811.20 (D) Regulations/5453: Telegram
The Secretary of State to the Ambassador in Spain (Weddell)10
32. Department’s 18 of January 8, 7 p.m. The following is for your confidential information and guidance in discussion of the telegram under reference with the Spanish Government.
(1) The Department has been primarily influenced in making this proposal by the strong insistence of the British Government that some supply of petroleum and other products for Spain were necessary in order to keep the Spanish economic system operating sufficiently for the British to get out products which they badly needed and by the desire to obtain for this country the strategic materials mentioned in our telegram. It does not regard the effect of the proposals, if any, upon the general policy of the Spanish Government as a major factor, and will therefore base its decisions regarding the movement of supplies to Spain on whether it can obtain from Spain a tangible and valuable quid pro quo.
The Department has insisted to the British that, since the petroleum products must come from this country or from sources and companies [Page 255] to which we look for supplies for the war effort, the final determination of quantities must be made in consultation here and prior to the issuance of navicerts. We have consistently believed that the amounts which might be sent are much lower than those recommended by the British. The demands now being made both upon our supplies and those of other American fields for the conduct of the war and the needs of this hemisphere, which must be met first, will restrict the discussion to minimum demands.
The Department is also concerned over the reported accumulation of military stocks of gasoline in Spanish Morocco, said to be upwards of 15,000 tons. One object of the discussions should be the reduction of these stocks. A plan which permitted the retention or increase of these stocks while petroleum was supplied from this side could not be supported. Your views are desired on the method of proposing and achieving the reduction of these stocks.
The figures now available to us from GAMPSA via Brewster confirm our calculation that Spain, including Tenerife and three cargoes recently released from Venezuela, has sufficient stocks, except possibly lubricants, to last until the middle or end of February with careful use. Our present inclination would be to release a cargo of crude oil from Venezuela in the latter part of January and two further cargoes in the first half of February provided ways and means have been found to effectuate by that time substantial shipments of items desired by us and to make available difficult items along the lines suggested below.
Turning to the form and substance of the general agreement, it appears to the Department that there are three possible methods which might be adopted to obtain for the United States the Spanish materials which it desires. The first method would be to specify definite quantities of the materials which the United States desires and the prices the Federal Loan Agency is willing to pay for these products over some fixed period such as 1 year. The quantities would be in excess of those now being delivered to the United States. The purpose would be to establish the quantities at figures which would substantially cut down the quantities of these materials now being delivered to Axis or Axis occupied countries. The prices would be at almost the present market for such products in the United States, less insurance and freight; although possibly this level might be raised slightly. The commitment of the Spanish, Government to cause these materials to be sold in the specified quantities and at these prices would be an integral part of the agreement and the delivery of oil in accordance with the Department’s No. 18 would be contingent upon such deliveries. The Department is aware of the difficulties of this method from the point of view of the Spanish Government, especially since the receipt by the Department of your [Page 256] valuable report No. 1337 of December 17.11 The Department, nevertheless, hopes that this method may prove to be possible in view of the difficulties which surround the second and third methods discussed below.
The second method would recognize the fact that certain of the strategic Spanish materials are the subject of great interest by Germany and in some instances, as in the case of certain wolfram mines, are owned by German nationals. Accordingly, it is recognized that it might be difficult for the Spanish Government, in the face of German opposition, to agree with the United States directly to cause these products to be sold to it. The second method would therefore (a) require a commitment by the Spanish Government that it would eliminate all obstacles in the way of the exportation of materials to the United States, and would take such affirmative action as might be necessary to facilitate the free flow of these strategic materials to the United States, and (b) would provide for the establishment of a buying-selling organization along the lines suggested in your despatch no. 1337, which organization would compete in the open market for the acquisition of the various Spanish materials desired by the United States. The difficulty with this method is that no such organization now exists in this Government, and that it would take some time to reach the necessary agreement in Washington for the creation of such an organization. It is for this reason hoped that the first method suggested will prove to be acceptable.
The third method would be to establish a barter system whereby specified American materials, the principal one being oil, would be delivered to the Spanish Government in exchange for specified quantities of the various Spanish materials desired by the United States. This method would have the advantage over method no. one of avoiding unfavorable comparisons between prices which we might be able to offer now for some of these products and the abnormal “intra-blockade” prices prevailing for them; this third method would be based on comparatively normal price relationships of United States and Spanish products, which appear reasonable. This third method is, however, subject to the disadvantages of method no one and in addition would require a complex organization in the United States for which there is no precedent and which would be difficult to establish.
In view of the foregoing you are requested to telegraph to the Department any comment you may wish to present as to the course which you should follow in your presentation to the Spanish Government of the note referred to in the Department’s 18.12 The Department repeats that the first method is by far the most practicable [Page 257] one from the point of view of this Government, and that either of the other methods would be extremely difficult to work out here and should be recommended only if you believe the first method is practically impossible or politically undesirable.
Pending determination of the method to be used it may be that the most practical step to take immediately would be to reach agreement with the Spanish Government whereby in return for making possible the movement of the three cargoes of crude oil referred to above the Spanish Government would definitely arrange to sell to the Metals Reserve Company a quantity of tungsten equivalent to, say, 2 months’ production, at a price roughly equivalent to the “extra blockade” price prevailing here, or, alternatively, half that quantity of tungsten plus a specified quantity of cork to be agreed upon.