2011's Top Risks: In Mexico, the drug war heats up

By Ian Bremmer and David Gordon

An increasingly ferocious and costly battle with drug cartels will continue to occupy much of the Mexican government's time and resources in 2011. There's a serious risk of more dramatic episodes of violence -- including of higher-profile assassination attempts on government officials, security forces, and business figures.

Since taking office in Dec. 2006, President Felipe Calderon has presided over a startling rise in drug-related murders. The government is gaining ground in the fight against organized crime as the military and federal police generate important arrests, cartel members are killed, and drugs, cash, and arms are seized. The cartels are on the defensive, the government shows no signs of letting up, and coordination between Mexico and the United States on drug and security-related issues has improved dramatically.

But there are negative results, as well. Fragmentation of the leadership of the cartels has only increased the likelihood of deadly conflict within and among these organizations. Surviving traffickers try to ward off municipal and state cooperation with federal security efforts, increasing the likelihood of assassination of local officials. And with steady demand for narcotics in the United States and demand on the rise in Mexico, surviving and new trafficking groups will compete to fill any voids in the drug supply chain left by other groups.

More broadly, the political consensus in Mexico in support of the Calderon administration's tough approach to drug violence is weakening. The security issues were a plus for the president and his National Action Party (PAN) during his first two years in office, but that's no longer the case. This provides the opposition Institutional Revolutionary Party (PRI), which controls a majority of state and municipal governments, with incentives to push back against the federal government's efforts to consolidate weak, inefficient, and compromised municipal police forces.

In 2011, four patterns are likely to surface. First, violence will remain high. Second, the security threat to public officials, especially at the local level, will increase. Random acts against domestic and foreign businesses and even U.S. government assets, while a lesser concern, will also present risks. Third, the violence will remain largely concentrated along Mexico's northern border and in west coast states. Finally, ongoing Mexican and U.S. efforts against the cartels, especially in the border region, will make transportation to the United States increasingly difficult. As a result, traffickers will seek to develop local distribution networks. This will keep violence high in large, wealthier cities like Guadalajara and Mexico City, and increase cartel activity in tourist destinations like Acapulco and Cancun.

In the medium to long term, the Mexican government's counter-narcotics strategy -- mixing police and military operations with institutional reforms -- will yield more progress. But in the meantime, we're likely to see a lot more violence in 2011. The downside impact on Mexico's economy, particularly on the tourism sector, will continue.

On Friday, we'll discuss our final Top Risk for this year -- the risk that a wave of money flooding into emerging markets will include bad bets on a half dozen countries where investor confidence may well be misplaced.

Ian Bremmer is president of Eurasia Group. David Gordon is the firm's head of research.

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