much more access to military weapons, munitions and equipment. Much
of it from U.S. aid.

Take note also of the continuing weakness of the Mexican Military,
from continuing high levels of desertions and overall lack of numbers
and resources.

A positive point is the U.S. and Columbian tech aid which has lead to
taking out numerous cartel management personnel.

A negative point is continuing agenda of leftist states, Venezuela,
Cuba, Nicaragua, and their covert support of DTO's. A failed or
destabilized Mexico would very much serve their goal of neutralized U.S.

For the gunnies; U.S. AR15/M16 platforms in very wide spread use by
Mex. law enforcement and even military. Haven't seen Mex. Marines
with anything but those anymore. Many Army units the same. . The
HK 21's still seem to be in widespread use. Have also seen some
Sinaloa police units with G3's Local PD's with some exceptions
continue to be very poorly armed and supplied. Interesting that
Leyzaola in Cd. Juarez has managed to get his guys better equipped.
The FX05 still pretty rare. G36's, MP5's, Uzi's, and few Beretta
ARX160's observed over last year. Frags everywhere. Still
virtually impossible for citizens to legally obtain firearms and
ammo. BTW, in AZ, .38 super and 5.7 FN still seem to gather dust on
shelves. Armored vehicles; in large and growing numbers, quality and
level varies widely, Mex. military doesn't talk much about how they
consistently defeat them.

F&F: The disaster continues. A key issue is that the Mex. govt.
needs to release the info on the firearms they have recovered both
from F&F and overall. Make, model, s/n, details of recovery, etc.
they have the data. Also, while here much emphasis in placed on
death of federal law enforcement personnel, let no one forget it has
also led to the deaths of hundreds of Mexicans. Many of them honest
citizens, military and law enforcement.

Polarization and Sustained Violence in Mexico's Cartel War
January 24, 2012 | 1212 GMT

Editor's Note: In this annual report on Mexico's drug cartels, we
assess the most significant developments of 2011 and provide updated
profiles of the country's powerful criminal cartels as well as a
forecast for 2012. The report is a product of the coverage we
maintain through our Mexico Security Memo, quarterly updates and
other analyses we produce throughout the year.

As we noted in last year's annual cartel report, Mexico in 2010 bore
witness to some 15,273 deaths in connection with the drug trade. The
death toll for 2010 surpassed that of any previous year, and in doing
so became the deadliest year ever in the country's fight against the
cartels. But in the bloody chronology that is Mexico's cartel war,
2010's time at the top may have been short-lived. Despite the Mexican
government's efforts to curb cartel-related violence, the death toll
for 2011 may have exceeded what had been an unprecedented number.

According to the Mexican government, cartel-related homicides claimed
around 12,900 lives from January to September -- about 1,400 deaths
per month. While this figure is lower than that of 2010, it does not
account for the final quarter of 2011. The Mexican government has not
yet released official statistics for the entire year, but if the
monthly average held until year's end, the overall death toll for
2011 would reach 17,000. Though most estimates put the total below
that, the actual number of homicides in Mexico is likely higher than
what is officially reported. At the very least, although we do not
have a final, official number -- and despite media reports to the
contrary -- we can conclude that violence in Mexico did not decline
substantially in 2011.

Indeed, rather than receding to levels acceptable to the Mexican
government, violence in Mexico has persisted, though it seems to have
shifted geographically, abating in some cities and worsening in
others. For example, while Ciudad Juarez, Chihuahua state, was once
again Mexico's deadliest city in terms of gross numbers, the city's
annual death toll reportedly dropped substantially from 3,111 in 2010
to 1,955 in 2011. However, such reductions appear to have been offset
by increases elsewhere, including Veracruz, Veracruz state;
Monterrey, Nuevo Leon state; Matamoros, Tamaulipas state; and
Durango, Durango state.

Over the past year it has also become evident that a polarization is
under way among the country's cartels. Most smaller groups (or
remnants of groups) have been subsumed by the Sinaloa Federation,
which controls much of western Mexico, and Los Zetas, who control
much of eastern Mexico. While a great deal has been said about the
fluidity of the Mexican cartel landscape, these two groups have
solidified themselves as the country's predominant forces. Of course,
the battle lines in Mexico have not been drawn absolutely, and not
every entity calling itself a cartel swears allegiance to one side or
the other, but a polarization clearly is occurring.

