Foreign Relations of the United States: Diplomatic Papers, 1944, The American Republics, Volume VII

812.6363/10–244

Memorandum of Conversation, by the Ambassador to Mexico (Messersmith), Temporarily in Washington

[Washington,] October 2, 1944.

Participants:	Mr. Charles Rayner, AP,78
	Mr. Joseph McGurk, Acting Deputy Director, AKA,79
	Mr. George S. Messersmith, Ambassador to Mexico.

On my arrival in Washington from Mexico City on October 1, I had a conversation with Mr. McGurk and Mr. Rayner with regard to the present status of the oil negotiations with Mexico. Mr. McGurk brought to my attention the President’s memorandum of July 19, 1944 for Secretary Hull on this matter.

I stated that there were various points in the President’s memorandum which were not clear to me. I took it for granted that the President, through his memorandum, did not mean to indicate that our Government and the Department of State were not interested in the question of whether American oil companies would be able to enter into appropriate arrangements with the Mexican Government or Pemex⁸⁰ for the exploration and exploitation of a portion of Mexico’s oil resources. I said that I took it for granted that our Government had to have the same interest in the economic aspects of the oil problem in Mexico as we had in other economic problems affecting that republic. No arrangements could be entered into with the Mexican Government or with Pemex by the American oil companies except on the basis of preliminary conversations between the two governments. This did not involve any direct interest by our Government in the operations of the American companies but such an interest on our part in paving the way was essential if the American companies were to enter the Mexican field without creating further difficulty between the two governments. I said that anyone in the United States or in Mexico familiar with the oil problem realized that the only way in which Mexico’s oil resources could be exploited to the advantage of Mexico and of this hemisphere, both for commercial and defense purposes, would be through the intervention of American or other foreign companies operating on a sound basis through arrangements with the Mexican Government.

In this connection I referred to the President’s statement in his memorandum that the American oil companies undoubtedly still wished to get back the title to their wells in Mexico, but that this is contrary to a very fundamental policy of the Mexican Government. I observed in this connection that there is no indication that the American oil companies are trying to get back the title to their wells. They have accepted the settlement of the expropriation under the exchange of notes and the companies realize that any arrangements which they entered into with Mexico or with Pemex would not involve their getting any concessions or any control of wells but merely be an operating contract with the Mexican Government or Pemex on an equitable basis.

I set forth certain considerations which I thought we had to bear in mind in connection with the Mexican oil problem and after a full discussion thereof I stated that in the conversation with Secretary Hull on this subject I would set forth the following ideas:

1. Our Government and the Department of State had a primary responsibility for and interest in aiding the private American oil companies in entering into reasonable and equitable arrangements with the Mexican Government and/or with Pemex under which they would be able to explore and exploit certain areas which might be designated by the Mexican Government. Our carrying on such conversations with the Mexican Government was necessary if any real development of the Mexican oil resources is to take place. The conversations, therefore, which I have been carrying forward with the President of Mexico and with the Foreign Minister of Mexico should continue on the same basis as heretofore—that is endeavor to find a way under which the private American companies can enter into contracts with the Mexican Government or Pemex on a sound, equitable basis.

2. I said that so far as military reserves are concerned I had discussed this matter with the President of Mexico and with the Foreign Minister, Dr. Padilla, after my return to Mexico in February of this year and after conversations with President Roosevelt and Secretary Ickes and Secretary Hull. The Mexican Government was prepared to consider this matter of setting up a certain area for exploration and development as a reserve. I said, however, that the President’s thought that no oil should be taken out by the Mexican Government was not, in my opinion, practicable because it would not, under any circumstances, be agreed to by the Mexican Government. Any discussion with the Mexican Government with regard to a reserve for military purposes would have to be on the basis of a joint interest. I expressed the opinion that in case an arrangement can be made with the Mexican Government with such a military reserve that our Government would be justified in making appropriate advances to the Mexican Government for exploration and development of the reserves for military purposes. Mr. Rayner brought out some important considerations in connection with the development of such reserves, pointing out that it was no simple matter and would involve very carefully worked out understandings and agreements with the Mexican Government.

