A joint operation by Mexican special forces and US Intelligence in late February resulted in the death of Nemesio Oseguera Cervantes, or “El Mencho,” dubbed Mexico’s most wanted man.Cervantes led the Jalisco New Generation Cartel (CJNG), which was designated as a Foreign Terrorist Organisation by the US government in February. Apart from engaging in extortion and attacks on police, it is known to traffic fentanyl, a deadly opioid. The US has frequently raised the movement of the drug from Mexico as a major concern, even citing it as a basis for imposing tariffs under President Donald Trump.The operation culminated in an aerial deployment in Tapalpa, a town in the western-central state of Jalisco, which has traditionally served as the CJNG headquarters. Reflecting the power it commands, the CJNG swiftly responded by setting multiple vehicles alight and killing troops of the National Guard. Flight schedules in the region were also disrupted amid the violence.The CJNG’s case is not isolated, and it shows how cartels have evolved into diversified and heavily armed entities operating across borders. The answer to how they came to amass military and economic power lies in the oldest cartels of Mexico, changing economics and how the current system of militarisation perfected their tactical blueprint.Drugs move from agriculture to labsOver the ’70s, cartels garnered control over swathes of rural territories, like the Golden Triangle — one of Mexico’s most infamous smuggling routes.A mountainous area comprising Sinaloa, Durango and Chihuahua, it became infamous for housing cartel leaders like Joaquin ‘El Chapo’ Guzman (extradited to the United States in 2017). However, this agriculture-based model forced the cartels to incur a massive transactional cost, by requiring a labour force of thousands and constant exposure to state satellite surveillance.Also Read | Mexico sends thousands of soldiers to stop violence after cartel leader’s deathA notable shift occurred was driven by the Gulf Cartel, one of Mexico’s oldest organised criminal organisations. In the 90s, their enforcers, known as Los Zetas, were composed of deserters from the Mexican military’s elite airborne special force. Los Zetas fundamentally altered the rules of engagement and normalised squad infantry tactics, grenades, and the psychological terror of public displays of violence.Story continues below this adHowever, they lacked a sustainable macroeconomic engine. This prompted a shift from agricultural to synthetic drugs.As detailed by the US Drug Enforcement Administration (DEA) in 2024, synthetics like fentanyl (and meth) were manufactured in controlled laboratories, allowing cartels to circumvent the traditional overhead costs. Data from the United Nations Office on Drugs and Crime perfectly depicts this dip in drug-related agricultural activity: Mexican opium poppy cultivation capped at a peak of 30,600 hectares in 2016-17, fell to 28,000 hectares in 2017-18, and dropped to just 21,500 hectares by 2018-19 as cartels abandoned the fields for the lab. Estimated poppy cultivation areas by study period (source: UNODC)The potency of lab-made drugs and their lowered production costs marked the advent of a profit multiplier for the cartels. The think tank RAND corporation estimated that while wholesale heroin costs $50,000 per kilogram, nearly pure fentanyl is synthesised for $5,000. Being 50 times more potent, this transition reduces opioid production costs by 99% per dose. This marked the cartels’ transition towards a multinational logistics model.Requiring large quantities of legitimate precursor chemicals (like propionyl chloride, utilised in perfumes and pesticides) to sustain production, cartels directly tapped into the global supply chain. As mapped by the Brookings Institution, this geographic shift saw cartels procure barrels of precursors directly from large Asian pharmaceutical hubs, such as China.Story continues below this adWeaponising the lack of regulation at commercial entries, ports like Manzanillo in western Mexico were utilised through shell companies to camouflage their chemicals in the almost 4 million shipping containers (TEUs) that the port processes annually.The international organisation Financial Action Task Force (FATF) has noted how billions of dollars in illicit profits were laundered back with this liquid capital. This, in turn, provided the budget required to take the Los Zetas paramilitary blueprint and finally industrialise it into a standing shadow army.Cartels diversify, look to avocados and petroleumLeveraging these varied resources allowed cartel militias to elevate themselves above municipal and state police. This was especially prevalent in the west-central Mexican states of Michoacan and Jalisco.Most visible in the agricultural sector, cartels systematically wormed themselves into global food chains, especially by extorting the local lime and avocado industries. With the southern region of Tierra Caliente serving as the trade epicentre, the Michoacan avocado trade was estimated at roughly $2.9 billion. In February, Corporate Compliance estimated that around $770 million of the 2.9 billion is rerouted back to the cartels through forced taxation. Cartels levy strict per-hectare protection fees plus per-kg transit taxes, according to supply-chain risk firms like Earthsight.Story continues below this adThe energy sector was also not exempt. Historically, the illicit petroleum trade or huachicoleo, physically tapped state oil pipelines. Embracing their widening role as commodity traders, cartels weaponised Mexico’s IEPS (Impuesto Especial sobre Producción y Servicios) — a variable federal fuel tax.Meant to earn the state profit by keeping domestic retail prices steady in the face of international price drops, cartels exploited this system through cross-border arbitrage. Having purchased cheap fuel in the US, it was smuggled back into Mexico, usually through mislabelling it as tax-exempt lubricants.Consequently, by selling it at the IEPS price, cartels pocketed the federal tax margin as profit. The Financial Times reported that this smuggling now accounts for up to 27% of Mexico’s entire annual fuel consumption, creating a black market energy sector valued at up to $21 billion a year.This also affected how the state cracked down on cartels. As their internal hierarchies and protocols began mirroring corporate structures, the assassination of the top decision-maker no longer guaranteed victories, as has been observed in the case of the Cali and Medellin cartels of Colombia.Evolving challenge for governmentsStory continues below this adThe “Kingpin strategy” developed by the DEA entails the tactical assassination/arrest of top cartel leadership. Proven successful during the dismantling of the Colombian cartels, it has been unable to produce the same results in the Mexican landscape.Resulting in what was labelled the “Hydra effect” by the Institute of Strategic Risk Management, data from the Centro de Investigación y Docencia Económicas (CIDE) and the International Crisis Group illustrate cartel fragmentation observed in this effect.In 2006, the official launch of the strategy happened in a landscape dominated by six relatively stable cartels. Today, the Mexican landscape has 200-250 smaller groups competing after a plethora of operations that targeted top leaders. Crucially, these 250 splinter groups do not revert to street-level gangs, instead retaining the corporate blueprint and franchise model established in the 2010s.Directly correlating to explosive civilian violence, the capture of a leader sees spikes in localised violence, as lieutenants fight to fill the power vacuum. This was witnessed in 2018 after the extradition of El Chapo.Story continues below this adConversely, should a splinter cell group lose access to Asian chemical ports, the commander hikes the local protection tax or cobros de piso while expanding agricultural extortion to fund their newly independent turf wars, which yet again, destabilises the average civilian’s life.In line with this pattern, the elimination of El Mencho again poses a strategic challenge. Despite the death of the leader, the underlying architecture of the shadow state seems to be entirely intact, armed, with decapitation posing new problems in establishing normalcy.