Geography does not encapsulate this polarization. It reflects two
very different modes of operation practiced by the two cartel
hegemons, delineated by a common expression in Mexican vernacular:
"Plata o plomo." The expression, which translates to "silver or lead"
in English, means that a cartel will force one's cooperation with
either a bribe or a bullet. The Sinaloa Federation leadership more
often employs the former, preferring to buy off and corrupt to
achieve its objectives. It also frequently provides intelligence to
authorities, and in doing so uses the authorities as a weapon against
rival cartels. Sinaloa certainly can and does resort to ruthless
violence, but the violence it employs is merely one of many tools at
its disposal, not its preferred tactic.

On the other hand, Los Zetas prefer brutality. They can and do resort
to bribery, but they lean toward intimidation and violence. Their
mode of operation tends to be far less subtle than that of their
Sinaloa counterparts, and with a leadership composed of former
special operations soldiers, they are quite effective in employing
force and fear to achieve their objectives. Because ex-military
personnel formed Los Zetas, members tend to move up in the group's
hierarchy through merit rather than through familial connections.
This contrasts starkly with the culture of other cartels, including
Status of Mexico's Major Cartels
Sinaloa Federation

The Sinaloa Federation lost at least 10 major plaza bosses or top
lieutenants in 2011, including its security chief and its alleged
main weapons supplier. It is unclear how much those losses have
affected the group's operations overall.

One Sinaloa operation that appears to have been affected is the
group's methamphetamine production. After the disintegration of La
Familia Michoacana (LFM) in early 2011, the Sinaloa Federation
clearly emerged as the country's foremost producer of
methamphetamine. Most of the tons of precursor chemicals seized by
Mexican authorities in Manzanillo, Colima state; Puerto Vallarta,
Jalisco state; Lazaro Cardenas, Michoacan state; and Los Mochis and
Mazatlan, Sinaloa state, likely belonged to the Sinaloa Federation.
Because of these government operations -- and other operations to
disassemble methamphetamine labs -- the group apparently began to
divert at least some of its methamphetamine production to Guatemala
in late 2011.

In addition to maintaining its anti-Zetas alliance with the Gulf
cartel, Sinaloa in 2011 affiliated itself with the Knights Templar
(KT) in Michoacan, and to counter Los Zetas in Jalisco state, Sinaloa
affiliated itself with the Cartel de Jalisco Nueva Generacion (CJNG).
Sinaloa also has tightened its encirclement of the Vicente Carrillo
Fuentes (VCF) organization in the latter's long-held plaza of Ciudad
Juarez. There are even signs that it continues to expand its control
over parts of Juarez itself.
Los Zetas

By the end of 2011, Los Zetas eclipsed the Sinaloa Federation as the
largest cartel operating in Mexico in terms of geographic presence.
According to a report from the Assistant Attorney General's Office of
Special Investigations into Organized Crime, Los Zetas now operate in
17 states. (The same report said the Sinaloa Federation operates in
16 states, down from 23 in 2005.) While Los Zetas continue to fight
off a CJNG incursion into Veracruz state, they did not sustain any
significant territorial losses in 2011.

Los Zetas moved into Zacatecas and Durango states, achieving a degree
of control of the former and challenging the Sinaloa Federation in
the latter. Both states are mountainous and conducive to the
harvesting of poppy and marijuana. They also contain major north-
south transportation corridors. By mid-November, reports indicated
that Los Zetas had begun to assert control over Colima state and its
crucial port of Manzanillo. In some cases, Los Zetas are sharing
territories with cartels they reportedly have relationships with,
including the Cartel Pacifico Sur (CPS), La Resistencia and the
remnants of LFM. But Los Zetas have a long history of working as
hired enforcers for other organizations throughout the country.
Therefore, having an alliance or business relationship with Los Zetas
is not necessarily the equivalent of being a Sinaloa vassal. A
relationship with Los Zetas may be perceived as more fleeting than
Sinaloa subjugation.

On the whole, Los Zetas remained strong in 2011 despite losing 17
cell leaders and plaza bosses to death and arrest. Los Zetas also
remain the dominant force in the Yucatan Peninsula. However, the
CJNG's mass killings of alleged Zetas members or supporters in
Veracruz have called into question the group's unchallenged control
of that state.

