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

No. 4606

Sir: Reference is made to your conversation with Mr. L. H. Nuland, during his recent visit to Mexico City, in regard to shipments of Mexican gasoline to Central America and to your letter of August 31, 1943 to Mr. Joseph F. McGurk in which you suggest a possible approach toward a solution of this matter.

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As you state in your letter referred to above, the shipments have been relatively small, particularly in Costa Rica. In Guatemala, however, by June they had reached an amount which represented an increase to the pool allotment of gasoline for Guatemala of 20 percent—which, of course, is considerable. Subsequently, however, arrangements were apparently taken under local rationing systems which brought the price of this excess gasoline down and the imports into Guatemala of Mexican gasoline dropped from 2320 barrels in June to 510 barrels in July, none in August and 381 barrels up to September 23. Therefore, while this continues to have a definite irritation value, the matter is of little importance at present in so far as the quantities of gasoline are concerned.

Production figures which have just been given to the Foreign Division of the Petroleum Administration for War by officials, including the export manager, of Pemex indicate that Pemex really has no gasoline production for export, domestic consumption being able to take care of all present production. This would seem to indicate that such shipments as have been sent to Central America, despite this situation, are with an eye to the future. In a recent telegram the Embassy at Guatemala City has advised us that it has learned that Pemex agents at Guatemala City, Peyre and Company, have applied to the War Department there for licenses to erect two 25,000 gallon tanks in Guatemala and have requested licenses for three additional retail outlets. The Embassy stated that the materials for the tanks are being obtained from Mexico, and that if the tanks are installed they will provide fulfillment of one of the Guatemalan conditions for further operations, the other being that the gasoline supplied be of the same octane as that supplied by American distributors.

However, the enclosed secret airgram of October 11, 1943 from the Embassy at Guatemala City97 states that the representative of the Texas Company in Mexico (the representative of that company in Guatemala is a member of the pool committee in that country) has had conversations with Pemex for the purpose of exploring the possibility of the Texas Company’s buying petroleum supplies from Pemex for the Guatemalan market. The airgram points out that the other companies in the Guatemalan pool would be able to obtain supplies from the Texas Company in accordance with pool operating principles; and that the plan, if executed, would constitute a solution of the problem of Mexican supplies to Guatemala. It will be noted that the Embassy states that Pemex’ reaction to the Texas Company’s approach was favorable and there is reason to believe that an arrangement along the lines outlined may be made.

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From the viewpoint of the Inter-American Petroleum Supply Pool, the development of all available sources of supply is favored. Moreover, there is now an over-all shortage of gasoline, diesel oil and kerosene in this hemisphere, with increasing war demands for those products. Thus there would be an advantage to the whole supply picture if satisfactory arrangements could be made whereby the Supply Pool could avail itself of Mexican gasoline in supplying a part of the needs in the Central American area.

The Pool is for the purpose of effecting an equitable distribution among all participating importing countries of the maximum supplies that can be made available. To accomplish this purpose, all available supplies and supplying facilities must be pooled together. Hence any supplies from Mexico, of course, would have to form a part of the allotments to each country. Otherwise, the Central American countries receiving Mexican oil as additional allotments would have an advantage over other pool countries receiving only regular allotments from present sources. In other words, the benefits to the Pool from any additional supplies from Mexico would have to be spread equitably among all pool importing countries and not accrue only to Central American countries.

Accordingly, it is believed that a solution beneficial both to the operation of the Pool in the Central American area and to the long-range interests of Mexico might be worked out whereby Mexican gasoline would be sold to the pool companies for distribution by the pool organization in the Central American countries during the life of the Pool. Under the pool arrangement of distributing curtailed products in necessarily restricted markets, the positions of the companies in the markets of the importing countries had to be frozen on the basis of their previous position. For this purpose the trade position in 1941 was taken as the basis of market allocation among supplying companies. The freezing of the companies’ positions in the various markets has, of course, clearly circumscribed their activities from the competitive standpoint. Thus, in this situation, the regular supplying companies cannot help but be disturbed by the entry of Pemex into any importing pool country as a distributor or marketer during the life of the pool arrangement since, because of their cooperation in the Pool, they are not in a position to offer normal competition to a new marketer who would be taking a part of their already curtailed market. The successful operation of the Pool in performing its very important function in this hemisphere rests largely upon the full cooperation which the companies have accorded.

As indicated above, from the Mexican point of view a definite advantage might accrue to Pemex from an arrangement whereby the pool organization could avail itself of Mexican gasoline, the [Page 468] distribution and marketing within pool countries being handled by that organization. As you know, this country is changing from an export to an import basis in regard to oil. In the future the Mexicans might be able to make a very satisfactory arrangement with the companies now operating under the Pool whereby the latter would transport and market Mexican oil in various markets. From a long-term viewpoint, therefore, this alternative has a good many very desirable aspects, and it might be useful to consider this with respect to the general rehabilitation of the Mexican petroleum industry as a whole, not merely during the present war but also for the period after the war. In many ways, the cooperation of Pemex in this matter at the present time might make it very much easier for Pemex after the war.

We believe that an informal approach to Buenrostro or some other appropriate official along the foregoing lines merits your consideration. As indicated in the enclosed telegram from Guatemala City, Pemex has reacted favorably to a similar approach from one of the pool companies, and an official of the Foreign Division of the Petroleum Administration for War has stated his belief, from evidence received during a recent informal conversation with Pemex officials, including the export manager, that Pemex would view favorably the possibility of an arrangement such as that outlined. Conversations by you with the appropriate officials might not only facilitate the proposed arrangement regarding the Guatemalan market but might also assist in the reaching of similar solutions in other Central American countries.

If you discuss this matter with the Mexican officials, you should make it clear that the effectuation of the scheme would depend, of course, upon working out all details with the Pool organization and the companies operating therein. It should be understood, of course, that any arrangements between Pemex and the Pool in regard to marketing in the Central American countries would be for the duration of the emergency only.

In general connection with this subject it may be pointed out that while Mexican gasoline has been shipped to Central American countries, the United States supplied about 110,000 barrels of gasoline to the northern part of Mexico during the first half of this year, and it is believed that the quantity will be greater during the second half of the year. The supplying of gasoline from this country to northern Mexico has been because of geographic considerations. However, because of the tightness of the gasoline supply situation, it is conceivable that it may not be possible to continue these supplies at this rate.

In conclusion we wish again to present the thought that if Pemex continues to try to sell even in small quantities to pool importing [Page 469] countries and outside the Pool organization, such action must have an adverse effect on the companies cooperating in the Pool, and Mexico, as you know, may have to depend on them for marketing facilities if she is to expand her oil outlets throughout the world.

Very truly yours,

For the Secretary of State:
Dean Acheson
  1. No. A–504, not printed.