Mexican Drug Wars Update: Targeting the Most Violent Cartels

July 21, 2011

Editor’s Note: Since the publication of

STRATFOR’s 2010 annual Mexican cartel
report, the fluid nature of the drug war in
Mexico has prompted us to take an in-
depth look at the situation more frequently.
This is the second product of those interim
assessments, which we will now make as
needed, in addition to our annual year-end
analyses and our weekly security memos.

As we suggested in our first quarterly cartel update in April, most of the drug cartels in Mexico have gravitated toward two
poles, one centered on the Sinaloa Federation and the other on Los Zetas. Since that assessment, there have not been
any significant reversals overall; none of the identified cartels has faded from the scene or lost substantial amounts of
territory. That said, the second quarter has been active in terms of inter-cartel and military-on-cartel clashes, particularly in
three areas of Mexico: Nuevo Leon, Tamaulipas and Veracruz states; southern Coahuila, through Durango, Zacatecas,
San Luis Potosi and Aguascalientes states; and the Pacific coast states of Nayarit, Jalisco, Michoacan and Guerrero.

There are three basic dimensions of violence in Mexico: cartel vs. cartel, cartel vs. government and cartel vs. civilians. It is
becoming increasingly clear that the Mexican government has focused its efforts (and the bulk of its military forces) on
defeating cartel groups that it considers the most violent — especially those that are the most violent toward civilians. We
believe this is why three major military campaigns have been launched over the past three months against Los Zetas and
the Knights Templar. We can expect to see these campaigns continue over the next three months, although we doubt that
the government will be able to destroy either of these well-entrenched groups in the short term, and certainly not in the
next quarter. Still, we will need to look for evidence that the government’s efforts are having an impact.

Mexican Drug Wars Update: Targeting the Most Violent Cartels

(click here to enlarge image)

In the northern states, conditions remained fairly unchanged over the last quarter, though cartel-related deaths in Juarez
did not reach the severe level anticipated by regional law enforcement. STRATFOR’s sources in the region say there has
been a diminishing military presence in Juarez and that there have been fewer cartel-related deaths as a result. This is not
to say that the Sinaloa Federation and the Vicente Carrillo Fuentes organization (VCF, aka the Juarez cartel) have let up
in their battle for the Juarez plaza, only that the lessening of military pressure on those cartels has reduced overall friction.
In any given area of Mexico, cartel-on-cartel violence is caused by the dynamics among cartels and is entirely separate
from whatever the government presence may be, but the introduction of military forces into this environment exacerbates
existing hostilities. This happened when Mexican troops moved into the Juarez area in 2009, at which point the already
heated battle between cartel elements rose to a boil. While violence has trended downward in Juarez, we can expect to
see the Sinaloa Federation continue its efforts to advance and consolidate control over Juarez. The severity of the
violence will depend on the VCF’s ability to resist Sinaloa’s advances.

STRATFOR expects a similar escalation of violence in Tamaulipas state, where the military suddenly replaced municipal
(and some state) law enforcement personnel with federal troops in 22 cities in mid-June. The same sort of dynamics are in
play in Tamaulipas as were seen in Juarez in 2009, and we anticipate a similar long-term reaction over a much larger
region encompassing the urban areas of Nuevo Laredo, Reynosa, Rio Bravo, Matamoros, Valle Hermoso, San Fernando
and the state capital Ciudad Victoria. We expect to see increasing violence in all of these cities for as long as the military
presence remains, with larger escalations in Nuevo Laredo, Reynosa and Matamoros because they sit astride the most
valuable smuggling corridors along the easternmost 1,600 kilometers (1,000 miles) of U.S. border. While federal troops
have not replaced municipal police in neighboring Nuevo Leon state, violence will also likely escalate in Monterrey and the
surrounding region given its key location and strategic importance. Here the Zeta presence is being challenged by the Gulf
cartel, which seeks to enlarge its foothold in the city and expel the entrenched Zetas.