In response to the mass killings in Veracruz, Los Zetas killed dozens
of CJNG and Sinaloa members in Guadalajara, Jalisco state, and
Culiacan, Sinaloa state. Aided by La Resistencia, these operations
were well-executed, and the groups clearly invested a great deal of
time and effort into surveillance and planning.
The Gulf Cartel

The Gulf cartel (CDG) was strong at the beginning of 2011, holding
off several Zetas incursions into its territory. However, as the year
progressed, internal divisions led to intra-cartel battles in
Matamoros and Reynosa, Tamaulipas state. The infighting resulted in
several deaths and arrests in Mexico and in the United States. The
CDG has since broken apart, and it appears that one faction, known as
Los Metros, has overpowered its rival Los Rojos faction and is now
asserting its control over CDG operations. The infighting has
weakened the CDG, but the group seems to have maintained control of
its primary plazas, or smuggling corridors, into the United States.
(CDG infighting is detailed further in another section of this report.)
La Familia Michoacana

LFM disintegrated at the beginning of 2011, giving rise to and
becoming eclipsed by one of its factions, the Knights Templar (KT).
Indeed, by July it was clear the KT had become more powerful than LFM
in Mexico. The media and the police continue to report that LFM
maintains extensive networks in the United States, but it is unclear
how many of the U.S.-based networks are actually working with LFM
rather than the KT, which is far more capable of trafficking
narcotics. It appears that many reports regarding LFM in the United
States do not reflect the changes that have occurred in Mexico over
the past year; many former LFM leaders are now members of the KT.
Adding to the confusion was the alleged late-summer alliance between
LFM and Los Zetas. Such an alliance would have been a final attempt
by the remaining LFM leadership to keep the group from being utterly
destroyed by the KT. LFM is still active, but it is very weak.
The Knights Templar

In January 2011, a month after the death of charismatic LFM leader
Nazario "El Mas Loco" Moreno, two former LFM lieutenants, Servando
"La Tuta" Gomez and Enrique Plancarte, formed the Knights Templar due
to differences with Jose de Jesus "El Chango" Mendez, who had assumed
leadership of LFM. In March they announced the formation of their new
organization via narcomantas in Morelia, Zitacuaro and Apatzingan,
Michoacan state.

After the emergence of the KT, sizable battles flared up during the
spring and summer months between the KT and LFM. The organization has
grown from a splinter group to a dominant force over LFM, and it
appears to be taking over the bulk of the original LFM's operations
in Mexico. At present, the Knights Templar appear to have aligned
with the Sinaloa Federation in an effort to root out the remnants of
LFM and to prevent Los Zetas from gaining a more substantial foothold
in the region through their alliance with LFM.
Independent Cartel of Acapulco

The Independent Cartel of Acapulco (CIDA) has not been eliminated
entirely, but it appears to have been severely damaged. Since the
capture of CIDA leader Gilberto Castrejon Morales in early December,
the group has faded from the public view. CIDA's weakness appears to
have allowed its in-town rival, Sinaloa-affiliated La Barredora, to
move some of its enforcers to Guadalajara to fend off the Zetas
offensive there. The decreased levels of violence and public displays
of dead bodies in Acapulco of late can be attributed to the group's
weakening, and we are unsure if CIDA will be able to regroup and
attempt to reclaim Acapulco.
Cartel de Jalisco Nueva Generacion

After the death of Ignacio "El Nacho" Coronel in July 2010, his
followers suspected the Sinaloa cartel had betrayed him and broke
away to form the CJNG. In spring 2011, the CJNG declared war on all
other Mexican cartels and stated its intention to take control of
Guadalajara. However, by midsummer, the group appeared to have been
reunited with its former partners in the Sinaloa Federation. We are
unsure what precipitated the reconciliation, but it seems that the
CJNG was somehow convinced that Sinaloa did not betray Coronel after
all. It is also possible CJNG was convinced that Coronel needed to
go. In any case, CJNG "sicarios," or assassins, in September traveled
to the important Los Zetas stronghold of Veracruz, labeled themselves
the "Matazetas," or Zeta killers, and began to murder alleged Zetas
members and their supporters. By mid-December, the CJNG was still in
Veracruz fighting Los Zetas while also helping to protect Guadalajara
and other areas on Mexico's west coast from Zetas aggression.
Vicente Carrillo Fuentes Organization/Juarez Cartel

