Ludwell Denny

America conquers Britain

Chapter Ten

OIL DIPLOMACY 1



THE LONDON GOVERNMENT is directly involved in the fight for oil.  It owns controlling stock in the most aggressive company.  That company is manoeuvring far strategic position dangerously near the Panama Canal.  While British companies help drain diminishing reserves of the United States, Britain excludes American companies from petroleum lands of the Empire.

To meet this emergency the Washington Government exerts a “strong” policy.  It formally challenges British oil imperialism.  It supports Yankee companies in penetrating reserves abroad.  It protests nationalisation in Latin America and other foreign fields and markets.  Directly and indirectly much of its world diplomacy is written in oil.  It is driven by fear.  Threatened with a domestic shortage, Washington wants foreign reserves essential to the nation in peace and war.

Oil is “as necessary as blood in the battles of to-marrow.”  That was Premier Clemenceau’s appeal to President Wilson for American petroleum in the winter of 1917.  “The safety of the Allied nations is in the balance.”2  After the war was won, Lord Curzon told the story:  “The Allies floated to victory on a wave of oil.”3  Then the peace conferences—and the fight of the victors over the oil spoils.  When Britain and France in 1919 were getting ready to divide the Near East between themselves in mandate form, M. Henri Berenger warned his Government:  “He who owns the oil will own the world, for he will rule the sea by means of the heavy oils, the air by means of the ultra refined oils, and the land by means of petrol and the illuminating oils.  And in addition to these he will rule his fellow men in an economic sense, by reason of the fantastic wealth he will derive from oil—the wonderful substance which is more sought after and more precious to-day than gold itself.”4

Every large nation must look outside its own territories for an essential reserve.  The United States has less than 12 per cent of world reserves.  Britain within the Empire has six per cent.  Others have less.  About 70 per cent is in countries whose weakness invites economic and political encroachment by the major Powers.  This applies especially to the Mexican Gulf-Caribbean region, the Near and Middle East, and Russia.

In self-defence many of these oil-bearing countries have passed laws vesting subsoil rights in the native governments, and laid down restrictive regulations, royalties, and duties.  This defiance of claimed property rights of foreign nationals is used by the Powers to justify diplomatic pressure and, in extreme cases, military intervention.  Large capital investment, often such as only American or British companies can provide, is necessary for successful exploration and production.  Unusually large expenditure is required in most of these countries.  Their resources can be tapped only by long pipe-lines across mountain, desert, or jungle to the sea.  That is the situation in Persia, Mosul, Colombia, and less important fields.  Often a second weak country or territory is the only practicable outlet for otherwise inaccessible deposits;  as the outlet for the south Persian field through the Baktiari tribe region, the Russian Caucasus gateway for the north Persian field, the projected pipe-lines across Syria or Palestine to tap Mosul in Iraq, and the Venezuelan passage out of the east Colombian pool.  Thus the battle of foreigners for one field may extend from the producing territory to the transit country.

There is a larger international issue.  An approximate balance among several Powers in an oil war might result in an armistice, so the strong could divide the riches of the weak.  But two Powers have gained control of most of the world reserves.  Britain and the United States are fighting for supremacy.  Britain has grabbed three-quarters of the earth’s known supply.  “America has recklessly and in 60 years run through a legacy that, properly conserved, should have lasted her for at least a century and a half,” according to Sir Edward Mackay Edgar, British petroleum banker, writing in 1919.  “The British position is impregnable.  All the known oil fields, all the likely or probable oil fields, outside of the United States itself, are in British hands or under British management or control, or financed by British capital.”5

The struggle is not alone between American and British ca ital.  It is between American capital and the London Government.  Of the two dominant British companies, the London Government has close unofficial relations with one and has direct controlling ownership of the other.  That makes oil an international explosive.  To equalise the contending forces American petroleum princes have sought State Department support.  “The only thing needed now is an aggressive foreign policy on the part of the United States,” was the plea of Mr. A.C. Bedford, late chairman of Standard Oil of New Jersey.  “All proper diplomatic support in obtaining and operating oil-producing property” abroad was recommended by the Federal Trade Commission in 1923.6