The cartels across Mexico continue to become more fractured and numerous, particularly in the central and Pacific
regions. As we discussed in the last quarterly update, the Beltran Leyva Organization (BLO) no longer exists as it once
did. The newer cartels, which began as factions of the BLO, continue to fight each other as well as the Sinaloa Federation
and, in most cases, Los Zetas. (Cartel Pacifico Sur [CPS] is actually aligned with Los Zetas.) From Durango and
Zacatecas south to Nayarit, Jalisco and Michoacan states and into Guerrero’s coastal port of Acapulco, seven different
groups of varying sizes and organizational cohesion are fighting to the death for the same overlapping regions.

Looking ahead to the next three months, STRATFOR expects to see increased violence in northeast Mexico as the Gulf-
Zeta battle for the region becomes more complicated by the presence of the Mexican military in Tamaulipas. Added to that
are the out-of-work former police officers, many of whom were on cartel payrolls in more passive roles and now may
become cartel gunmen to maintain their income. This, combined with the material losses Los Zetas have suffered over the
past quarter, will likely cause the cartel-on-civilian violence to remain high, and we anticipate that crimes such as
kidnapping, extortion and carjacking will proliferate.

With the military also becoming heavily involved in Michoacan, we can expect to see a phenomenon in that state similar to
the one in Tamaulipas. We also do not anticipate that the violence that has plagued the Pacific coast will let up during the
next quarter.

With the Atlantic/Gulf hurricane season now coming into full swing, the fighting could be slowed by major storms that roar
into the Rio Grande Valley. At the same time, torrential rains would significantly increase cross-border smuggling activity,
since shallow water in the flood plain increases the number of locations where smugglers can meet and load vehicles on
the U.S. side. Cartels are known to take advantage of flooding conditions to insert drug loads as much as 1.5 kilometers
north of the border with fast, shallow-draft boats and jet skis, which U.S. riverine patrols using deeper-draft boats cannot
pursue.

Current Status of the Mexican Cartels

To assist in navigating the fractured cartel landscape — as much as conditions in Mexico currently allow — we have
arranged the discussion below into three camps: the Sinaloa Federation and other cartels aligned with it, Los Zetas and
their associated groups, and the independent cartels that have declared war on all other cartels and are determined to go
it alone.

The Sinaloa Federation and Associates

The Sinaloa Federation continues to be the largest and most cohesive of the Mexican cartels. Run by Joaquin “El Chapo”
Guzman Loera, Sinaloa continued its expansion into Durango state, Mexico D.F. and Guerrero and Michoacan states over
the last three months as well as its fight to take over the plazas in Juarez and Chihuahua City. The cartel has also clashed
occasionally with CPS in the city of Hermosillo in Sonora state and in parts of Durango state; with Los Zetas in Torreon,
Coahuila state; and with both CPS and Los Zetas in Culiacan, Sinaloa state. On May 27 in Nayarit state, Sinaloa
conducted a major ambush of Zeta forces in which Sinaloa fighters apparently utilized Zeta defensive positions close to a
Zeta camp.

During the second quarter of 2011, three significant Sinaloa leaders were captured. In early April federal forces arrested
Jesus Raul Ochoa Zazueta, a former Baja California ministerial police officer who, at the time of his arrest, was Sinaloa’s
operations boss for the Mexicali plaza. Then in mid-April, Bruno “El Gato” Garcia Arreola was captured in Tepic, Nayarit
state. The following month, Martin “The Eagle” Beltran Coronel, nephew of Ignacio “El Nacho” Coronel Villarreal (a top
Sinaloa leader killed in a gunbattle in July 2010), was arrested in the Zapopan neighborhood of Guadalajara, Jalisco state.
With Guzman Loera’s approval, Beltran Coronel had taken over Coronel Villarreal’s operations, overseeing cocaine
importation from South America through the Pacific ports in Jalisco and Colima states. Coronel Villarreal’s operations
included very substantial methamphetamine production facilities and distribution networks, so much so that one of his
nicknames was the “king of crystal.” That being the case, it is likely that Martin Beltran Coronel also took over his uncle’s
methamphetamine operations, though that portion of his inherited operations has not been delineated.

