Foreign Relations of the United States: Diplomatic Papers, 1942, The American Republics, Volume VI

812.6363/7709a

The Secretary of State to the Ambassador in Mexico (Messersmith)

No. 1336

Washington, August 6, 1942.

Sir: Consideration of the Mexican oil situation by various departments and agencies of this Government has proceeded to a point at which it appears desirable that you have a general discussion of the subject with President Camacho both to acquaint him with the present situation here and to secure from him such views as he may wish to express in a preliminary way for the guidance of those here who are engaged in this work.⁵²

A certain amount of information on this subject may have been communicated to the President through Dr. Beteta who, with representatives of Petroleos Mexicanos, has been invited to participate closely in the work of committees and individuals involved in this problem here. To be certain, however, that the President has a clear understanding of the views of this Government at this stage in its considerations it is thought advisable that you informally acquaint him with the ideas and activities described herein.

In as much as certain aspects of the general problem require prompt attention it is hoped that you will report to the Department upon the outcome of your discussions with the President as soon as possible.

As background for the present views of this Government the following may be said:

First. While this Government is aware of Mexico’s urgent need for materials and equipment in order to establish and maintain an adequate supply of petroleum products for military and civilian activities, it is imperatively necessary in our joint interest that the limited supply of critical material in this hemisphere be used only in services which bear important and current relation to the war effort or to essentials of Mexican national economy. This fact requires that in appraising Mexico’s needs for such material account be taken not only of its importance in relation to Mexico’s general program for the development of its oil industry, but also the importance of time in connection with each unit in that program. It is emphasized that the considerations just mentioned have to do principally with priority of importance in relation to time, and are not aimed at appraising the soundness of Mexico’s long range program for the development of its pretroleum industry.

Second. From the long range point of view this Government recognizes that the interests of this nation in petroleum supply are closely and inherently linked with those of Mexico. This community of interest applies of course among all the nations of the Western Hemisphere. The various problems of reserves for future hemispheric defense and economic development, or of supplies of finished products for war emergencies or essential civilian occupations, or of transportation, or of export trade, cannot be solved unless regarded as matters of mutual international concern. From this viewpoint this Government has the deepest interest in Mexico’s problems and plans in respect of oil. While the war has intensified the appreciation of this mutual interest, and given special urgency to certain of its aspects, this Government regards the long range oil policy of Mexico as chiefly important because it is a basic element in Mexico’s national development and, consequently, in the development of this hemisphere.

Third. Various agencies of this Government have before them for action, and have had for some time several particular matters in connection with the Mexican oil industry on which final action has not yet been taken. Delay in dealing with these affairs has been due at least in part to a lack of information here as to the relative importance of various parts of the projects involved, the possibility of substituting different material or equipment to accomplish an equivalent result, and, in general, lack of information as to the overall program of oil industry development toward which the Mexican Government is working.

Fourth. The conclusion of the oil property appraisal entrusted by the two governments to the Cooke-Zevada mission⁵³ in conjunction with the recent Trade Agreement⁵⁴ and other current evidences of mutual understanding between the two nations, marks this as a singularly propitious moment in the history of the Mexican oil industry. It is the view of this Government, having in mind the part which it has played in bringing about the present opportunity for reorganization, that nothing, except the exigencies of war, should be permitted to interfere with the sound and orderly reestablishment of the oil industry in Mexico. Particularly it would regard it as unfortunate if, under the pressure which is inevitable in such critical times, the immediate policies and plans of the Mexican Government for the rehabilitation of its oil industry contained the seeds of trouble which ultimately might leave both Mexico and the hemisphere of which it is so significant a part without the advantages for which such great pains have been suffered. This Government has shown its readiness to assist in every appropriate way toward safeguarding against such an occurrence.

First. With the ideas indicated in the foregoing paragraphs in mind this Government has recently taken steps to bring to a focus the attention of the interested agencies of this Government upon the several Mexican oil matters which had hitherto been regarded more or less as detached problems. These matters include the following:

(a) Applications for export license and priority ratings for materials required for maintenance of present oil operations.

(b) Applications for export license and priority ratings for material and equipment for new plants and for expansion of present operations.

(c) Military considerations which have direct bearing upon the quantity, location and, particularly, the quality of petroleum products that might be required for war purposes.

(d) Efficient utilization of Mexican oil tankers.

(e) Various proposals by independent American promoters to participate in the development of the Mexican oil industry.

(f) Various problems related to the interests, former and present, of the major oil companies which operated in Mexico.

(g) Financial participation by this Government.

Second. In connection with these problems this Department has assigned certain duties, particularly the duty of coordinating the relevant activities of various government agencies and preparing recommendations for definitive action, upon the Foreign Petroleum Policy Committee. That Committee includes representatives of the following Government departments: Department of State, War Department, Navy Department, Office of Petroleum Coordinator for War, Board of Economic Warfare, War Production Board and Lend-Lease Administration. It is with representatives of this Committee, as well as with members of this Department, that Dr. Beteta and his colleagues have been invited to collaborate, as referred to earlier in this memorandum.

As an outcome of the work done to date by that Committee, and based upon such information as it has been able to secure, it has made a preliminary report with certain preliminary recommendations which can be summarized as follows:

(a) Maintenance materials are urgently needed for producing operations and refineries. Certain of these materials cannot be delayed without greatly aggravating present deterioration and inviting complete failure or disastrous accidents.

Steps have been taken, with the assistance of Petroleos Mexicanos representatives who are now here, to select the materials most urgently needed and to facilitate the issuance of priorities and export licenses covering those particular items.

