The Manager of Operations of the Standard Oil Company of New Jersey in Argentina ( Metzger ) to the Assistant Secretary of State for Political Affairs ( Armour )

Dear Mr. Armour: Enclosed are copies of a memorandum and covering letter23 being forwarded to the Argentine Ambassador in Washington, Dr. Oscar Ivanissevich. Although somewhat lengthy, the memorandum gives the details of our principal problems in the Argentine. Our first problem is that of prices and, as pointed out during the meeting which you kindly arranged for Mr. Parker24 and me a week ago, we are still not able to import gasoline into Argentina without losing 2½¢ per gallon, despite the fact that our suppliers bill us at the lowest prevailing market price.

We brought a cargo of gasoline into Argentina on December 2, and have another four cargoes ready for delivery as quickly as ships are available. We have four more cargoes laid out for delivery during 1948. Our loss of per gallon amounts to approximately $125,000. on each cargo, after paying import duties of 5¢ per gallon, or a total of $250,000. per cargo. We are, therefore, extremely anxious that the price adjustments promised to us weeks ago materialize at an early date. It is also still impossible to import kerosene, gas oil or diesel oil without entailing correspondingly high losses, despite the fact that Argentina needs these products badly.

As pointed out in the memorandum for the Argentine Ambassador our affiliates in Argentina have failed to show a profit in 1945 or 1946 and will likewise show a loss in 1947. During the period, March 15 to June 15, our losses on the importation of crude oil amounted to $1,000,000. U.S., or slightly over $11,000. per day. Although this unsatisfactory situation was remedied by the new price structure, effective June 16, price adjustments have not kept apace of subsequent increases in world market quotations on crude oil, and we are again approaching a precarious position in connection with current crude oil supplies. The price of crude oil was increased by 20¢ per barrel on November 15, which requires an increase of at least 1¼¢ per gallon in the price of gasoline. More recent increases of 50¢ per barrel in current crude oil [Page 301] prices will demand a further increase of over 30 per gallon, assuming that gasoline, alone, absorbs the charge. If the Argentine Government takes as long to make these adjustments as was required to effect the previous increase on June 16, the difficulties of our Argentine companies will again become acute.

It should be kept in mind that while our companies were losing over $11,000. per day on crude oil imports, the Government was collecting an equal amount in import duties. In other words, we were losing 20 pesos per ton, which is the Customs’ duty rate on crude oil. Although refusing to grant the private companies any relief from import duties, Y.P.F. is exempted from paying these charges. The attached memorandum25 shows on the first page what the companies have been allowed to retain from the 10¢ per gallon price increase on gasoline decreed on June 16. While the companies are limited to specified amounts, depending on the source of their gasoline, Y.P.F. is granted the full 10¢ regardless of source. Despite the losses incurred on crude oil imports, it will be noted from the last page of the attached memorandum that the crude imported during the first ten months of 1947 was 40% greater than during the same period of 1946.

In addition to the price problem, we are concerned about the situation created by Y.P.F.’s denouncement of the marketing agreements in effect since 1937. In order to justify the large investments required to maintain and improve our refining and marketing installations, we require some assurance that Y.P.F. will grant us import permits over which they hold complete control. Under the expiring marketing agreements, Y.P.F. was obliged to give us the permits required to import certain quantities of crude oil, as specified under the agreement, but with the termination of the agreement, this obligation will cease on March 31. What we desire is a commitment from the Government that we will have the right to import crude oil and products in sufficient quantity to maintain our operations over a reasonably long term of say, fifteen years, and that during this period, the Government’s absolute control over prices will be such as to allow us a reasonable profit.

Mr. Parker and I were able to inform you personally of the Government’s recent offer to purchase the producing properties of the oil companies in Argentina. The companies replied in the negative, and we believe that this matter may be forgotten for the present. Press reports of the President’s speech on December 13 indicate, however, that it is the Government’s intention to continue the traditional policy of excluding foreign companies from the development of indigenous crude oil. We trust that this statement is not a true interpretation of [Page 302] the President’s intentions and that, in time, it will be possible for American oil companies to assist in the exploration and development of new sources of crude oil in Argentina.

It was indeed a pleasure and a privilege to have been able to discuss our Argentine problems with you and your associates, and I trust that the foregoing will give you a summary of our three main problems in Argentina, which are in chronological importance:

Security for our refining and marketing operations
Development of local crude supplies by American oil companies.

With kindest personal regards and with the Season’s Best Wishes, I am,

Sincerely yours,

H. A. Metzger
  1. Neither printed.
  2. George Parker of the Standard Oil Company of New Jersey.
  3. Not printed.