These Sinaloa leadership losses could be significant, though Guzman Loera is believed to have removed high-level
threats within his organization before via anonymous tips to federal authorities. That so many Sinaloa leaders were
apprehended by federal authorities in the last quarter was just as likely the result of betrayal as it was of legitimate
government investigations. Given Guzman Loera’s solid hold on the organization, we expect to see replacements elevated
to the vacant positions, with the duration of their lives or their freedom predicated on their loyalty and service to Guzman
Loera. STRATFOR does not anticipate any significant changes or instability within the Sinaloa Federation as a whole over
the next quarter.

Gulf Cartel

The Gulf cartel has managed to hold Matamoros despite several large offensives by Los Zetas in May and June. We have
also seen a string of retaliatory attacks by the Gulf cartel and Los Zetas against each other’s support networks. As we
discussed in the last quarterly update, Matamoros is vital to the Gulf cartel’s survival, but control of Matamoros plaza alone
is not enough. The organization may well survive over the long term, but it will likely do so as a minority partner with
Sinaloa. In the last three months, Gulf’s cocaine supply chain was hit hard by Los Zetas in Guatemala’s Peten department,
and the organization lost several plaza bosses when they were captured by Mexican troops. In May, federal forces
captured Jose Angel “El Choche” Garcia Trujillo approximately 80 kilometers south of Monterrey. Garcia Trujillo led the
Gulf cell tasked with hunting down and killing Zeta operatives in Montemorelos, Allende, and General Teran, Nuevo Leon
state. Also captured in May was Gilberto “El Tocayo” Barragan Balderas, the Gulf plaza boss in Miguel Aleman,
Tamaulipas state, a vital point of entry across the border from Roma, Texas.

With federal forces occasionally entering the fray and Los Zetas seeking any weaknesses to exploit, the Gulf cartel
remains stretched as it seeks to hold onto its territories and maintain its supply and revenue streams. The Gulf cartel has
displayed increasing desperation regarding revenues and has ordered its smuggling groups on the U.S. border to protect
the drug loads at all costs, as opposed to the previous practice of the groups’ abandoning their loads if pressed too closely
by U.S. law enforcement. Hence there has been a significant upswing in aggression toward U.S. border protection and law
enforcement officers. Rock throwing, attempts to run over or crash into U.S. personnel and their vehicles and gunfire from
the Mexico side of the Rio Grande while drug loads are retrieved have increased in intensity and frequency in Gulf
operational areas on the border. These are clear indicators that the Gulf cartel is under great pressure, and STRATFOR
expects these conditions to continue through the third quarter.

Arellano Felix Organization

Fernando “El Ingeniero” Sanchez Arellano, nephew of the founding Arellano Felix brothers, continues to run the remaining
operational cells of the Arellano Felix Organization (AFO, aka the Tijuana cartel). In effect, the AFO has become a minority
partner with Sinaloa. While the AFO occupies Tijuana, STRATFOR sources indicate that it pays Sinaloa a piso (a tribute or
fee) for the right to use the plaza. In the first six months of 2011 little changed in the AFO’s condition from what we
reported in our 2010 annual cartel report.

