Ecuador’s Broken Oil Industry Faces Violent Headwinds
- Ecuador's oil industry is experiencing a severe decline in production, with key infrastructure routinely shut down by landslides, poor maintenance, and major incidents like the March 2025 oil spill.
- The nation's escalating lawlessness, fueled by its role as a major transshipment point for 70% of the global cocaine supply, is directly impacting the oil sector through sabotage, extortion, and a more than 20-fold increase in fuel theft.
- The resulting pressure on government finances is severe, highlighted by a fiscal deficit that blew out to $5.3 billion in 2025, largely due to increased security spending and decreasing oil revenue.
The once peaceful South American nation of Ecuador is being rocked by cocaine related violence. Since the 2020 pandemic, the tiny country’s murder rate has spiraled higher, hitting an all-time high of nearly 51 murders per 100,000 people during 2025. The tiny impoverished country of less than 20 million is regularly affected by extreme bloodshed, conflict, and lawlessness despite frequent security crackdowns. The rapid rise of cocaine trafficking and related brutality is sharply impacting government finances and Ecuador’s broken oil industry. Hydrocarbon production is trapped in a death spiral, with sabotage and oil theft common events.
Ecuador, which is sandwiched between the world’s largest cocaine producers, Colombia and Peru, recently emerged as a hotspot for narcotics trafficking. That geographical location on South America’s northwest coast, coupled with extensive export infrastructure and ports, makes Ecuador an ideal transshipment point for cocaine. According to Ecuador’s President Daniel Noboa, 70% of the global cocaine supply, which is produced in Colombia and Peru, is shipped from Ecuador to key markets in Europe, North America, and Asia. This is responsible for soaring lawlessness and bloodshed, which the current administration appears incapable of controlling even with U.S. assistance.
There are fears of further violence as the volume of cocaine shipped from Ecuador continues to expand. You see, Colombia’s cocaine output has grown exponentially over the last decade, expanding ninefold, from 290 metric tons to 2,664 metric tons, between 2013 and 2023. It is estimated that for 2024, it will have increased by another 13% year over year to 3,001 metric tons. It is this massive surge in cocaine output that is responsible for Ecuador’s soaring bloodshed and lawlessness. The volume of cocaine to be shipped through the tiny South American country will expand after U.S. intervention in Venezuela removed another key transit point.
Surging lawlessness and violence, notably around the southern city of Guayaquil, Ecuador’s commercial hub, and the northern port city of Esmeraldas is impacting the economy. An extremely violent 2024 weighed on the economy with gross domestic product (GDP) shrinking 2% that year, but for 2025, Ecuador’s economy returned to growth, expanding by a healthy 3%. Despite this notable improvement, a sharp uptick in government spending, primarily for security and law enforcement, caused Ecuador’s fiscal deficit to blow out to $5.3 billion or 4% of GDP.
The 2025 deficit was a worrying 71% higher than a year earlier 2024 and blew out because, as Ministry of Economy data shows, there was an 11% year on year spending increase and a 15% decrease in oil revenue. Indeed, Ecuador has reported a fiscal deficit for nearly two decades with Quito last announcing a budget surplus for 2008. This is placing considerable pressure on a cash-strapped Quito, particularly with vital fiscal revenue from Ecuador’s oil patch falling. You see, the oil industry is caught in a death spiral, with production falling sharply over the last decade.
Central bank data shows for January 2026 that Ecuador lifted an average of 466,400 barrels per day, which was not only 1.8% less than a year earlier but 13% lower than the same month a decade earlier. For the full year 2025, the Andean nation lifted 440,064 barrels per day, which is not only a worrying 8% lower than a year earlier but represents a whopping 19% decrease compared to the 198,230 barrels per day lifted during 2015. That is especially concerning because Ecuador kept oil production above 500,000 barrels per day during 2015 and 2016 despite the international Brent price plunging to under $40 per barrel as the global oil glut hit harder.
A major reason for the sharp drop in Ecuador’s oil production last year was a devastating March 2025 oil spill, which released 25,116 barrels into the environment and forced the closure of the Trans-Ecuadorian Oil Pipeline (SOTE). As a result, operations were shuttered until the pipeline was repaired, causing production to fall to around 451,500 barrels per day for the month. That volume was 4% less than February 2025 and 6.5% lower year over year. Indeed, pipeline ruptures and subsequent production shut-ins are commonplace for Ecuador’s oil patch.