3. I advanced the thought that it was impracticable and undesirable for us to contemplate a loan with the Mexican Government or to Pemex for development of their resources on a commercial basis. I said that Dr. Padilla, the Foreign Minister of Mexico, had gathered the impression from President Roosevelt and Secretary Ickes during Dr. Padilla’s recent visit to the United States that our Government would be prepared to make a loan to Pemex for this particular purpose. I expressed the opinion that the President’s memorandum of July 19 under reference showed that the President did not have in mind a loan by our Government to the Mexican Government or to Pemex for ordinary commercial development but only for this special military reserve. I expressed the opinion that a loan to the Mexican Government was impracticable for the following reasons:

(a) It would create a precedent which we could not carry through, for if we made such a loan to Mexico for oil development we would be faced by similar requests by other South American countries as well as by certain European countries.

(b) It would be impracticable for us to lend our Government’s money for such a risky venture as an oil development when we did not do the same thing at home. The risks involved in such a loan and the amounts of the loan involved were too great. I said that the Mexican Government was thinking in terms of a considerable loan of perhaps a hundred million dollars at a very low rate of interest.

(c) I said that such a loan by our Government in my opinion, would be impracticable because of its political repercussions within our own country.

(d) I expressed the opinion that it would be disastrous to lend money to the Mexican Government for the ordinary oil exploration and development for it would be expended by Pemex, the administration of which was notoriously and admittedly inefficient and in many respects dishonest.

(e) I said that even if such a loan were practicable it would be the worst service which we could render to Mexico and ourselves for the money would be lost or wasted and Mexico’s internal consumption needs which were increasing would not be met nor would there be any surplus for us for commercial use or for hemisphere defense.

4. I said that the worst service which we could render to the Mexican Government was to let them rest under the impression that they could get a loan from our Government for ordinary oil exploration and development. The President and the Foreign Minister and most of the responsible officers of the Mexican Government realize that such a loan would be found in the end to be impracticable and not be carried through. I said that until the thought of a loan was completely eliminated from the discussion, no progress could be made by Mexico in solving her own oil problem. The President and the Foreign Minister and high officials of the Mexican Government had been prepared to go ahead on the basis of having American companies enter into sound and equitable agreements with Pemex which did not involve concessions or ownerships of the subsoil or even of the wells by the American companies but guaranteed to them operating privileges under carefully worked out agreements under which the Mexican Government would get an equitable return through the operations of the companies. I said that the American and foreign companies were reconciled to the idea of not being able to enter into internal distribution in Mexico and perhaps not even of refining but merely of exporting such portions of the oil which they produced under their contracts with Pemex which portions the Mexican Government would declare surplus. I felt, therefore, that the only help and safe thing which we could say to the Mexican Government was that our Government could, under no circumstances, make a loan to the Mexican Government or to Pemex for ordinary commercial exploration and development and any loan would have to be confined to the special military reserve which might be worked out between the two governments.

Mr. Rayner and Mr. McGurk were in agreement with the foregoing thoughts and conclusions. I said that it was my intention to discuss the matter with the Secretary in the foregoing sense.

I later saw Secretary Hull today and had presented this matter to him and gave him the substance fully of the four points covered in this memorandum. The Secretary expressed himself as in agreement with these conclusions in which I informed him Mr. Rayner and Mr. McGurk had concurred.

I told the Secretary that I intended to discuss this matter with the President who had indicated he would see me on my return to Washington about two weeks hence. I asked the Secretary whether I could take up the matter with him on the basis of the four points in this memorandum and the Secretary expressed the hope that I would do so as he was in complete accord with this statement of the Department’s position.

After the conversation with the Secretary, I had a further conversation with Mr. McGurk and Mr. Rayner, giving them the substance of my conversation with the Secretary.

It was agreed that on my return to Washington, towards the end of October, I would take up this matter with the President and endeavor to secure his approval of proceeding further on the basis of the four points in this memorandum, in my further conversations with the Mexican Government—particularly emphasizing that a loan such as that which the Mexican Government has requested for Pemex for ordinary exploration and development is not possible.

G. S. M[essersmith]

78. Office of the Petroleum Adviser.
79. Office of American Republic Affairs.
80. Petróleos Mexicanos.