While Sanchez Arellano has apparently worked out some sort of arrangement with Sinaloa to stay in place and in
business, several STRATFOR sources report that he has been quietly aligned with Los Zetas for the last six to 12 months
to train and strengthen his forces. To conduct this training, according to our sources, Zetas are known to travel to and from
Tijuana on the IH-10 corridor north of the border in order to bypass Sinaloa-held territory. Sinaloa likely is aware of the
Zeta association, and if this is the case we anticipate a restoration of open hostilities at some point between Sinaloa and
the AFO, though we have seen no indication that it will occur in the next three months.
La Resistencia

There appear to be at least two different groups in Mexico using the moniker La Resistencia. In March we discussed one
group, which is not a drug trafficking organization but rather an organized crime “brotherhood” based in the Tepito
neighborhood of Mexico City. The other group calling itself La Resistencia is based in Guadalajara and appears to consist
of followers of killed Sinaloa lieutenant “El Nacho” Coronel Villarreal who have remained loyal to the Sinaloa Federation.
This group is currently fighting for control of Guadalajara against Los Zetas/CPS, the Knights Templar and the Cartel de
Jalisco Nueva Generacion (CJNG).

The Opposition

Los Zetas

Los Zetas continue to operate in the north-central, northeast, eastern coast, Yucatan and southern portions of Mexico, and
on all of those fronts they have been waging a war against the Sinaloa and Gulf cartels. As far as we have been able to
determine, none of the cartels successfully wrested any territory away from an opponent in the second quarter, though it is
clear that Los Zetas (as we describe above) did put a dent in Gulf operations. In May and June it also became apparent
that the Zetas had found it useful to manufacture their own steel-plated “troop transports.” While these vehicles are large,
somewhat slow and very visible, they likely give Los Zetas a psychological advantage over municipal and state police and
strengthen their ability to intimidate the civilian population.

Also during the last quarter several high-ranking Zeta leaders were captured. In April, federal forces arrested Martin Omar
“Comandante Kilo” Estrada Luna, the leader of the Zeta cell in San Fernando, Tamaulipas state. He is believed to have
been directly responsible for the mass killing of Central American migrants, the deaths of the San Fernando police chief
and the state investigator last year, and the killing of at least 217 people found in mass graves in the same city in April. In
May, Jose Manuel “Comandante 7” Diaz Guardado, plaza boss for Hidalgo, Coahuila state, also was captured. And in
early June, Victor Manuel “El Siete Latas” Perez Izquierdo, the Zeta leader for Quintana Roo state, was arrested, only to
have his replacement, Rodulfo “El Calabaza” Bautista Javier, captured later that same month.

Several of these captured leaders were former members of the Mexican army’s Special Forces Airmobile Group (GAFE).
Such men are hard to replace, and while Los Zetas are known to have continued to recruit from the Mexican military and
police, as well as foreign military elements such as the Guatemalan and Salvadoran special operations forces, it does not
appear that the organization has been able to recruit quickly enough to replace their losses — a fact underscored by Los
Zetas’ desperate efforts to recruit illegal immigrants passing through their territory as well as gang members. This means
that the trend we have been seeing for the past few years of Los Zetas becoming less disciplined and more dangerous to
the general public will continue.

Los Zetas have been engaged by the military on both the east side (Tamaulipas) and west side (Coahuila) of their core
territory. They have also been attacked by their cartel opponents in critical locations like Monterrey. While they have
damaged the Gulf cartel, at the same time Los Zetas have taken heavy losses in terms of leaders, fighters, weapons and
other materiel. They have been forced to increase their other criminal activities to offset their losses in the cartel war.
These losses will take their toll over time and we will need to watch carefully over the next quarter to see if the
government’s push to eradicate Los Zetas, along with the efforts of the Sinaloa Federation and its allies, will combine to
further weaken the group — or if Los Zetas are able to regroup and re-fit.

Cartel Pacifico Sur

This Zeta ally centers on leader Hector Beltran Leyva, who succeeded his brother Arturo as head of the Beltran Leyva
Organization when Arturo was killed by Mexican marines in December 2009. The BLO then split into two primary groups
and several splinter groups that went on to form other cartels or rejoin Sinaloa. Following that split, the larger faction under
Hector re-established itself as CPS. The second quarter of 2011 found CPS continuing to fight for supremacy in the
central and western coastal regions of Mexico, including areas northward into Sonora and Baja California states.

