852.6363/87

The Ambassador in Spain (Hammond) to the Secretary of State

No. 623

Sir: I have the honor to refer to my telegram No. 115 of November 14th, 5 p.m., in which I gave a brief summary of my interview with General Primo de Rivera in regard to obtaining adequate compensation for the interests of American companies engaged in the [Page 688] petroleum business in Spain which may be affected by the Government Petroleum Monopoly.

I started the interview by handing General Primo de Rivera a brief memorandum, a copy of which is transmitted herewith. Mr. Grummon, who accompanied me as interpreter, translated the substance of the memorandum to General Primo de Rivera who at once assured me that American interests would receive fair compensation, and that they would, as a matter of course, receive at least as fair treatment as the interests of any other country. He stressed the point that he always wished to do everything possible to favor American interests, and conveyed the impression that he considered he had done more for American interests in the past than he had done for other countries. He said that I might assure my Government that American interests affected by the Petroleum Monopoly would receive fair treatment and that he would confirm this statement by a formal answer to my memorandum. (He did not in any way commit himself to giving any details of just what this would mean in practice.)

I hoped that after delivery of the note General Primo de Rivera would open a general discussion of the Petroleum Monopoly in order that, if possible, I might put before him a brief outline of the attitude of the American interests affected. General Primo de Rivera remarked that one American company (this is doubtless the American Republics Corporation referred to in the Department’s telegram No. 88 of November 10th, 4 p.m.20) had already completed a contract for supplying a certain quantity of petroleum to the oil Monopoly and that certain arrangements had also been made with Roumanian interests. By his reference to an American company he evidently intended to give me the impression that all American interests were not opposed to the Monopoly, that the plans for the Monopoly were going well, and that supplies were assured, although his attitude is difficult to reconcile with the representations which the Spanish Ambassador recently made to the Department in regard to the refusal of the Standard and Shell interests to supply the Monopoly with petroleum. From different sources I also learn that the Monopoly is encountering difficulty here in obtaining supplies in the immediate future, and I can only presume that the interested Monopoly officials may be concealing the real situation from the President of the Council.

I was of course very desirous of obtaining a more accurate indication of what General Primo de Rivera’s real views on the oil Monopoly were, and as the occasion seemed opportune I said that I should like to make certain friendly personal observations which I [Page 689] hoped he would accept in the spirit intended. He very cordially replied that he was always interested in obtaining different points of view. I then said that while Americans did not like the word “monopoly”, both National and State governments were all interested in obtaining revenue without heavy cost of collection, and that in certain States of the Union the oil companies collected for the State governments a gasoline tax which was used for the up-keep of roads. Such a tax if levied in Spain and collected by the companies, say at 3 U. S. cents a gallon, would, I have been informed, yield a revenue of some 14,000,000 pesetas annually in addition to the present revenue.

General Primo de Rivera replied by saying that the Monopoly would give him more revenue than this. He said that the state was now getting some 30,000,000 pesetas, that he expected to get 60,000,000 annually from the Monopoly, and that this would increase by probably 20,000,000 pesetas a year. His remarks as here quoted seemed to me to show that he is entirely unfamiliar with the real facts, and that he is being greatly misled by scheming subordinates, as the Spanish Government obtained about 40,000,000 pesetas from petroleum taxes last year and present collections show an advance of about 10%. As far as the obtaining of any additional revenue (which he refers to under the Monopoly plan) is concerned, I believe this would be a physical impossibility unless the price of all petroleum products is substantially raised. Both General Primo de Rivera and other Spanish officials seem to believe that there is a large fund of profits in the distributing business which can be taken by the State, but I am assured that these profits have never been very large and that at the present time, granting the low price of petroleum, most of the companies are not obtaining any adequate return on their investment.

I finally observed that, in view of all the information I have been able to obtain, the future world production of petroleum is likely to be more limited, and that if world prices tended to rise the Monopoly might find it difficult to acquire the necessary supplies in view of the fact that production is very largely controlled by a few great interests. Primo countered this by reiterating that the necessary contracts had already been made with American and Roumanian interests, (he apparently ignores whether those interests are thoroughly reliable) and that he believed that the supplies of the Monopoly were assured for a number of years. The interview then ended, Primo stating very cordially that he was always glad to have my point of view and that in future some of the ideas which I had put before him might be useful.

As stated in my above-mentioned telegram, the interview left me with the impression that General Primo de Rivera intends to operate [Page 690] the Monopoly, if it is possible to do so, notwithstanding the many and powerful interests which are trying to dissuade him from this policy. Apparently the question is now one of national pride, and unless some way at present unforeseen can be found to allow the Government to save its face he is unwilling to confess any failure in the Government’s plans. Incidentally, such a confession would of course be very damaging to the prestige of the Directorate.

I now wish to give the Department a brief sketch of the general situation as it exists here today, as I believe this may possibly be useful in formulating a future policy.

Notwithstanding the very great pressure which has been brought to bear both from Spanish and foreign sources, the Government seems unwilling to make any fundamental change in its plans and in spite of rumors of wavering now seems determined to make the Monopoly effective. Some of the guiding reasons behind the Government’s determination have been referred to in past despatches on this subject, and restated briefly are as follows: Hopes of increased revenue without increase of direct taxation; flattery of national pride by showing that the Spanish Government is able to brave the great oil interests, and is making Spain independent of foreign domination; the very natural hope of profit for those who have been instrumental in making the Monopoly effective; and the hope that the appointment of a vast number of new State officials provided for by the Monopoly will give Government supporters profits and thereby increase the hold which the Directorate has on the country.