Such prodding was not needed by the State Department.  Since 1902 its consuls had been active in behalf of Standard and other American companies abroad.7  As the Anglo-American competition intensified, the Department from time to time reminded its foreign representatives of their duties in this connexion.  Specific instructions were sent by the Department to all United States diplomatic and consular officers on August 16, 1919, as follows:  “You are also instructed to lend all legitimate aid to reliable and responsible United States citizens or interests which are seeking mineral oil concessions or rights.  Care should be taken, however, to distinguish between United States citizens representing United States capital and United States citizens representing foreign capital;  also between companies incorporated in the United States and actually controlled by United States capital and those companies which are merely incorporated under United States laws but dominated by foreign capital.”8

Mr. Charles Evans Hughes testified before the Coolidge Federal Oil Conservation Board:  “The foreign policy of the Government, which is expressed in the phrase ‘Open Door,’ consistently prosecuted by the Department of State, has made it possible for our American interests abroad to be intelligently fostered and the needs of our people, to no slight extent, to be appropriately safeguarded.”9  The former Secretary of State and present counsel of the American Petroleum Institute and Standard Oil speaks with the authority of experience.

If the British Government by company ownership and direct participation in the struggle for foreign reserves has transformed oil into an international explosive, the Washington Government in challenging British supremacy may touch off that explosive.  The most provocative activities of the State Department since the Great War have been in the service of oil.


MELODRAMA:  THE PROLOGUE


The prologue of the international oil melodrama begins in that part of the world better known as the birthplace of Christianity.  There in the Near East at the turn of the century appeared two gentlemen from afar.  One was an American, Rear-Admiral Colby M. Chester.  The other was a Briton of the more adventurous sort, an Australian, Mr. William K. D’Arcy.  While on a diplomatic mission to Turkey in 1899 to obtain redress for American losses in Armenian massacres, the Admiral scented oil.  He hurried home, resigned his naval commission, and returned to the Sublime Porte.

American Indians in western Pennsylvania almost three centuries earlier had led Father Joseph de la Roche D’Allion, a French Franciscan missionary, to a pool of black waters.  Since then this miracleworking fluid had been used increasingly, first as a medicament and later as an illuminant.  Out in Cleveland a Mr. Rockefeller had the happy idea of dominating the growing industry by pipe-line control, railroad rebates, legislative manipulation and unscrupulous competition.10  Control of American production gave Mr. Rockefeller the premier position as world distributor.  British and Dutch companies were springing up in the Far East, French and Russian capital was beginning to develop the Caucasus, but America was the largest producer and Standard the chief seller in foreign markets.  Then in 1898 new gushers in the Caucasus sent Russian production upward till it surpassed American output for a time.  In other countries a few industrial dreamers were becoming oil conscious.

Hence the presence in the Near East of Admiral Chester and of Mr. D’Arcy.  The latter obtained in 1901 from the Shah a 60-year monopoly oil concession covering five-sixths of the Persian Empire, all except five northern Caspian provinces beyond the mountains.  For these half-million square miles and their petroleum riches he paid $20 thousand cash, pledged the same amount and 16 per cent royalty.

Sultan Abdul Hamid of Turkey was less obliging than the Persian Shah.  Admiral Chester got only promises from the Turk.  Mr. D’Arcy had gone to London, organised what was later the Anglo-Persian Company to exploit his new concession, and was soon back in the Near East with his eyes on the Mesopotamian vilayets of Bagdad and Mosul.  These were the areas sought by the Admiral.  Then Germans appeared.  They obtained the Anatolian Railway Company concession, with an option to drill the Bagdad-Mosul fields on shares with Abdul.  Then the Sultan changed his mind.  Enter Mr. D’Arcy and Anglo-Persian.  But before the British could close their deal, Abdul was swept out by revolution and the Young Turks were in power.

