832.6363/11–1345: Telegram

The Ambassador in Brazil (Berle) to the Secretary of State

3403. In commenting upon Dept.’s telegram 2599, November 10, I regret to say I am not in accord.

Refining and marketing of oil in Brazil is at present airtight monopoly of Standard Oil probably acting in conjunction with British Shell interests. They have fought tooth and nail every attempt to break this monopoly whether by other American interests, for instance Gulf, or by Brazilians. They know that Brazil has oil reserves, and will eventually find way of drilling and producing oil here. They therefore are presently concentrating on maintenance of monopoly in refining, knowing that this ultimately will be key to situation. During war restrictions and Vargas’ regime, effect of legislation was to freeze status quo, thus giving them unbreakable monopoly. With free import of oil this ceases to be true. Monopoly was not unprofitable; in 1944 Standard Oil subsidiary made 114% profit on capital after taxes and liberal depreciation.

If Brazilian Govt, or private enterprise wants to go into refining business and can find suppliers of crude, in this case Gulf, I can see no possible justification for making contrary representations. So far as U.S. is concerned, we would be siding with one group against another American group, Gulf. So far as Brazil is concerned, we would be freezing exactly the kind of international cartel monopoly we have been opposing. If representations are to be made along this line, I should prefer that they be made in Dept. leaving me out of it and noting my dissent.

There is sound position which can be taken: namely, that we hope that in any measures taken open-door principle will be wholly observed; and that if Brazilian Govt, goes into refining business, we hope it will do so on competitive basis without impeding other interests legitimately in field competing for their share of market. Since Brazilian market will inevitably grow rapidly there is plenty of room. Our stand should be against measure restricting importation, or creating [Page 526]any kind of monopoly at all, rather than taking steps whose only effect could be to support existing monopoly. This would be entirely in line with our policy. It would not satisfy Standard Oil and its partner, Atlantic, because result would probably be to bring down price of oil; but in my judgment price ought to come down.

Behind Anderson’s61 visit to Dept. is very unpleasant story.

Gulf sent representative here last June proposing to enter Brazilian market. War restrictions made this impossible until after petroleum control should be lifted, so Gulf made preparations, buying tanks in partnership with Brazilian concern and proposing to finance this Brazilian concern in refining. Standard countered by offering to market Gulf crude if Gulf would stay out. This proposal being rejected Standard then stated it had influence enough with Brazilian Petroleum Council to limit Gulf to 5% of market, possibly capable of being raised to 10. It was endeavoring to make this arrangement at time of fall of Vargas Govt, and was likewise endeavoring to induce Petroleum Council to requisition use of tanks Gulf had recently bought. At one time in discussions Standard in New York is reported to have made statement that it would withdraw from market thereby paralyzing Brazil since Gulf could get no ships from WSA until after January. I gather this was probably bluffing.

It was not reassuring to find that immediately after fall of Vargas and consequent end of that connection, Standard at once has recourse to State Dept. asking it to take step whose immediate desire is to block Gulf, backing step by somewhat shallow argument that if Brazilians should build refinery, they might later impede importation of refined product on “nationalist” grounds. We certainly can oppose restrictions on import of refined products, but that is no reason for using our influence to prevent another American oil company from working with Brazilians to establish refining industry on basis which will apparently be economic without artificial govt, measures.

My distinct impression is Dept. has about half the story and is getting into very dangerous position.

Berle
  1. Presumably Paul J. Anderson, representative of the Standard Oil Company of New Jersey in Brazil.