Foreign Relations of the United States Diplomatic Papers, 1941, The Far East, Volume IV

894.6363/378

Memorandum by the Adviser on Political Relations (Hornbeck)⁸

[Washington,] January 11, 1941.

The problem of regulating, curtailing or prohibiting exports of petroleum products to countries of the Far East, especially Japan, is one that involves weighing of many factors and requires great delicacy in handling.

Any procedure which involves a cutting down of exports, as regards any commodity, is a procedure which has adverse effects in both directions: it makes difficulties for the country which is deprived of the commodity and it disturbs the economy of the country which applies the embargo.

In relation to procedures which affect the petroleum industry and trade in petroleum, this Government has been moving very circumspectly. We know that to the Japanese petroleum is an essential import. We know that to this country petroleum is an important export. We know that there are available to Japan many sources of petroleum other than this country. We know that Japan aspires to the acquisition of a controlling interest in the economic and the political life of certain regions in the Far East in which there lie substantial sources of petroleum. We know also that there are various other regions in the world in which the authorities and from which the producers are by no means adverse to supplying Japan with petroleum products.

We are opposed to Japan’s general program of subjugating neighboring countries by force and establishing Japanese political control over unlimited areas both on land and at sea. We have been opposing Japan’s efforts in pursuit of those objectives by various measures on our part short of war. Also, we are now engaged in a gigantic effort of our own in pursuit of our defense program, and we are conserving, by measures which we believe reasonable, this country’s resources.

Thus far, we have interfered with the petroleum trade only to the extent of prohibiting export of “aviation gasoline”, that commodity being described by the formula which is popularly described as “87 octane”. At the time when this restriction was imposed last summer,⁹ the Japanese were in process of making contracts for delivery to them at an early date of a huge and altogether extraordinary amount of high-octane gasoline. The imposition of that restriction at that moment prevented the consummation of that Japanese effort. Since then, the Japanese have purchased extraordinary amounts of gasoline approximating but just under the “87 octane” specification. It has been pointed out to us from many sources that the restriction which now exists is not preventing Japan from accumulating huge reserves of aviation gasoline; and it has been urged upon us from many sources, including large exporters of petroleum products, that the restriction upon exports of gasoline be considerably broadened by reducing the “87 octane” to a considerably lower figure.

There was for some time a very important political reason for not taking any new action regarding exports of petroleum products. The Japanese had made a demand on the Netherlands East Indies for contracts which would provide for the procuring by Japan from the Netherlands East Indies of petroleum products to the amount of 3,150,000 tons per annum for five years. Japan was in position to bring pressure, including military pressure, upon the Netherlands Indies authorities. It was considered that pressures, if brought to bear upon Japan by processes of interference with exports to Japan from other countries of petroleum products, would tend to cause the Japanese to increase their pressure upon the Netherlands East Indies. In their negotiations, the companies which produce in and sell from the Netherlands East Indies succeeded in producing an agreement whereby, instead of 3,150,000 tons per annum for five years, they are committed to selling to Japan 1,800,000 tons per annum, much of this on a six-months’ basis and some of it on a twelve-months’ basis. It is the belief of officers of this Department who have most intensively observed and studied the situation and developments in the Pacific and in United States-Japanese relations, both political and commercial, that the interests of the United States and of American oil companies producing in and selling from the United States are in a better position today than they would be had not the contracts which were made at Batavia been made. [Note: The United States Government as such, although there came to it a substantial amount of information regarding the negotiations at Batavia, had nothing whatever to do with those negotiations; and at no stage did it express approval or disapproval, nor did it in any way interpose.]¹⁰

There were during 1940 extraordinarily large exports from this country to Japan of petroleum products, especially of gasoline just under “87 octane”. The Government views this development with regret. During recent months an increasing proportion of the exports has been going forward in metal drums. By this process Japan is acquiring large stocks for which she does not have to provide bulk storage facilities and which she can with maximum of convenience move to points where she is conducting military operations or at which she is establishing bases for possible new operations. The American Government cannot but view this development with regret and with misgivings.

The Japanese are today continuing in their effort to conquer China; they are establishing bases in Indochina; they are engaged in agitation in Thailand and are supplying that country with munitions of war; they are known to be contemplating new movements of aggression southward—into and against the Netherlands East Indies and the general area of which Singapore is a strategic center; they are in various ways rendering certain types of assistance to their Axis partners; they are suspected of supplying and harboring German raiders in the Pacific; and they are constantly making threats, of a contingent character, that they may make war upon the United States.

It is estimated that the Japanese have stored up reserve supplies of petroleum products sufficient to meet their needs for a period of from nine months to a year; also, that the amount of their reserves is being increased rather than decreased.—It is easily conceivable, world conditions being what they are, Japanese psychology and Japanese policy being what they are, and American policy and psychology being what they are, that a time may come in the not distant future when Japan and the United States will be “at war”. In such event, petroleum products which have been imported by Japan from the United States will of course be used by the Japanese for operations of the Japanese navy and the Japanese air force against the naval and air forces of the United States.

The American Government has not thus far seen fit to impose embargoes, except as above recorded, upon export of petroleum products from this country to Japan. It has, however, indicated to the petroleum trade that it does not look with favor on unlimited or excessive supplying to Japan of petroleum products. It has hoped that the petroleum industry would exercise self-restraint and discreet self-denial in regard to this trade. It is believed that American petroleum companies could cut down very substantially upon their exports of petroleum products, especially of gasoline, to Japan, without substantial financial losses to themselves and without giving the Japanese tangible grounds on which to base complaints.

(Note: It might be suggested to the present and future inquirers that two procedures in particular might helpfully be adopted:

(1) They might refrain from supplying tankers;

(2) They might discontinue supplying of metal containers—including storage tanks, drums, metal hoops, et cetera.)

8. Prepared at the request of the Secretary of State and sent to him on January 14.
9. See proclamation and regulations of July 26, 1940, Foreign Relations, Japan, 1931–1941, vol. ii, pp. 216 and 217.
10. Brackets appear in the original.