In regard to the third reason above cited, I understand that Monopoly shares are now being sold by the bankers syndicate underwriting the Monopoly capital on a “when issued” basis at from 15% to 30% premium. The word is apparently being passed around that the Monopoly is a good thing, but acute observers believe that the bankers are taking the very first opportunity to unload on the public.

In regard to the last mentioned point, I have been informed that seventy-two regional directors, all prominent members of the Unión Patriotica, have already been appointed and that each Cabinet Minister is to have a certain part of Spain to use as a field for political patronage. From the point of view of securing any change in’ the Government’s plans, this phase of the matter is very important as the Government naturally does not wish to take any position which would deprive it of supporters.

The obtaining of supplies for the Monopoly is apparently a question of considerable difficulty from the point of view of the Government, as it has already antagonized the great interests able to supply the Monopoly, and has necessarily had to bargain with many small and less important producers. There seems to be some bitterness on [Page 691] the part of Spanish officials toward the Shell and Standard Oil interests, owing to the fact that these companies have at last categorically refused to treat with the Monopoly as such. The representatives of these companies have, however, time and again been refused access either to Primo or other high officials, when they wished to give expression to their views. They quite naturally feel, therefore, that they have not had fair treatment.

The companies have let it be known that they wish to do everything possible to meet the Spanish Government fairly, but that they have only been dealt with by receiving indirect messages from high quarters to the effect that the Government would like them to maintain adequate supplies of petroleum in Spain. They have never, however, received any assurance that they will receive fair treatment in regard to claims for property which may be seized and, moreover, the Spanish Government has never given any indication that it will be willing to pay a fair price for supplies of petroleum brought in.

Indirectly, these companies have conveyed to the Spanish Government the information that they are ready and willing to do everything possible, both in regard to adequate supplies of petroleum products in the future, and in regard to aiding the Spanish Government to secure increased revenues from petroleum.

The interests involved are, of course, opposed to the principle of government monopoly and, failing definite assurance in regard to the future, they do not feel that they should give any aid to government plans which have as an end the destruction of their enterprises which have been built up by long and patient effort. Under the circumstances I understand they have refused to bring in further supplies and they hope to force the Government’s hand by leaving the country dry of gasoline toward January 1st, when, nominally, the Monopoly must be made effective. A recent Decree prescribes that the bankers’ concession to operate the Monopoly will be void should all the conditions laid down by the Government, including adequate supplies, be unfulfilled by January 1, 1928. Apparently the Shell and the Standard interests now hope that the bankers will be unable to comply with these conditions and that an opportunity may yet arise to allow them to treat on favorable terms with the Government.

At the moment the question of national pride seems to be one of the most important factors in the situation, as the Government naturally dreads any possibility of failure. On the other hand, it is quite natural that the companies involved wish to do everything possible to protect their own interests, and it is very hard to expect them to provide adequate supplies for a Monopoly which intends to destroy them.

[Page 692]

The general situation is, of course, becoming more tense from day to day, and both sides are doing everything possible to strengthen their position. The opposition of foreign governments does not yet seem to have had much influence on the plans for the Monopoly, and it would seem that the situation will very shortly be brought to a head by some positive action on the part of the Spanish Government. As I have already advised the Department by telegram, the British Ambassador has insisted that payment should be made in advance before any British property is taken over, but the Spanish Government has not yet answered his note. Yesterday the Shell Company was notified that the Monopoly wished to store a certain shipment of petroleum in one of the Shell depots. The Shell interests asked advice of the British Ambassador who tells me that he informed them that he could not give an opinion in regard to what action they should take. Apparently he based his somewhat negative attitude on the instructions of his Government, which only provided for the question of seizure and did not cover a request from the Monopoly for storage facilities. I am informed, however, from another source that the manager of the Shell Company has decided to refuse to comply with the Monopoly’s request.

The Department is, of course, familiar with the arguments which the various American interests involved have wished to put before the Spanish Government, and I have on repeated occasions been urged to endeavor to convey these arguments to the Spanish Government. I have, however, been unable to do this, owing to the fact that the Spanish national pride is involved, and even in a friendly and unofficial way it has been impossible to discuss the Monopoly with any Spanish official because it is quite obvious that they resent any outside interference. I have, nevertheless, endeavored very discreetly to give American interests involved a chance to have their views conveyed indirectly to appropriate quarters, and I have reason to believe that high officials of the various American oil interests involved well realize the somewhat delicate position of the Embassy, and feel that the Embassy has done everything possible under the circumstances to obtain a fair hearing for them.

I have [etc.]

Ogden H. Hammond

P. S. The attitude of the Shell and Standard Oil Companies, referred to on page 6 of this despatch, has naturally not been rendered more friendly by the appointment of a Government Inspector representing the Petroleum Monopoly in the office of each company. The duties of the Inspector are referred to in the Embassy’s despatch No. 622 written this morning. The companies feel very keenly that the entire policy of the Government toward them has been arbitrary and unfair in the highest degree. They feel that having built up great [Page 693] industries in Spain it was only just that the Government should have given them a fair hearing prior to taking a dictatorial decision which suddenly threatened their destruction.

[Enclosure]

The American Embassy to the Spanish Foreign Office

No. 379

Memorandum

The American Ambassador, under instructions from his Government, has the honor to inform the Spanish Government that the United States does not wish to bring into question the policy of His Majesty’s Government regarding the establishment of an oil monopoly in Spain. The American Government does, however, expect that the Spanish Government will grant to all American interests which may be affected full and fair compensation—by which is meant the fair value of the property taken over and such damages as may reasonably be considered to have resulted therefrom to their long established businesses.

The American Ambassador also wishes to assure his Government that American interests will receive no less favorable treatment than that accorded to the interests of any other country.

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