Regarding the capture of supposed CPS leaders, there is conflicting information about their actual cartel affiliation. Several
Mexican media sources reported that Miguel Angel “El Pica” Cedillo Gonzalez, the CPS leader in Morelos state, was
captured in April and that his replacement, Jose Efrain “El Villa” Zarco Cardenas, was captured in May. However, there
also are references made to Cedillo Gonzalez being associated with Edgar “La Barbie” Valdez Villarreal, who led the other
faction that emerged from the BLO and that opposes CPS. The succession of Cedillo Gonzalez by Zarco Cardenas is the
only thing that appears to be consistent. Nevertheless, whether CPS has lost leadership or not, it does not appear to be
foundering. Its alliance with Los Zetas likely has helped it remain viable.

Overall the cartel dynamics on the Pacific coast continue to favor Guzman Loera and Sinaloa. As noted in our last cartel
update, the Mexican government seems to be trying to defeat the most violent cartels rather than end the narcotics trade
and, at present, seems to be focused on Los Zetas and the Knights Templar. We anticipate these two groups will remain
firmly fixed in the government’s sights in the coming quarter.

Vicente Carrillo Fuentes Organization

The Vicente Carrillo Fuentes organization (VCF, aka the Juarez cartel) is holding on. Though STRATFOR previously
reported that the VCF was hemmed in on all sides by the Sinaloa Federation and essentially confined to downtown Ciudad
Juarez, STRATFOR sources have recently indicated that this is no longer quite the case. The VCF continues to control the
border crossings in Juarez, from the Paso del Norte port of entry on the northwest side of town to the Ysleta port of entry
on the west side. While the VCF’s territory has diminished, there has been a strong VCF resurgence since April in the city
of Chihuahua in an effort to wrest it away from Sinaloa, with La Linea, the VCF’s enforcer arm, openly aligned with Los
Zetas to remove Sinaloa from Chihuahua state. La Linea’s alliance with Los Zetas has been evident for at least a year,
verified by STRATFOR’s sources within the law enforcement and federal government communities, but the two groups
went public with the alliance only on June 2, probably with the aim of creating a psychological edge.

Theoretically, an operation by Los Zetas and La Linea/VCF forces, augmented by allied gangs in Juarez (recent reports
indicate there could be as many as 8,000 fighters in such an amalgamated force), could be able to rout Sinaloa, but this
will not happen anytime soon. Too many battles are being fought across too many fronts spread across vast areas.
However, if Los Zetas manage to overcome the Gulf cartel in the northeastern states of Coahuila, Nuevo Leon and
Tamaulipas, there will be more Zeta assets to deploy in Chihuahua state.

Independent Operators

The Knights Templar

Since April we have gained a much clearer understanding of the Knights Templar cartel. On May 31, Mexican security
forces captured 36 members of the cartel La Familia Michoacana (LFM). Statements by several of the detained LFM
operatives revealed that LFM had split into two separate elements, one headed by Jose “El Chango” Mendez Vargas and
retaining the LFM name and the other coalesced around co-leaders Servando “La Tuta” Gomez Martinez and Enrique “La
Chiva” Plancarte Solis and calling itself the Knights Templar (Los Caballeros Templarios in Spanish). The split resulted
from a disagreement following the December 2010 death of charismatic LFM leader Nazario “El Mas Loco” Moreno
Gonzalez. Just before he was killed, Moreno reportedly sent word to Mendez Vargas that he and several others were
surrounded by federal forces and asked Mendez Vargas to help them escape. Mendez Vargas supposedly refused to
come to Moreno Gonzalez’s aid, resulting in the LFM leader’s death.

Emerging as a separate rival group, the Knights Templar has gone head to head with the much smaller LFM in a fierce
fight for supremacy, which the Knights Templar appears to be winning. The group also can be expected to continue a war
against the Sinaloa Federation that has been ongoing since the latter half of 2010, when the pre-fracture LFM tried to take
over the territory of deceased Sinaloa lieutenant Ignacio “El Nacho” Coronel Villarreal.

