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

During a long conversation with the President today I had the opportunity of discussing Mexican oil policy. After the first preliminaries of the conversation the President himself raised the question of oil policy by asking me to give him the status of the matter.

I said that the question of oil policy with respect to Mexico was the principal objective of my seeking this conversation with him. I said that I had been working on this matter with the Mexican officials on specific directives from him and from the Department of State, which directives I had faithfully followed. He knew from our various conversations on the matter as to the progress which had been made. I said that on Dr. Padilla’s return to Mexico City, after his visit here some six months ago to discuss postwar problems, he had informed me that during a conversation with him (President Roosevelt) he had informed Dr. Padilla that the United States was prepared to make a considerable loan to Mexico for oil exploration and development. I said to the President that I had indicated to Dr. Padilla that I thought there must have been a misunderstanding as I felt sure the President had not had in mind any loan for ordinary oil exploration and development but that President Roosevelt had had in mind our interest in developing an oil reserve in Mexico by the two Governments through common action for use in time of war or for continental defense. I said that I had told Dr. Padilla that I was sure that so far as any loan was concerned, or any advance of funds, President Roosevelt had had in mind this reserve for military purposes for the use of both countries.

I told President Roosevelt that I, of course, had made it clear to Dr. Padilla that I would have to discuss the matter with the Department and with the President as I could not make any categorical statements of any kind whatever, but that I was sure there was a misunderstanding.

I told the President that the State Department had then received through our Embassy in Mexico City a note from the Mexican Government, requesting a loan of considerable size at low interest for oil exploration and development and that in the note no mention was [Page 1357] made of military reserve although Dr. Padilla had indicated to me at the time the note was delivered that the Mexican Government was prepared, of course, to discuss the matter of a common oil reserve for defense purposes.

In view of the foregoing, I said to the President that the matter was in a very confused situation and that I was sure that there was a misunderstanding by Dr. Padilla of what the President had told him.

President Roosevelt said that I was entirely correct that there had been a very definite misunderstanding. He said that he had not intended to convey to Dr. Padilla the idea in any way that our Government was prepared to make a loan to the Mexican Government or to Pemex for oil exploration or development. The President said that such a loan was out of the question and not to be considered and that he would not consider it. The President said that he did discuss with Dr. Padilla an oil reserve for common defense and for continental defense and had indicated that our Government would be prepared to make a loan, or spend some funds together with the Mexican Government, to explore and develop such a field which could be used for this specific purpose. Such an operation should not cost very much, he said, not more than $3,000,000 or $4,000,000, if that much.

I recalled to the President that I had been carrying on this conversation with the Mexican Government on the basis of the American companies entering into contracts with Pemex or the Mexican Government, which would permit them to carry on exploration and development of oil in Mexico, such contracts being on an equitable basis so far as division of profits is concerned and providing for amortization of the costs involved by the companies in developing the new fields. The President said he understood this and that was quite all right but that was a matter between the companies and the Mexican Government and Pemex but that he saw no reason why my efforts should not be directed toward the facilitating of such equitable arrangements.

The President expressed some doubt as to whether the companies would be interested. I told him that the companies had no desire to operate in Mexico except under Mexican law and they realized that the possession of the subsoil did not come into question and that it was just a question of arrangements permitting exploration and developing and sale of oil. Whether the refining privileges would be granted was a matter of decision of the Mexican Government.

I specifically asked the President whether I was correct in my assumptions that there would be no oil loan such as Dr. Padilla had in mind and as the Mexican note contemplated, and he said that it could not be considered under any circumstances. He was interested in the question of reserves on the basis indicated in this memorandum and he wanted me to pursue that further. So far as my conversations [Page 1358] as regards participation of the private companies were concerned, I was carrying them on a correct basis and could proceed on that basis.

The President made it clear that there had been a misapprehension as to his view with regard to the feasibility of a loan for oil exploration and development other than these military reserves. He made it clear that he was in accord with the basis on which I had been conducting this conversation with the Mexican Government and which had his approval and that of the Department of State.