Again the American got concession promises in writing.  But before his contract could be ratified the British and Germans had combined against him.  They formed in 1912 the Turkish Petroleum Company, consisting of the British Dutch-Shell oil group, the Deutsche Bank of Berlin, and the Turkish National Bank in which there was much British capital.11  The new organisation revived the 1904 German claim.  Within a year the Turkish Bank’s 50 per cent stock interest in the joint company was transferred to Anglo-Persian.  Then it was apparent that no less a power than the British Government had played and won—from the American holder of the concession.

The London Government now came into the open.  With the aid of the Berlin Foreign Office it forced Turkey in 1914 to confirm the old German claim in the form of a Turkish Petroleum Company concession to the Bagdad-Mosul fields.  Intervention by the British Government to form the new company was opposed by some British oil men.  This opposition was explained at the time by Sir Robert Waley Cohen, Shell Oil Company director:  “These arrangements were entered into at the instance of the British Government.  We do not believe in mixing up politics with business:  it leads sometimes to corruption, always to inefficiency, and tends to convert what should be mere commercial rivalries into national animosities—a very serious disadvantage.”12

But the London Ministry apparently was less concerned with preventing national animosities than with preparedness to win any war provoked by such animosities.  Consciously and deliberately London had made a momentous decision.  The British Government was going into the oil business as a direct participant in the struggle for foreign concessions and markets.  This decision had been maturing since 1905.  In that year Mr. D’Arcy, after unsuccessful efforts to interest British capital in his Persian concession, was on the point of selling to foreigners.  To prevent this Mr. E.G. Pretyman, Civil Lord of the Admiralty, and other officials secretly arranged for British private capital to operate the Anglo-Persian Company until it could be taken over openly by the British Government.

Why ?  Where had the British Government picked up so early the lesson of international oil power, which the rest of the world did not learn until the Great War ?  The London Government learned from that rare type of genius, a professional military man with imagination and without fear of bureaucratic superiors.  “The use of fuel oil adds 50 per cent to the value of any fleet that uses it.”  That is orthodox doctrine now.  It was revolutionary heresy when Admiral Lord Fisher began to preach it to the British Government in 1882.  “The use of oil fuel (would) increase the strength of the British navy 33 per cent because it can re-fuel at sea off the enemy’s harbours,” the Admiral reported later.  “Coal necessitates about one-third of the fleet being absent refueling at a base. ... With two similar dreadnoughts oil gives three knots more speed—and speed is everything.  Oil for steam-raising reduces the (coal) engine and boiler-room personnel over 60 per cent.  [Engineers now say an equal amount of oil will produce twice as much steam-power as coal.] ... At any moment during refueling the oil-engine ship can fight—the coal-burning ship cannot. ... Oil does not deteriorate by keeping.  Coal does. ... It is a criminal folly to allow another pound of coal on board a fighting ship.”13

Lord Fisher not only discovered the method.  He found the man.  The man was a Holland clerk.  He was rising as an official in the Royal Dutch Petroleum Company.  The Admiral described this gentleman to the British Government as “Napoleonic in his audacity and Cromwellian in his thoroughness.”

