812.6363/10–3147
The Secretary of State to the Ambassador in Mexico (Thurston)
Sir: Reference is made to the growing interest and evident need of the Mexican Government substantially to increase petroleum production [Page 796] in order to meet domestic requirements for petroleum products and to provide additional urgently needed dollar exchange. Reference also is made to your recent conversations in Washington with officials of this Government interested in the same problem because of the desirability and urgency of developing additional hemisphere oil resources necessary for increasing peacetime requirements and for hemisphere defense. The Department believes that the urgency and coincidence of these needs make the time appropriate for immediate discussions with the Mexican Government with a view to formulation of an oil program under which foreign oil companies would be permitted to operate in Mexico on a competitive and non-discriminatory basis, the only basis upon which it is believed the needed development of Mexican oil resources can be efficiently and promptly achieved. At the earliest opportunity you are instructed to enter into discussions with the President of Mexico along the lines suggested below and to pursue the matter as may seem appropriate and advisable. To the extent feasible such discussions at the outset should be of an informal and preliminary nature and, should the President so indicate, may be continued with Señor Ramón Beteta96 or any other official of the Mexican Government designated by the President. For your background information there is enclosed a copy of recent correspondence between the Mexican Ambassador in Washington and Secretary Forrestal relative to this problem.97
In your discussions the following views of the United States Government should be made known to the Mexican Government:
- 1.
- The United States Government recognizes and respects the position of the Mexican Government regarding the national ownership of its sub-soil resources, as stated in Article 27 of the Mexican Constitution of 1917, and does not seek the accomplishment of any arrangement which would in any way violate that position or conflict with the freely expressed wishes of the Mexican people.
- 2.
- The United States Government does not seek any preferential rights or privileges for its nationals in the development of the Mexican petroleum industry. It is interested only in arrangements under which its nationals would participate in the development of the Mexican petroleum industry on a basis of equality with the nationals of other foreign countries.
Your Government believes that the only method by which Mexico can obtain any substantial increase in oil production, such as would make a substantial contribution to helping solve Mexico’s foreign exchange problem, is through reentry of foreign oil companies into Mexico. You should make it clear that your Government is completely [Page 797] open-minded with respect to the basis of reentry of foreign oil companies, and that it recognizes and appreciates that any basis of reentry must be determined by and be fully acceptable to the Mexican Government. On the other hand, any proposal of the Mexican Government which would not oiler the foreign oil companies reasonable compensation for the risks involved and which as a result would not induce the foreign oil companies to return to Mexico, would fail of its purpose. You might also find it desirable in connection with the above points to make it clear that the views of your Government are not based upon any preconceived notions or prejudices with respect to Pemex. In its opinion what is required of Mexico is access to the best petroleum technology, great diversity of effort, and access to virtually an unlimited volume of risk capital, all of which can be met only by drawing fully and freely upon the world petroleum industry.
It is believed that the following reasons, which at your discretion may be used in your discussions, provide the Mexican Government with ample justification for the most serious consideration of some plan for the reentry of foreign oil companies into Mexico:
- 1.
- The expansion of production which could be expected to ensue would provide Mexico with substantial additional quantities of urgently needed dollar exchange. It is believed that development at a relatively early date of Mexico’s petroleum resources offers a practical means for Mexico to earn additional foreign exchange essential for its economy.
- 2.
- The development of Mexico’s petroleum resources would yield to Mexico additional internal revenues from taxes and from the sales of its share of the expanded output of petroleum and petroleum products, thus contributing to the budget of the Mexican Government. There should result also substantial general improvement in the Mexican economy from the large expenditures of the oil companies for capital investment, payment of wages to workers, and related operations such as the construction of housing, camp facilities, roads, telegraph lines, and other forms of transportation and communication facilities.
- 3.
- From an expansion of its petroleum industry Mexico would derive special benefits in the form of increased employment for its nationals, the development of skills, and the construction of schools and hospitals for its workers.
- 4.
- The expansion of the Mexican petroleum industry would make possible a more rapid industrial development by furnishing low cost power for its industries and for the various means of transportation and communication. It also would provide a basis for and stimulate the growth of related industries requiring similar engineering skills and petroleum by-products.
- 5.
- Increased oil production in Mexico is necessary to meet Mexico’s anticipated requirements, which in the near future are expected to exceed production under present operating conditions in the Mexican petroleum industry.
- 6.
- The surplus petroleum which Mexico would be able to export [Page 798] would find a ready market not only in the United States but also in other American markets whose requirements are already in excess of their supply; United States petroleum requirements already exceed domestic supplies, and demand is expected to continue to increase at a rapid rate.
- 7.
- Increased petroleum production and reserves in Mexico would be available for Mexican defense in time of emergency and would enable Mexico to make a material contribution to the defense of the Western Hemisphere. Such a development would enable Mexico better to discharge its responsibilities in the Mutual defense commitments made by the American Republics at Chapultepec and Bio de Janeiro.
Should the Mexican Government raise the question of the creation of a United States and/or Mexican Military or Naval petroleum reserve in Mexico, it should be made clear that your Government is not prepared to give any consideration to this approach to the Mexican and hemisphere petroleum problems. Experience has shown that the petroleum resources most readily available in time of emergency are those already developed and being actively operated on a non-discriminatory and commercially competitive basis. Moreover, the political and other complexities involved would render such an approach wholly undesirable.
In the event the Government of Mexico takes up with you the general subject of a petroleum loan, you should state that it is your understanding that under present United States Government lending practices public funds are not made available for economic development projects when private funds are available for such projects on reasonable terms.
Should you feel the need of assistance, advice or consultation in the course of your discussions, Departmental personnel and personnel of the defense agencies will be available at your request in the capacity you deem advisable.
Very truly yours,
Assistant Secretary