Heavy rainfall and related landslides during July 2025 forced the shutdown of the SOTE and Oleoducto de Crudos Pesados (OCP) pipelines. Consequently, national oil company Petroecuador declared force majeure on oilfields in Ecuador’s Amazon, which are responsible for nearly all production, and shut them down. As a result of these events, oil production plunged to 147,500 barrels per day for July 2025 or less than a third of the 467,100 barrels pumped a month earlier. This had a severe impact on Ecuador’s petroleum output because of the length of the suspension of operations and the increasing frequency of such events.
You see, since the San Rafeal waterfall, Ecuador’s largest such geographical body, on the Coca River collapsed during 2020, increasingly frequent pipeline outages caused by landslides are sharply impacting production. The Coca River, a tributary of the Amazon, is suffering from a phenomenon known as hungry water, which experts blame on the Coca Codo Sinclair 1,500-megawatt hydroelectric dam. Water entering the dam slows and loses its normal sediment load, so when released downstream its erosive capability is far greater. This, coupled with regular heavy rainfall in Ecuador’s Amazon, is aggressively eroding the banks of the Coca River and the route taken by the SOTE and OCP pipelines.
Substandard maintenance, poor planning, and aging pipeline infrastructure are all further contributing factors to regular ruptures, environmentally damaging oil spills, and shut ins. Those events pose a considerable threat to Ecuador’s oil industry because the SOTE facility transports 57% of petroleum lifted in the country, with the remainder is carried by the OCP pipeline. Whenever pipeline outages occur, drillers are unable to ship petroleum, forcing them to store it locally and then shut down oilfields once those storage tanks are full.
A newly emerging threat to Ecuador’s oil industry is soaring violence fueled by the cocaine trade. There is not only the fallout from heightened bloodshed and lawlessness driven by heavily armed criminal bands to consider. Organized criminal groups are engaging in fuel theft to support drug smuggling operations and generate alternate sources of income. This has long been a rampant problem in neighboring Colombia, where petroleum is stolen for resale or refined into a crude form of gasoline, which is used to process coca leaves for manufacturing cocaine.
Gasoline is a key chemical needed in tremendous quantities to manufacture cocaine. An estimated 75 gallons or 284 liters of the fuel is required to process sufficient coca leaves to produce one kilogram of coca paste, an intermediate product that is refined into cocaine hydrochloride. Substantial Additional quantities of gasoline are required to fuel generators powering clandestine narcotics labs. Ecuador’s significantly higher fuel prices after Noboa removed a costly and controversial government subsidy further incentivized criminal groups to steal gasoline and even oil by tapping hydrocarbon pipelines.
From 2022 to 2024, fuel theft grew more than 20-fold, with 770 illegal taps found on Ecuador’s pipeline network during the first 10 months of 2024 compared to 36 two years earlier. This is soaring because of a marked spike in criminal activity, most of which is associated with soaring cocaine trafficking. It will keep growing not only as smuggling of narcotics intensifies but also because of the recent oil price spike. Brent surged by over 55% to $112 per barrel since the end of February 2026, when Israel and the U.S. started striking Iran. Ecuador’s 1,030 miles (1,655 kilometers) of pipelines, much of which runs through remote areas on the Pacific Coast and Amazon, are vulnerable to being illegally tapped by criminal groups.
Violent gangs associated with narcotics trafficking are also attacking oilfields to steal copper, gasoline, and diesel as well as extort energy companies as they seek out alternate sources of illicit income. The growing frequency of those incidents will force drillers, primarily national oil company Petroecuador, to shutter operations, further impacting production volumes. It is feared that the latest security crackdown, where Quito has implemented a nighttime curfew and deployed 75,000 soldiers as well as police across Ecuador’s most violent provinces, will have little lasting impact on crime and lawlessness.
Efforts to reinvigorate Ecuador’s economically vital oil industry, including through regulatory reforms as well as a $47 billion plan to expand exploration and production deep into Ecuador’s Amazon, are failing. Frequent severe infrastructure outages, spiraling violence, and heightened opposition to Quito’s plans, notably by indigenous groups, are deterring private investment. This is not only sharply impacting efforts to expand hydrocarbon production, and hence oil rents, but also growing reserves. For those reasons, there is no end in sight for the malaise that is hitting the oil industry and Quito’s revenue hard.
By Matthew Smith for Oilprice.com
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