The VCF, aka the Juarez cartel, continues to weaken. A Sinaloa
operative killed one of its top lieutenants, Francisco Vicente
Castillo Carrillo -- a Carrillo family member -- in September 2011.
The VCF reportedly still controls the three main points of entry into
El Paso, Texas, but the organization appears unable to expand its
operations or move narcotics en masse through its plazas because it
is hemmed in by the Sinaloa Federation, which appears to have chipped
away at the VCF's monopoly of the Juarez plaza. The VCF is only a
shadow of the organization it was a decade ago, and its weakness and
inability to effectively fight against Sinaloa's advances in Juarez
contributed to the lower death toll in Juarez in 2011.
Cartel Pacifico Sur

The CPS, headed by Hector Beltran Leyva, saw a reduction in violence
in the latter part of 2011 after having been very active in the first
third of the year. We are unsure why the group quieted down. The CPS
may be concentrating on smuggling for revenue generation to support
itself and assist its Los Zetas allies, who provide military muscle
for the CPS and work in their areas of operation. Because of their
reputation, Los Zetas receive a great deal of media attention, so it
is also possible that the media attributed violent incidents
involving CPS gunmen to Los Zetas.
Arellano Felix Organization

The November arrest of Juan Francisco Sillas Rocha, the AFO's chief
enforcer, was yet another sign of the organization's continued
weakness. It remains an impotent and reluctant subsidiary of the
Sinaloa Federation, unable to reclaim the Tijuana plaza for its own.
2011 Forecast in Review

In our forecast for 2011, we believed that the unprecedented levels
of violence from 2010 would continue as long as the cartel balance of
power remained in a state of flux. Indeed, cartel-related deaths
appear to have at least continued apace.

Much of the cartel conflict in 2011 followed patterns set in 2010.
Los Zetas continued to fight the CDG in northeast Mexico while
maintaining their control of Veracruz state and the Yucatan
Peninsula. The Sinaloa Federation continued to fight the VCF in
Ciudad Juarez while maintaining control of much of Sonora state and
Baja California state.

We forecast that government operations and cartel infighting and
rivalry would expose fissures in and among the cartels. This
prediction held true. The Beltran Leyva Organization no longer exists
in its original form, its members dispersed among the Sinaloa
Federation, the CPS, CIDA and other smaller groups. As noted above,
fissures within LFM led to the creation of two groups, LFM and the
KT. The CDG also now consists of two factions competing for control
of the organization's operations.

We also forecast that the degree of violence in the country was
politically unacceptable for Mexican President Felipe Calderon and
his ruling National Action Party. Calderon knew he would have to
reduce the violence to acceptable levels if his party was going to
have a chance to continue to hold power after he left office in 2012
(Mexican presidents serve only one six-year term). As the 2012
presidential election approaches, Calderon is continuing his strategy
of deploying the armed forces against the cartels. He has also
reached out to the United States for assistance. The two countries
shared signals intelligence throughout the year and continued to
cooperate through joint intelligence centers like the one in Mexico
City. The U.S. military also continues to train Mexican military and
law enforcement personnel, and the United States has deployed
unmanned aerial vehicles (UAVs) in Mexican airspace at Mexico's
behest. The Mexican military was in operational command of the UAV

As we have noted the past few years, we also believed that Calderon's
continued use of the military would perpetuate what is referred to as
the three-front war in Mexico. The fronts consist of cartels against
rival cartels, the military against cartels, and cartels against
civilians. Indeed, in 2011 the cartels continued to vie for control
of ports, plazas and markets, while deployments of military forces
increased to counter Los Zetas in the states of Coahuila, Tamaulipas,
Nuevo Leon and Veracruz; to combat several groups waging a bloody
turf war in Acapulco, Guerrero state; and to respond to conflicts
arising between the Sinaloa Federation and Los Zetas and their
affiliate groups in Nayarit and Michoacan states.

