810.50 Rio de Janeiro/12–1048

Remarks by the Economic Counselor of Embassy in Mexico (Bohan)1

Subject: Petroleum Situation in Mexico

The Mexican petroleum question has been handled exclusively by Ambassador Thurston, the activities of his Economic Unit having been restricted to factual reporting on the industry and to the furnishing of such advice as the Ambassador requests. It is his considered opinion, in which all of his economic officers wholeheartedly share, that the policy of the Department of State in the petroleum field is sound and the only one which gives hope of obtaining oil in the strategic quantities needed by the United States. That policy, contained in a communication dated June 8, 1948 to Senator Wherry, states that the Department “is keenly aware of the desirability of encouraging [Page 617] the development of petroleum resources not only in Mexico but also in the Western Hemisphere generally” and expresses the belief that the “achievement of this objective will depend upon the establishment and maintenance of conditions under which United States petroleum companies participate.”

The clear-cut policy laid down by the Department has been vigorously and intelligently implemented by Ambassador Thurston. Before the public enunciation of that policy, the Ambassador had succeeded, through his negotiations with President Alemán, in obtaining a reversal of Mexican policy respecting foreign participation in the development of petroleum resources. Bases for discussion with foreign private interests were handed him in January 1948 and were later reviewed by a cross section of the American petroleum industry. While the consensus was that the contracts contemplated were of doubtful legality and the terms unacceptable, all parties felt that the bases were a starting point for direct conversations between private interests and the Mexican petroleum monopoly. Many of such conversations took place during succeeding months and for a time it appeared that something satisfactory might be worked out. However, Senator Bermúdez, head of Pemex, who early in 1947 had apparently been keenly desirous of bringing foreign capital into Mexico, had changed his attitude by the late spring of 1948, becoming more and more nationalistic and obstructionist. This change was almost certainly due to the awakening of political ambition. It is widely believed that Cárdenas2 promised support to a Bermúdez for President drive in 1952 if the latter would remain firm on national development of petroleum resources. El Popular, the mouthpiece of Lombardo Toledano’s Popular Party, has gone out of its way to praise the statesmanship of Bermúdez while this gentleman has never disassociated himself from the Communistic Congress of Petroleum Workers of Latin America which met in Tampico from September 22 through September 26. He gave the opening address at that convention, whose closing resolutions included one to the effect that “the petroleum of Mexico and of all the countries which attended the Congress, shall not serve to promote a new war and much less to be used during such a war,” and another to appoint a committee to direct efforts for the nationalization of petroleum in the other countries of Latin America. Furthermore, in the Pemex publicity, a growing note of nationalism is noticeable. Thus, on October 16, Petroleos Mexicanos inserted full-page advertisements “to stimulate and promote the eminently nationalistic activities which it carries out” and ascribed criticism of its activities to three groups of people, disloyal interests in Mexico who would benefit by the failure of the [Page 618] industry, people ignorant of the true state of affairs, and each person who has been turned down by Petroleos Mexicanos because it would not accept unfavorable and even ruinous contracts.

The recent visit of a sub-committee of the United States Congress gave rise to the hope in leftist circles that it would recommend the financing of a Pemex program involving between 400 and 500 million dollars and has thereby innocently contributed to the nationalistic attitude of all parties concerned. Also, the constant propaganda emanating from labor, leftist and certain industrial circles, appearing almost daily in the press, cannot but affect public opinion towards private initiative in general and foreign capital in particular. Such statements as the following are routine reading: “The North American consortiums are the principal cause of the misery of our peoples,” “enterprises like the Southern Pacific Railroad and the Mexican Light and Power Company … should not continue being the source of fabulous profits and the machinations of foreigners,” “the Havana Charter is a trap to force Mexico and the countries of Latin America into accepting the Clayton Plan,” “imperialistic forces, traditional enemies of the progress and welfare of the people, are conspiring against our liberty.”

In such an atmosphere, which our Government has done nothing effective to combat, is it any wonder that a problem which has its roots deep in mass prejudice and is a foundation stone of the Mexican: Revolution, has not been settled? Nor will it be until we again realize that foreign relations with a country or a group of countries are not a series of unrelated and independent problems but one problem with many facets. The first and primary recommendation which we must make, whether it concerns petroleum or the trade agreement or the fisheries convention, is that the specialist approach be discarded and our relations with Mexico studied as a whole and a program of action laid out, designed to win back the ground we have lost in Mexico during the past twelve months. In the meantime, and it may be a very long meantime, the hope may be expressed that the report of the Sub-Committee on Interstate and Foreign Commerce of the House will blast the prevailing idea in Mexico that a government-to-government loan is in the offing unless such recommended assistance is clearly contingent on reasonable opportunities for private capital to engage in exploratory, development, production, and exportation activities in Mexico under conditions permitting assurances of a legal basis for operations, management control, and a fair return on venture capital. Credit assistance given in this manner should be restricted to financing improvement of the internal distribution and plant facilities of Pemex [Page 619] and the proper development of existing fields. Also, study might well be given to the legal aspects of possible operations in Mexico and whether it would be necessary to seek modification of the present petroleum law (not the Constitution) or to conclude an agreement with Mexico which would guarantee the legitimate rights of our venture capital.

I want to emphasize that all of us and especially the Ambassador, realize the overriding strategic importance of developing the petroleum resources of the Western Hemisphere. Our opposition to any direct U.S. Government aid to Pemex results from our conviction that Pemex cannot be counted upon at best to do more than develop petroleum for Mexico’s growing internal demands and to maintain or at most slightly increase present export volume, and what the United States needs is oil in vast quantities. Also, direct loans without the compensation described would place the seal of United States Government approval on expropriation of petroleum properties in other countries of the Western Hemisphere and make it impossible to get such countries as Brazil to take a more liberal view towards foreign participation. This result might well lead to a far greater loss in oil deliveries from other Latin countries than any gains obtained in Mexico.

The defeatists tell us that Mexico will not change and that we must either operate through Pemex or not at all. We do not believe this. The educational and agrarian problems were at one time considered just as difficult of solution as the petroleum question. Both have been the subject of constitutional amendment. In petroleum such extreme measures are not necessary and while the difficulties of working out a basis for the return of foreign private capital are admitted and realized, the intelligent handling of our foreign relations should be able to turn the trick.

The greatest danger to the strategic supply of petroleum in the defense program for the Western Hemisphere, including Mexico, is that a few more wells brought in by Pemex, by lucky chance, will satisfy the Mexican Government and the Mexican people and make them believe that such inadequate contributions to joint defense measures are sufficient.

In conclusion, I wish to express the hope that our Government will quickly get down to business on the whole question of our relations with Mexico and that our Ambassador, who has done a magnificent job in connection with petroleum, will be supported and backed in his endeavors to meet the grave strategic needs of our country.

  1. Remarks made at the Economic Conference of Foreign Service Officers and Departmental Officials held at Rio de Janeiro from November 1 through November 6, 1948; copy transmitted to the Department in despatch 2,028, December 10, 1948 from Mexico, not printed, 810.50 Rio de Janeiro/12–1048.
  2. Lazaro Cárdenas, former Mexican President (1934–1940).