852.6363/848: Telegram

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

1331. Your 1342, May 22, 5 p.m.; your 1307, May 19, 1 p.m.; and Smith’s 1300, May 18, 11 p.m.45

1.
The exchange of telegrams with respect to the Spanish oil program in the current quarter has revealed certain misunderstandings. The Department is anxious to put an end to the correspondence and, with the benefit of your advice and in collaboration with the British, proceed with (a) the construction of a program for the third and fourth quarters of 1943, and (b) a review, in collaboration with the Embassy, of the existing control measures under which the program operates with a view to strengthening and modifying them as study indicates.
2.
The Department in this telegram will briefly recapitulate the essential points underlying the program as follows:
A.
Our basic policy is to allow Spain to import as small a quantity of petroleum and petroleum products as will permit us to attain our objectives with respect to that country. In pursuit of high political and strategic objectives, such supplies will be made available by us as may be necessary to sustain in Spain a reasonable wartime economy, the support of which has been approved by the Joint Chiefs of Staff. Agreement on the definition of a reasonable wartime economy of [Page 693] course presents certain difficulties. In so far as imports of petroleum products are concerned the Department and the Board of Economic Warfare consider that importations of petroleum products for metropolitan Spain at the rate of between 50 and 65 percent of normal (normal being defined as the average consumption of the years 1933, 1934 and 1935 calculated to be 833,000 tons) are sufficient to support a reasonable wartime economy. There is no intention on our part to build up the economy of Spain through imports of oil beyond the minimum essential to satisfy the foregoing requirement. To do so obviously increases the risk of overflow to the Axis, or the stimulation of economic activities beneficial indirectly to the Axis.
B.
In December 1942 the Department and the Board of Economic Warfare, with the British Government concurring, reached internal agreement that importations for metropolitan Spain including lub oils at the annual rate of 541,000 tons would suffice to accomplish our purpose. This was a program or control figure arrived at exclusively for our own use and guidance for two purposes; (a) to set an absolute upper limit on imports, and (b) to provide a framework within which the mechanics of operation could function. It was explicitly stated that the figure was not to be revealed to the Spaniards, and it was equally clearly understood that this constituted the maximum under any circumstances then visible. The program was to be operated on the basis of tanker by tanker approval, and it was implicit that the test of experience would be applied to establish the quantity of oil Spain would require to maintain in fact a reasonable wartime economy. This program rate for the first quarter of 1943 only was approved last winter by the Joint Chiefs of Staff.
C.
It has been understood from the beginning that adequate and effective controls would be instituted and maintained in order to satisfy ourselves that the Axis was benefitting neither directly nor indirectly from the oil supply program. One of these controls has been the use of limits to the quantities of the several products which could be held at any time in inventory.
D.
The total Spanish trade program will be largely measured by the extent to which it lessens the supply of goods useful in wartime to the Axis. If the work of production, transport and distribution of various branches of Spanish activity which result in goods procured by the Axis is facilitated through our oil supply operations the whole program is exposed to criticism that would obstruct it.
3.
With respect to 2 B above, the Department now understands from information acquired here that the Spanish officials have learned of the program referred to [and] would appreciate a statement whether you or to your knowledge any member of your staff has at any time communicated to any Spanish official the 541,000 ton figure or subsidiary figures which would enable the Spaniards to arrive at the former figure. Our assumption throughout has been that this has not occurred, and hence that any modification in the petroleum program which we felt advisable to make could be freely made without violation of any commitment or implied commitment made to the Spaniards. In this connection we would also appreciate a statement [Page 694] from you as to whether to your knowledge or in your opinion the 541,000 ton figure or any relevant subsidiary figure has been communicated to any Spanish official by the British Embassy.
4.
As repeatedly stated in several of the Department’s telegrams, no change in basic policy was contemplated in our efforts to hold second quarter imports to 100,000 tons. The Department’s 958 of April 27 specifically stated that the rate of imports for the third quarter and subsequent periods would be considered in the light of the then existing situation.
5.
The decision to hold second quarter imports to the figure of 100,000 tons was based on the three following factors: (a) An understandable caution at a time when military operations were continuing in North Africa in wishing to maintain stocks in adjacent territories at levels no larger than they had been in preceding months. It seemed inescapable to the Department and the Board of Economic Warfare that a 35 to 50 percent increase in imports in a period of less than 3 months would result in stocks increasing in secondary if not in primary hands. (b) The belief that on an aggregate of 200,000 tons in the preceding 6 months Spain had been able materially to improve her internal transportation system with resultant benefits to her economy as a whole. To this fact the Embassy had testified on several then recent occasions. Pragmatically this appeared to offer evidence that the 541,000 ton program figure might be excessive for the accomplishment of our purpose, (c) Public opinion was and has been a factor. In order to retain the measure of support necessary to continue a policy toward Spain which, to say the least, is unpopular in many quarters, it is clearly necessary that that policy be operated so that it could be defended against informed as well as ill informed public opinion. There is a large body of informed public opinion which in the Department’s judgment will support the program for Spain if it is patent we have given the very least necessary to attain our ends. By the same token that support would be lost if it could be demonstrated that we were being generous merely for the sake of generosity.
6.
There is one aspect of the future oil program to Spain which troubles the Department and on which your comments would be appreciated. It seems to us that until recently a large part of Spain’s satisfaction with the oil program has been due to the fact that we have permitted her to lift all the oil her tanker fleet could carry. Today the situation is that the increase in the fleet and its improved operating efficiency gives it a carrying capacity well in excess of 541,000 tons a a year, or any figure which may be set as a reasonable maximum, and that Spanish authorities may try to increase the fleet still further by attempted purchases from the Axis. We therefore face the necessity of restraining the Spaniards from importing as much oil as it is within [Page 695] their physical capacity to lift. Presumably this will detract from the satisfaction that the Spanish authorities may feel with the oil supply program.
7.
With respect to an oil supply program from July 1 forward, your views would be appreciated on the question of whether or not the Spaniards should be informed of our willingness to supply a stated quantity, and, if so, for how long a future period should we commit ourselves. One tentative view here is that the preponderance of advantage would lie in informing the Spaniards but (a) limit the period to one quarter in advance, (b) stipulate no carry-overs into the succeeding quarter, (c) set out specific quantitative inventory limits by products., which figures would include all stocks including those in hands of secondary distributors and retailers, such figures to be conservatively estimated if exact statistics are unavailable, and (d) at the time of presentation of the program to the Spaniards seek certain specific concessions such as the promise of adequate peseta exchange to render our purchase program secure.
Hull
  1. None printed.