Meanwhile, government operations against LFM and its remnants continue, though they are now focused primarily on the
Knights Templar, which has responded with massive outbreaks of violence in Michoacan. We expect to see the Mexican
military continue to press the group in the coming quarter and to continue its efforts to decapitate the group by killing or
capturing Gomez Martinez and Plancarte Solis.

La Familia Michoacana

During the second quarter of 2011, LFM struggled to remain viable and relevant in the world of Mexican drug trafficking
organizations while being a primary target of the Mexican military. Firefights, killings and narcomantas between LFM and
the Knights Templar have been commonplace in Michoacan and Jalisco states over the last three months. In several
instances, banners signed by the Knights Templar have accused LFM leader Mendez Vargas of being a traitor, most likely
because of his alleged efforts to seek help from Los Zetas. That Mendez Vargas would turn to Los Zetas, an organization
demonized in previous LFM propaganda, indicates his desperation and points to the successful attrition of LFM by Knights
Templar and federal forces.

Following his capture by federal troops June 21 in Aguascalientes state, Mendez Vargas is now in a federal detention
facility and the next phase of LFM’s evolution is unclear. Another as yet unknown LFM member could step up in the near
future and assume leadership. Another possibility is the incorporation of some of the drifting LFM cells into the Knights
Templar structure, a distinct possibility given their common histories and the apparent alienation of some of Mendez
Vargas’s followers after he turned to Los Zetas for aid. A third potential outcome could be that Mendez Vargas’s LFM
eventually disbands and fades away. A fourth is that the remnants of LFM could try to organize a smaller independent
organization as some of their former LFM colleagues did when they helped form the Independent Cartel of Acapulco
(CIDA).
The Independent Cartel of Acapulco

The CIDA consists of one small faction of the former BLO that was loyal to Edgar “La Barbie” Valdez Villarreal and that
joined with some local Acapulco criminals and LFM members to form their own independent cartel. Due to its heritage as a
group, the CIDA is quite hostile to Los Zetas, a group Valdez Villarreal and his enforcers were at war with for many years,
and the Sinaloa Federation, which they believe betrayed Alfredo and Arturo Beltran Leyva. In our last update we
discussed the potential for the CIDA to fade from the scene within the year, but we saw no indication of that happening
over the past three months, and the group appears to remain viable. But we are still receiving conflicting information about
the group’s composition and alliances.

Currently, the CIDA is at war with Sinaloa, due to Sinaloa’s efforts to take control of the port of Acapulco. We anticipate
that Sinaloa will continue its efforts to weaken the remnants of the CIDA, and Sinaloa will likely do this, as it has done in
the past, by conducting armed operations and providing actionable intelligence on the CIDA to Mexican authorities.

Cartel de Jalisco Nueva Generacion

Members of CJNG, which also is based in Guadalajara, are former Sinaloa members from Coronel Villarreal’s group who
believe that he was betrayed by Sinaloa leader Guzman Loera. For that reason they are at war with the Sinaloa
Federation. CJNG members also hate the Zetas because Coronel Villarreal’s son was killed by Los Zetas operatives.
Indeed, the CJNG has basically declared war on everyone except the authorities, whom it has gone out of its way not to
offend, and it remains at the center of the battle for the Guadalajara plaza.

Guadalajara is a large city, encompassing crossroads of transportation arteries running parallel to the Pacific coast and
connecting that corridor with the port at Manzanillo, Colima state. Hence the Guadalajara plaza is immensely valuable to
whoever can control it. Due to the proximity of the CJNG and La Resistencia factions, as well as the presence of Los
Zetas, CPS and Sinaloa — all attempting to gain control of the plaza — we expect the violence in Guadalajara to continue
and perhaps increase over the next three months.