852.6363/37
The Ambassador in Spain (Hammond) to the Secretary of State
[Received July 11.]
Sir: I have the honor to refer to the Embassy’s telegrams No. 54 of June 10th, 5 p.m., and No. 61 of June 22nd, 12 noon,3 in reference to the probability of the establishment of a monopoly of petroleum products in Spain, and I am now transmitting herewith the Spanish original, and the Embassy’s translation thereof, of a Government communiqué given to the press and published in El Sol of June 23, 1927,4 from which it would appear certain that a definite Decree is to be issued in the near future.
The probability of an oil monopoly has been referred to in several of the Embassy’s weekly reports during the last two months. (See [Page 656] page 4, despatch No. 357 of May 16, 1927, and page 7 of despatch No. 393 of June 13, 1927.)5
From the above, and from a number of other indications, it now seems that the economic policy of the Spanish Government tends toward a state of affairs which may well be called Spanish business entirely for Spaniards. This tendency has often been referred to in recent weekly reports, and day by day it seems to become stronger. The Royal Decree of several months ago which provided for the nationalization of the automobile industry, the recent Decree granting greater facilities and advantages! to foreign companies which might incorporate in Spain (and incidentally sell a majority of their shares to Spaniards), and the Decree about to be issued for the establishment of an oil monopoly referred to in the first paragraph of this despatch, all show the restrictive and hostile attitude of the existing Spanish Government to the investment of foreign capital in Spain unless it be placed in enterprises directed by Spaniards.
A number of far-sighted business men deplore this policy as they believe that the economic development of Spain will be greatly hindered thereby, but they seem to be powerless when confronted by the plans of the Government clique which naturally sees great profit coming to its members through getting Spanish industry entirely under the control of a number of intriguing members of the Council of National Economy.
Apparently General Primo de Rivera has been converted to the school of Spanish industry for Spaniards, and this is not surprising as Primo is primarily a soldier and from all indications has no background of sound economic education or knowledge to enable him to formulate a constructive and practical policy for the Spanish economic system. He is, therefore, guided by a number of far from disinterested advisers who hope to profit by the strangulation of foreign enterprise and who are clever enough to mask their real aims by an appeal to the pride of the Spanish people, the latter being constantly told that the Government is patriotically struggling to rid Spain of the dominance of foreign capital.
Naturally the Government is only too anxious to strengthen its hold on the country and its popularity in every way, and, when it is possible both to conciliate the majority of its supporters in the industrial and financial worlds and at the same time to make an appeal to the people which seems both plausible and reasonable, it is not difficult to foresee that the existing policy will be maintained at least until a crisis is brought about and the inability of Spanish industry to provide the country with either cheap or large enough production is thus clearly brought out.
[Page 657]A number of well qualified observers believe that the present Government, if it carries its above referred to economic policy to a logical conclusion, will bring about a first-rate industrial and financial crisis in Spain, in the not very distant future. At the moment, however, the nationalization program holds the field, and it seems difficult if not impossible to secure a change of policy until actual results show that it is ineffective.
In regard to the proposed oil monopoly, concerning which a Royal Decree is to be expected very shortly, it is not yet possible to obtain information as to the exact form which the monopoly will take. From the best information available, however, it appears not improbable that the Spanish Government will endeavor to find, and possibly has already found, some interest to which the oil monopoly will be farmed out. At one moment the Embassy had reason to believe that the Shell Petroleum interests, working with Spanish capitalists, were endeavoring to come to terms and it would appear that the Shell Company is well able to do this because not only has it sufficient capital but it is already an owner of the majority of the stock of two Spanish companies which might well form the basis of the monopoly (Sociedad Petrolifera Española and Sociedad de Comercio Exterior). The Spanish press states that the Banco Urquijo controls the two companies above mentioned, but the Embassy is informed that the actual holdings amount to some 52% by the Shell interests and the balance is divided among the powerful financial group represented by the Urquijo Bank. Apparently the idea is that these companies might nominally be turned over to Spanish shareholders but that the Shell would at the same time secure a profitable contract to supply the crude, material. There has been some rumor to the effect that the Spanish Porto Pi, an organization which is buying oil from Soviet Russia under contract and which is reported to be in bad financial condition, is to be included in the Spanish monopoly company which is to be formed.