While Los Zetas were hit hard in 2011, the Mexican government's
offensive against the group was unable to damage it to the extent we
believed it would. Despite losing several key leaders and plaza
bosses, as noted previously, the group maintains its pre-eminence in
the east. This is largely due to the ease with which such groups can
replenish their ranks.
Resupplying Leadership

One of the ways in which Mexico's cartels, including Los Zetas,
replenish their ranks is with defected military personnel. Around
27,000 men and women desert the Mexican military every year, and
about 50 percent of the military's recruiting class will have left
before the end of their first tour. In March 2011, the Mexican army
admitted that it had "lost track of" 1,680 special forces personnel
over the past decade (Los Zetas were formed by more than 30 former
members of Mexico's Special Forces Airmobile Group). Some cartels
even reportedly task some of their own foot soldiers to enlist in the
military to gain knowledge and experience in military tactics. In any
case, retention is clearly a serious problem for the Mexican armed
forces, and deserting soldiers take their skills (and oftentimes
their weapons) to the cartels.

In addition, the drug trade attracts ex-military personnel who did
not desert but left in good standing after serving their duty. There
are fewer opportunities for veterans in Mexico than in many
countries, and understandably many are drawn to a lucrative practice
that places value on their skill sets. But deserters or former
soldiers are not the only source of recruits for the cartels. They
also replenish their ranks with current and former police officers,
gang members and others (to include Central American immigrants and
even U.S. citizens).
2012 Forecasts by Region
Northeast Mexico

Northeast Mexico saw some of the most noteworthy cartel violence in
2011. The primary conflict in the region involved the continuing
fight between CDG and Los Zetas, who were CDG enforcers before
breaking away from the CDG in early 2010. Los Zetas have since
eclipsed the CDG in terms of size, reach and influence. In 2011,
divisions within the CDG over leadership succession came to the fore,
leading to further violence in the region, and we believe these
divisions will sow the group's undoing in 2012.

The CDG began to suffer another internal fracture in late 2010 when
the Mexican army killed Antonio "Tony Tormenta" Cardenas Guillen, who
co-lead the CDG with Eduardo "El Coss" Costilla Sanchez, in
Matamoros, Tamaulipas state. After Cardenas Guillen's death in
November 2010, Costilla Sanchez assumed full control of the
organization, passing over Rafael "El Junior" Cardenas Vela, the
Cardenas family's heir apparent, in the process. This bisected the
CDG, creating two competing factions: Los Rojos, loyal to the
Cardenas family, and Los Metros, loyal to Costilla Sanchez.

In late 2011, several events exacerbated tensions between the
factions. On Sept. 3, authorities found the body of Samuel "El Metro
3" Flores Borrego, Costilla Sanchez's second-in-command, in Reynosa,
Tamaulipas state. Then on Sept. 27, gunmen in an SUV shot and killed
a man driving a vehicle on U.S. Route 83, east of McAllen, Texas. The
driver, Jorge Zavala of Mission, Texas, was connected to Los Metros.

The Mexican navy reported the following month that Cesar "El Gama"
Davila Garcia, the CDG's head finance officer, was found dead in
Reynosa. Davila previously had served as Cardenas Guillen's
accountant. Then on Oct. 20, U.S. Immigration and Customs Enforcement
agents arrested Cardenas Vela after a traffic stop near Port Isabel,
Texas. We believe Los Metros tipped off U.S. authorities about
Cardenas Vela's location. (Los Metros have every reason to kill Los
Rojos leaders, including Cardenas Vela, but cartels rarely conduct
assassinations on U.S. soil for fear of U.S. retribution.)

On Oct. 28, Jose Luis "Comandante Wicho" Zuniga Hernandez, believed
to be Cardenas Vela's deputy and operational leader in Matamoros,
reportedly turned himself in to U.S. authorities without a fight near
Santa Maria, Texas. Finally, Mexican federal authorities arrested
Ezequiel "El Junior" Cardenas Rivera, Cardenas Guillen's son, in
Matamoros on Nov. 25.

By December, media agencies reported that Cardenas Guillen's brother,
Mario Cardenas Guillen, was the overall leader of the CDG. But Mario
was never known to be very active in the family business, and his
reluctance to involve himself in cartel operations appears to have
continued after his brother's death. In addition, Costilla Sanchez is
reclusive, choosing to run his organization from several secluded
ranches. That he is not mentioned in media reports does not mean he
has been removed from his position. Given his reclusiveness and Mario
Cardenas Guillen's longstanding reticence to involve himself in
cartel activity, it seems unlikely that Costilla Sanchez would be
replaced. Because Los Metros seemingly have gained the upper hand
over Los Rojos, we anticipate that they will further expand their
dominance in early 2012.

