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The military operation that killed the leader of the Jalisco New Generation Cartel on February 22 has unleashed retaliatory violence across western Mexico, disrupting freight routes, grounding flights, and injecting a fresh source of volatility into a peso that had been riding its strongest rally in two years.
A Kingpin Falls, a Country Braces
Mexican special forces, acting on intelligence shared by the US Joint Interagency Task Force–Counter Cartel, mortally wounded Nemesio Oseguera Cervantes — known as El Mencho — during a raid on a rural compound in Tapalpa, Jalisco. He died while being airlifted to Mexico City. Within hours, CJNG operatives launched coordinated reprisals: highway blockades, torched buses and stores, and direct attacks on security forces that left twenty-five National Guard members dead across six separate incidents in Jalisco alone. President Claudia Sheinbaum declared order restored by Monday morning, but the damage to investor sentiment was already spreading.
The peso, which had strengthened past 17.11 against the dollar in mid-February — its best level since mid-2024 — gave back gains almost immediately. By Tuesday morning, USD/MXN was trading around 17.28, a modest retreat in percentage terms but a telling one given the currency’s momentum. The pair had dropped roughly 17% since January 2025, powered by structural dollar weakness, a favourable carry differential of 325 basis points over the Fed funds rate, and a US Supreme Court ruling that struck down Trump’s broad emergency tariffs. That tailwind now faces a counter-current: the prospect that prolonged cartel instability could trigger capital outflows and force Banxico into a more cautious posture on its easing cycle.
Supply Chains and Tourism Under Pressure
For traders focused on the real economy, the logistics disruption matters more than the headline violence. The Port of Manzanillo, Mexico’s busiest container terminal, reported interrupted freight movement on Monday. Trucking capacity across western Mexico tightened sharply as carriers refused to send drivers into areas with active blockades, and passenger airlines — which carry roughly half of Mexico’s air freight — cancelled flights to Puerto Vallarta and Guadalajara. Airport operator GAP confirmed that access routes to both airports were compromised by road blockades, stranding over a thousand visitors at the Guadalajara Zoo overnight.
Tourism, which accounts for approximately 10% of Mexico’s GDP, faces the most direct hit. AM Best warned on Monday that the violence could create headwinds for coastal resort areas on Mexico’s Pacific coast, particularly if cruise lines delay resuming visits. The US State Department activated a 24/7 crisis hotline on February 22, and foreign ministries from Australia to the United Kingdom issued travel alerts — the kind of coordinated advisory response that tends to suppress bookings for months, not days. With Mexico set to host 2026 FIFA World Cup matches in Guadalajara, the reputational stakes extend well beyond the current quarter.
The Succession Problem
What concerns analysts most is not the violence itself but what comes next. El Mencho ran an organisation the US State Department designated a foreign terrorist entity in February 2025, with operations spanning more than twenty Mexican states and generating billions in annual revenue from fentanyl, methamphetamine, and cocaine trafficking. His death without a clear, uncontested successor opens the door to precisely the kind of fragmentation that historically produces the worst economic outcomes.
Security analysts at Dyami Intelligence have identified two scenarios: either El Mencho’s stepson, Juan Carlos González Valencia, consolidates control, or the cartel splinters into competing factions — a pattern that precedent suggests would intensify turf wars with the rival Sinaloa cartel across central and northern Mexico. InSight Crime notes that the two organisations already contest trafficking routes in several states. A full succession crisis could escalate extortion of businesses, disrupt manufacturing hubs in Jalisco and Michoacán that are critical to Latin America’s nearshoring story, and spill across borders into Colombia, where FARC dissidents have long supplied the CJNG.
The Peso’s Balancing Act
For currency traders, the setup is uncomfortable. Mexico’s macro fundamentals remain supportive: Banxico’s benchmark rate sits at 7.00% after 300 basis points of cuts through 2025, still offering an attractive carry over US yields. A revised Q4 GDP print showed strong 0.9% expansion in industrial and service sectors. And the peso’s 2025 rally was driven by forces — dollar weakness, favourable rate differentials, carry inflows — that have not disappeared.
But the technicals are flashing caution. OANDA’s analysis of the USD/MXN weekly chart identifies a potential bullish divergence on the RSI, with a key range between 17.10 and 17.30 now serving as the battleground for directional bets. A sustained break above 17.30 would point toward a retest of the February highs near 17.56; a further push through 17.90–18.00 would signal a reversal of the downtrend. Meanwhile, the White House has imposed a new 15% global tariff under Section 122, reintroducing trade headwinds that the Supreme Court ruling had briefly removed — a reminder that Mexico’s peso must navigate Washington’s tariff unpredictability alongside Jalisco’s cartel warfare.
The killing of El Mencho was a tactical success. Whether it becomes a strategic one — or the opening chapter of a prolonged destabilisation — will determine whether the peso’s rally survives into the second quarter.
Sources: NBC News, Insurance Journal / AM Best, OANDA MarketPulse, CNN