The Embassy has, however, just received somewhat contradictory information from Mr. Brewster, the resident director of the Standard Oil Company (New Jersey) in Madrid, who has this morning returned from Paris where he and several of the high officials of the Standard Oil Company had a conference with the Shell interests. Mr. Brewster informs the Embassy that tentative discussions have taken place in regard to the participation of both the Shell and the Standard Oil Company in the proposed petroleum monopoly but as yet nothing has been definitely arranged. Another conference is, however, to take place in London this afternoon and he believes that in the immediate future some decision will be reached. In this connection the Department is referred to the Embassy’s despatch No. [Page 658] 404 of June 21, 1927,8 which sets forth the difficulties of the Babel and Nervion Company, a subsidiary of the Standard Oil Company (New Jersey), having to do with an interpretation of the Spanish tariff which seems to discriminate unjustly against that company.
Nothing has yet developed in regard to the method to be followed to buy out foreign and Spanish interests by the monopoly company, and so far the Government secret has been well kept. The prevailing idea is that, in view of the profitable nature of the proposed monopoly both from the point of view of the Government and its backers in the business world, a fair price will be paid for all interests in order to stifle any possible outcry.
In view of the magnitude of the American interests involved in the petroleum industry in Spain and the probable injury to their business as the result of an oil monopoly, I have today asked General Primo de Rivera to give me an interview at his convenience, and I will discuss the matter with him in the light of the Department’s telegraphic instruction No. 48 of June 16th, 11 a.m.8 The American interests which might be affected are, I believe, as follows:
- (1)
- The two Standard Oil Company (New Jersey) subsidiaries, Babel & Nervion (refining), and Sociedad Española de Compras y Fletamentos;
- (2)
- The Vacuum Oil Company, which does a business of some 12,000,000 pesetas a year but unlike the above two companies has no important vested interests in Spain other than its business good-will, which is considerable;
- (3)
- The Atlantic Refining Company;—I am as yet unable to find out just what this company’s investment amounts to but I understand it is important. I am informed that the total importation of petroleum and its products into Spain for 1926 amounted to over 100,000,000 pesetas and that more than half of the quantity imported came from American sources.
As set forth briefly in Mr. White’s despatch No. 264 of January 20, 1927,8 there will probably be a deficit of some 60,000,000 pesetas in the actual budget for the present year, but no provision has been made for the so-called extraordinary budget for public works, etc., which amounts to some 300,000,000 pesetas yearly. In view of this state of affairs it is not surprising that the Government is looking for additional sources of revenue, and a monopoly of petroleum and allied substances would seem to be a heaven-sent opportunity for the Government to obtain money notwithstanding the tremendous amount of technical difficulty involved in the establishment of a monopoly.
The Department will note from the enclosed statement8 that the Government endeavors to propitiate public opinion by stating that [Page 659] the proposed monopoly will both increase the public revenues and will at the same time reduce the price of the commodity to the consumer. Just how these two most desirable and apparently conflicting ends are to be reached is not as yet clear, but any criticism of the scheme has been eliminated by the censor and in public the Government statement remains undisputed. One of the French directors of the Industrial Babel y Nervion, referred to above, informs the Embassy that from what he has heard the price of the petroleum products under the new monopoly will be substantially raised to the public, but he is also informed that the Government will announce that this rise in price will be only a temporary phase of the working of the monopoly, which will ultimately give the Spanish people the benefit of a great and economically run national organization.
The Commercial Attaché has been going into this matter at considerable length, and the results of his inquiries to date are embodied in an extremely confidential despatch which is being forwarded by him to the Department of Commerce today. Copies of this despatch are transmitted herewith,9 from which the Department will note that although the Commercial Attaché has seen the tentative draft of the proposed Decree he is unable to get from a hasty reading any very exact details. He does not know, moreover, whether this draft will be definitely accepted. He informs me, however, that the proposal is, roughly, to farm out the monopoly as set forth in the first part of this despatch, and apparently the Spanish Government desires to pit one interest against another in order to extract the best terms possible, it being well understood that the consumer will pay the bill. From all indications the Government does not intend to use the already overburdened public credit in aid of its latest experiment in the field of high petroleum finance.
Reference to the restrictive policy of the Spanish Government in regard to foreign enterprises, which is well illustrated by the projected oil monopoly, has been made in several of my confidential letters to the Secretary of State, and notably in my last confidential despatch, No. 406 of June 22, 1927.9
I have [etc.]