However, while Los Metros may have defeated their rival for control
of the CDG, the organizational infighting has left the CDG vulnerable
to outside attack. Of course, any group divided is vulnerable to
attack, but the CDG's ongoing feud with Los Zetas compounds its
problem. Fully aware of the CDG's weakness, we believe Los Zetas will
step up their attempts to assume control of CDG territory.

If Los Zetas are able to defeat the Los Metros faction -- or they
engage in a truce with the faction -- they may be able to redeploy
fighters to other regions or cities, particularly Veracruz and
Guadalajara. Reinforcements in Veracruz would help counter the CJNG
presence in the port city, and reinforcements in Guadalajara would
shore up Los Zetas' operations and presence in Jalisco state.
Likewise, a reduction in cartel-on-cartel fighting in the region
would free up troops the Mexican army has stationed in Tamaulipas
state -- an estimated force of 13,000 soldiers -- for deployment
Southeast Mexico

Some notable events took place in southeast Mexico in 2011. On Dec. 4
the Mexican army dismantled a Zetas communications network that
encompassed multiple cities in Veracruz, Tamaulipas, Nuevo Leon, San
Luis Potosi and Coahuila states.

In addition, Veracruz state Gov. Javier Duarte on Dec. 21 fired the
city's municipal police, including officers and administrative
employees, and gave the Mexican navy law enforcement
responsibilities. By Dec. 22, Mexican marines began patrols and law
enforcement activities, effectively replacing the police much like
the army replaced the police in Ciudad Juarez in 2009 and in various
cities in Tamaulipas state in August 2011. We anticipate that
fighting between the CJNG and Los Zetas will continue in Veracruz for
at least the first quarter of 2012.

We expect security conditions on the Yucatan Peninsula to remain
relatively stable in 2012 because there are no other major players in
the region contesting Los Zetas' control.
Southwest Mexico

In the southern Pacific coastal states of Chiapas and Oaxaca, we
expect violence to be as infrequent in 2012 as it was in 2011.
Chiapas and Oaxaca have been transshipment zones for Los Zetas and
the Sinaloa Federation for several years; as such, clashes and cargo
hijackings occasionally take place. However, direct and sustained
combat does not occur regularly because the two groups tend to use
different routes to transport their shipments. The Sinaloa Federation
prefers to move its product north on roads and highways along the
Pacific coast, whereas Los Zetas' transportation lines cross Mexico's
interior before moving north along the Gulf coast.
Pacific Coast and Central Mexico

As many as a dozen organizations, ranging from the KT to local
criminal organizations to newer groups like La Barredora and La
Resistencia, continue to fight for control of the plazas in Guerrero,
Michoacan and Jalisco states. Acapulco was particularly violent in
2011, and we believe it will continue to be violent through 2012
unless La Barredora is able to exert firm control over the city.
Acapulco has been a traditional Beltran Leyva stronghold, and the CPS
may attempt to reassert itself there. If that happens, violence will
once again increase.

Security conditions worsened in Jalisco state at the end of 2011, and
Stratfor anticipates violence there will continue to increase in
2012, especially in Guadalajara, a valued transportation hub. In
November, Los Zetas struck the CJNG in Guadalajara in response to the
mass killings of Los Zetas members in Veracruz state. The attacks are
significant because they demonstrated an ability to conduct
protracted cross-country operations. Should Los Zetas establish firm
control over Guadalajara, the Sinaloa Federation's smuggling
activities could be adversely affected, something Sinaloa obviously
cannot permit. Given an increased Zetas presence in Zacatecas,
Durango and Jalisco states, and Sinaloa's operational need to counter
that presence, we expect to see violence increase in the region in 2012.

Unless a significant military force is somehow brought to bear, we do
not expect to see any substantive improvement in the security
conditions in Guerrero or Michoacan states.
Northwest Mexico

The cross-country operations performed by Los Zetas indicate that the
group's growth and expansion has been more profound than we expected
in the face of the government's major operations specifically
targeting the organization. Such expansion will pose a direct threat
not only to the Sinaloa Federation's supply lines but to its home
turf, which stretches from Guadalajara to southern Sonora state.

