The Ambassador in Argentina (Bruce) to the Secretary of State

No. 3033

Sir: I have the honor to refer to the Department’s confidential Circular Airgram of July 9, 8:50 a.m. and the Embassy’s Telegram No. 937 of July 30 and its Despatch No. 2844 of July 3014 and to report that on September 24, Mr. Ray, Counselor of Embassy, and I had a conversation with President Perón, Foreign Minister Bramuglia and the President of the National Economic Council, Miranda, during which the question of petroleum in Argentina was discussed at length.

The first point which we brought up was the situation of the two important American companies operating in Argentina, that is to say, the Standard group and Ultramar. We dealt with the following points in the order given below:

Increase in Prices. We pointed out that since the end of the war there has been an increase in prices of approximately 50 percent in the petroleum world market along with an increase in official freight rates with the result that the American companies here were losing money steadily. In view of this situation and the cost of operation for YPF the Argentine Government issued Decree No. 16,837 on June 14, [Page 287] 1947 providing for an increase in the retail price of gasoline, kerosene and tractor fuel. In spite of this decree the American companies have been given no relief for the following reasons:
Although more than three months have gone by since the June 14th Decree, no decision has been taken as yet concerning the proportion of the increase in price by which the American companies will be allowed to benefit. A commission was appointed to carry out a study to determine what portion of the increase of ten centavos per liter should be granted the companies. This amounts to an increase of ten cents (U.S.) per gallon. The Government has given the companies assurances that they will participate in the increase and that such participation will be made retroactive to June 14, but it has so far been impossible to obtain a decision as to what percentage of the increase will be allowed the company.
The Decree in question did not raise the price of lubricating oils in spite of the opinion of YPF and the American companies that such an increase was urgent. This is more serious because while there is still some hope for relief with regard to the price of gasoline since June 14, any increase in the price of lubricating oils now could not be retroactive and there is no way to recover losses which are being incurred daily.
The situation has become gradually worse with regard to fuel oil, diesel oil and gas-oil. At the present time Standard is losing probably in excess of $12,000 daily on its operations in Argentina.
The President and Mr. Miranda said that this matter had been brought to their attention but that the Committee appointed had not acted promptly. The President remarked that he was appointing a new Board of Directors of YPF and was giving them orders to follow a policy which would be fairer to the American companies. He said that he thought he could offer relief from this situation within a week. He said he would take action immediately and in a few days would help Mr. Miranda get in touch with the heads of American companies here and that it should be possible to reach a satisfactory solution of this pressing problem.
Mr. Miranda brought up the question of the actual petroleum shortage in Argentina and intimated that the American companies were somewhat to blame because they had not made a sufficiently strong effort to bring additional petroleum to the Argentine. We pointed out that in view of the fact that the companies, especially Standard, are losing important sums of money daily, it is difficult if not impossible for the local representatives of these companies to convince their principals in the United States that it is good business to send more petroleum products to the Argentine simply to lose more money. Mr. Miranda stated repeatedly that the companies had personal assurances from him and the President that a portion of the increase in the price [Page 288] of gasoline would be allocated to them. We stated repeatedly that we had implicit faith in these assurances but the fact remained that the companies were losing money and that no assurance had been given as to the portion of the increase which would fall to the companies. We pointed out to Miranda that the President and he could carry out their promise by granting such a small proportion of the increase to the companies that it would have little useful effect. The President agreed with our argument and said it was important to inform the companies immediately how much of the ten-centavo increase would accrue to their benefit.
We told them that neither this Embassy nor the local representatives of the American companies could make any commitments regarding the delivery of crude petroleum or of refined products to the Argentine, but we could promise that if a satisfactory solution were made both the Embassy and the companies would exert every possible effort to help Argentina over the present acute gasoline shortage. Miranda said that he had endeavored to buy gasoline on the “Black Market” from other companies, but had had relatively little success so far. He inquired why the Embassy could not help him get gasoline this way. We replied that it hardly seemed good business or fair to the local companies for the Embassy to lend its assistance to an operation which would be questionable in the first place and which would also be unfair to the companies which are carrying on established business in Argentina.
Guarantee of Long-Term Operation of Refinery and Distribution. We pointed out that the companies could not expand their refinery and distribution facilities because they have no assurance of being able to operate over a long period and because they are assigned a fixed quota and thus would not be able to participate proportionately in any increased refining and distribution. The President, Miranda, and the Foreign Minister all agreed that if the companies were expected to expand they should be granted a percentage of the market rather than being confined to a fixed quota.
The President and the two other officials mentioned stated that with regard to points (1) and (2) the Argentine Government would take immediate steps to satisfy the desires of the companies which they described as just and legitimate.
Participation in Exploration and Exploitation of Petroleum in Argentina. We pointed out that during the period 1931–1938 private companies in Argentina produced more petroleum than YPF. In 1934 Standard reached a maximum production of 1140 cubic meters daily. The production of Standard has now fallen to approximately 333 cubic meters daily, due to the enactment of successive Laws and [Page 289] Decrees restricting more and more the possibility of obtaining new concessions. The President said that the petroleum question in Argentina is political dynamite and that it might even cause the fall of any government which endeavored to change the law to permit foreign companies to obtain new concessions. We pointed out to him that it would probably be many years before Argentina could produce enough petroleum to satisfy its own needs and that the question of depleting Argentine petroleum reserves for exportation would not arise for a long time and that in any event the American companies accept the principle that if the point should be reached where there would be an exportable surplus the Argentine Government would have the full right to determine whether exportation should be made or not. We remarked that if handled on this basis it should be possible to convince the Argentine people and the Congress that the action to be taken was in the interest of Argentine economy and that it should be possible to overcome any political objections. The President was impressed by this argument and said that he and his associates would study the matter immediately. We pointed out to them that Argentina is spending well over 75,000,000 dollars a year for the importation of petroleum and that if the needs of the country could be produced locally this would result in an enormous saving in dollar exchange for Argentina. They all agreed on the importance of this and the desirability of making it possible for the American companies to participate in the further development of the petroleum industry in Argentina. They agreed that the operations of YPF are not sufficiently efficient to guarantee proper development of the industry without foreign help.

Miranda remarked that the United States had refused at one time to furnish machinery and equipment to Argentina and that there was a widespread objection in the United States to the industrialization of Argentina. We pointed out that during the recent war it had been impossible for the United States to supply the needs of the world for machinery and equipment. We told him that the policy of the United States Government is to assist in every possible way in the sound industrial development of Argentina. We pointed out that history has demonstrated that our best customers have always been the most highly industrialized nations and that it was to our own interest to see Argentina industrialized as rapidly as possible.

The President said that he and his associates would study this problem immediately and get in touch with the local representatives of the American companies to see what could be worked out.

We plan to follow this question closely and have further conversations with the President and various Cabinet Ministers on the subject [Page 290] of petroleum in Argentina. We shall keep the Department fully and promptly informed.

Respectfully yours,

For the Ambassador:
Guy W. Ray

Counselor of Embassy
  1. None printed.