(b) The petroleum transportation and distribution services within Mexico appear to be inadequately organized and suffer from lack of proper equipment. Particularly in case of war emergency, failure of these services might be serious. It is proposed that Colonel Hill, now engaged in making a general survey of railroads in Mexico, assist the petroleum mission on this problem, in so far as rail transportation is concerned. The technical mission will examine, with appropriate Mexican officials, other phases of the problem.

(c) Present refining processes and equipment are incapable of producing the quality of product which would be required by mechanized military forces.

These refineries should be examined critically to determine the best methods of supplementing, replacing or modifying equipment, and adjusting processes and operating procedure to secure optimum results. Particular emphasis should be given to the utilization of already fabricated equipment now available in the United States. (For example there are several small modern refineries here which have been operated very little or not at all, units of which might be transferred very quickly to Mexico.)

(d) There is a great wastage of rich gas at Poza Rica, which not only wastes the valuable products contained therein but, even more importantly, will lead to premature exhaustion of the Poza Rica field itself.

Determination should be made of a proper installation for recovering natural gasoline from this gas, and of the best utilization of this product. Prompt and competent consideration should be given also to returning part of the gas to the structure for re-pressuring the field.

(e) Attention should be given to the condition of the Tehuantepec railroad and to the terminal facilities at Salina Cruz and east coast ports. In an emergency these facilities might be needed for the transportation and storage of war essential oil supplies. (Colonel Hill would assist on this.)

(f) Means should be determined for increasing the supply and use of tetraethyl lead.

(g) Appraisal of other problems and plans, such as the proposals of certain American interests to carry out particular projects in Mexico, requires a fuller knowledge than the Committee now possesses concerning the accomplishment of essential work not covered by such proposals (and raises certain other questions which will be mentioned later). Approval by this Government, in so far as its approval is required or requested, should be deferred until certain questions can be answered.

Growing out of the foregoing considerations by the Committee there is the further recommendation that, if the proposal be agreeable to Mexican authorities, a small group of experts drawn from agencies of this Government be invited by Mexico to make a rapid field survey, jointly with Petroleos Mexicanos, of the installations and circumstances involved in the problems now under consideration. It is not suggested that certain urgently necessary action be deferred until such a survey has been completed. It is pointed out, however, that many questions which now stand in the way of prompt action would be cleared very quickly by following the course recommended. The Department concurs in this belief and suggests that you place appropriate emphasis on this proposal in your discussion with the President.

Third. In addition to the technical aspects of these problems which have been the subject of the Committee’s study thus far, there are other aspects concerning which the Department itself would like to know informally the view of President Camacho. Based upon technical considerations alone it is possible to formulate a sound and comprehensive program according to which orderly development of the Mexican oil industry might proceed, beginning with presently necessary repair work and, progressively, modifying and supplementing facilities to meet the domestic requirements, the war requirements and finally the full export possibilities of the industry. With at least the first steps in such a program this Government is prepared to assist as has been indicated. It is likewise willing to assist in all appropriate ways in the formulation of the comprehensive program itself. In the execution of such a plan, however, a point is soon reached at which it becomes desirable to know the policies and intentions of the Mexican Government concerning such matters as the conditions under which and the manner in which foreign interests will be requested or permitted to participate. Thus, for example, is it the intention of the Mexican Government to:

(a) Conduct all aspects of its oil industry, including exploration, development, manufacturing and marketing, both domestic and export, by means of a completely integrated oil company under direct control of the government;

(b) Permit individual private foreign interests to conduct certain activities on a profit-sharing basis, for example under some form of operating or management contract;

(c) Permit individual private foreign interests to conduct certain activities on a basis of fixed obligations to the Mexican Government; allowing opportunity for profits, in excess of fixed obligations, to accrue to the private company as inducement to undertake the risks inherent in certain activities of this industry, or

(d) Permit participation by a consortium of foreign interests operating as a single corporation in contractual relationship with the Mexican Government or with Petroleos Mexicanos.

In the event that the Mexican Government has in mind to permit the participation of private foreign interests, this Government would be interested to know the attitude of the Mexican Government towards such participation by American oil companies.

In your discussion with the President you should make it clear that inquiries such as the foregoing concerning Mexican oil policy do not reflect any desire on the part of this Government to interfere in any way with the freedom of the Mexican Government to determine its own oil policy. It is clear, however, that when this Government is called upon to consider questions involving financial or other substantial assistance, or involving hemispheric security both military and economic, or involving nationally important activities of its own citizens abroad, it must be in position to judge the long range consequences of its own actions. All these are questions which, in the present case, this Government neither desires nor expects to avoid.

The purpose in asking you to discuss this entire situation frankly and informally with the President is to prepare the way for prompt and effective cooperation between appropriate agencies and individuals of both Governments who are directly concerned in the petroleum aspects of the general accord which exists between these two nations. It was with this in mind that this Government formulated the proposal, discussed earlier, to view the several detached problems now under consideration as parts of a comprehensive program, the basic characteristics of which will be determined by certain policies of the Mexican Government.

Very truly yours,

For the Secretary of State:

Sumner Welles

52. As a result of this instruction, the Ambassador drafted an informal memorandum which he handed to the Minister for Foreign Relations for presentation to the President. A copy of the memorandum was transmitted to the Department by the Ambassador in his despatch No. 3498, August 24 (not printed).
53. Oil commission created to conduct evaluation proceedings with reference to properties expropriated by the Mexican Government; Morris L. Cooke was the American representative and Manuel J. Zevada, the Mexican representative.
54. For correspondence concerning the negotiations leading to the trade agreement, signed December 23, 1942, see pp. 489 ff.