In northwest Mexico, specifically Baja California, Baja California
Sur and Chihuahua states (and most of Sonora state), the Sinaloa
Federation either directly controls or regularly uses the smuggling
corridors and points of entry into the United States. Security
conditions in the plazas under firm Sinaloa control have been
relatively stable. Indeed, as Sinaloa tightened its control over
Tijuana, violence there dropped, and we expect to see the same
dynamic play out in Juarez as Sinaloa consolidates its control of
that city. Stability could be threatened, however, if Los Zetas
attempt to push into Sinaloa-held cities.
Outside of Mexico

As we noted in the past three annual cartel reports, Mexico's cartels
have been expanding their control of the cocaine supply chain all the
way into South America. This eliminates middlemen and brings in more
profit. They are also using their presence in South America to obtain
chemical precursors and weapons.

Increased violence in northern Mexico and ramped-up law enforcement
along the U.S. border has made narcotics smuggling into the United
States more difficult than it has been in the past. The cartels have
adapted to these challenges by becoming more involved in the
trafficking of cocaine to alternative markets in Europe and
Australia. The arrests of Mexican cartel members in such places as
the Dominican Republic also seem to indicate that the Mexicans are
becoming more involved in the Caribbean smuggling routes into the
United States. In the past, Colombian smuggling groups and their
Caribbean partners in places like Cuba, Puerto Rico and the Dominican
Republic used these routes. We anticipate seeing more signs of
Mexican cartel involvement in the Caribbean, Europe and Australia in
Government Strategy in 2012

There is no indication of a major shift in the Mexican government's
overarching security strategy for 2012; Calderon will continue to use
the military against the cartels throughout the year (a new president
will be elected in July, but Calderon's term does not conclude until
the end of 2012). This strategy of taking out cartel leaders has
resulted in the disruption of the cartel balance of power in the
past, which tends to lead to more violence as groups scramble to fill
the resultant power vacuum. Mexican operations may further disrupt
that balance in 2012, but while government operations have broken
apart some cartel organizations, the combination of military and law
enforcement resources has been unable to dislodge cartel influence
from the areas it targets. They can break specific criminal
organizations, but the lucrative smuggling corridors into the United
States will continue to exist, even after the organizations
controlling them are taken down. And as long as the smuggling
corridors exist, and provide access to so much money, other
organizations will inevitably fight to assume control over them.

Some 45,000 Mexican troops are actively involved in domestic counter-
cartel operations. These troops work alongside state and federal law
enforcement officers and in some cases have replaced fired municipal
police officers. They are spread across a large country with high
levels of violence in most major cities, and their presence in these
cities is essential for maintaining what security has been achieved.

While this number of troops represents only about a quarter of the
overall Mexican army's manpower -- troops are often supplemented by
deployments of Mexican marines -- it also represents the bulk of
applicable Mexican military ground combat strength. Meager and poorly
maintained reserve forces do not appear to be a meaningful
supplemental resource.

In short, if the current conditions persist, it does not appear that
the Mexican government can redeploy troops to conduct meaningful
offensive operations in new areas of Mexico in 2012 without
jeopardizing the gains it has already made. The government cannot
eliminate the cartels any more than it can end the drug trade. The
only way the Mexican government can bring the violence down to what
would be considered an acceptable level is for it to allow one cartel
group to become dominant throughout the country -- something that
does not appear to be plausible in the near term -- or for some sort
of truce to be reached between the country's two cartel hegemons, Los
Zetas and the Sinaloa Federation.

Such scenarios are not unprecedented. At one time the Guadalajara
cartel controlled virtually all of Mexico's drug trade, and it was
only the dissolution of that organization that led to its regional
branches subsequently becoming what we now know as the Sinaloa
Federation, AFO, VCF and CDG. There have also been periods of cartel
truces in the past between the various regional cartel groups,
although they tend to be short-lived.

With the current levels of violence, a government-brokered truce
between Los Zetas and Sinaloa will be no easy task, given the level
of animosity and mistrust that exists between the two organizations.
This means that it is unlikely that such a truce will be brokered in
2012, but we expect to see more rhetoric in support of a truce as a
way to reduce violence.

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