Henri W.A. Deterding was the name of this new Napoleon.  He lived up to Lord Fisher’s description.  He extended the oil holdings of Royal Dutch into a dozen countries.  He arranged for increased British capital control of this international trust.  He merged the British Shell oil group with it, making of the two largest European organisations a Dutch-Shell combine, the strongest in the world.  He became a British citizen.14  The British Government made him Sir Henri.  And then he began to make British foreign policy.  By 1913, according to Lord Fisher’s Memorandum at the time, Sir Henri was “confessing” to the British Royal Commission on oil that:  “He possesses in Roumania, in Russia, in California, in Trinidad, in the Dutch Indies, and shortly in Mexico, the controlling interest in oil.  The Anglo-Persian Company also says he is getting Mesopotamia and squeezing Persia, which are practically untouched areas of immense size reeking with oil. ... Sir Thomas Browning says in his evidence that the Royal Dutch-Shell combination is more powerful and aggressive than ever was the great Standard Oil Trust of America.  Let us therefore listen with deep attention to the words of a man [Deterding] who has the sole executive control of the most powerful organisation on earth for the production of a source of power which almost doubles the power of our navy whilst our potential enemies remain normal in the strength of their fleets.”15  This British Commission, “listening with deep attention” to the Oil Napoleon, was getting ready for the war which Lord Fisher a decade before had predicted to the very year.

To the Fisher-Deterding team was added the political power of Mr. Winston Churchill, then First Lord of the Admiralty.  Just a year before the outbreak of the Great War, the First Lord revealed to the House of Commons the policy which has since made history.  “Our ultimate policy is that the Admiralty should become the independent owner and producer of its own supplies of liquid fuel,” he explained.16

To carry out this policy the London Government moved rapidly.  It reached for Mosul.  The British had one-quarter interest with Germans and Turks in the Turkish Petroleum Company’s unrecognised German claim.  Within a few months the London Cabinet had increased British ownership in that company to three-quarters, left the Germans with only one-quarter interest in their own claim, shut out completely the Turks who controlled the territory and the Kurds who owned the oil land, and taken the concession from the American who held it.  The British Government then bought for $11 million controlling interest in the Anglo-Persian Company.  With this contract went 48 years of monopoly over most of the Persian Empire, with the then richest oil fields of the Eastern Hemisphere.

Then August 1914.  Mr. Churchill’s preparedness was “vindicated”—at least there was war.  Lord Fisher was vindicated—oil was the decisive weapon on sea, land, air.  But out of the war strode a larger figure.  It was he who had quietly guided them both in driving forward this British policy, Sir Henri.

The War, however, made demands which even this great Napoleon could not meet.  “With the commencement of the War, oil and its products began to rank as among the principal agents by which they [the Allies] would conduct it and by which they could win it,” Foreign Minister Curzon said.17  Governments appointed Oil Ministers with Cabinet rank, and finally the Inter-Allied Petroleum Council was organised to ration the precious fluid.  A famine was soon in sight.  The Fisher British navy had 45 per cent of its ships burning oil.  On the land fronts motor trucks and the new tanks and planes were consuming gasoline at an accelerating rate.

Germany, cut off from adequate oil supplies and forced to seek substitutes, was trying to reduce her enemies to the same crippled condition.  She directed her submarine campaign especially against the Allies’ sea train of tankers.  As a result Great Britain was close to a naval oil shortage and capitulation by the end of 1917.  Premier Clemenceau sent his famous appeal to President Wilson.  “A failure in the supply of petrol would cause the immediate paralysis of our armies, and might compel us to a peace unfavourable to the Allies,” the old Tiger wrote.18  America answered the Allies’ call for help.  Standard and other companies, with tanker convoys of the United States navy, succeeded where Napoleon Deterding had failed.  When the War was over, Foreign Minister Curzon said the United States had furnished “over 80 per cent of the Allied requirements of petroleum products.”19

Oil was more than a major weapon of the military and naval campaigns.  Often it was the objective of those campaigns.  This is apparent in most of the war memoirs, especially those of Admirals Fisher and Jellicoe, Mr. Churchill, and General Ludendorff.  Effort to obtain oil reserves for the successful prosecution of hostilities and for commercial strength after the War explained to a large extent British military operations in Iraq, the Turkish drive toward Baku, and the German campaigns in Galicia, Roumania, and the Caucasus.  The London Government after the Armistice set out to get British control of the world’s oil sources.  A Cabinet Petroleum Imperial Policy Commission was organised.  During the War the Government temporarily had taken over Dutch-Shell stock of British citizens.  The new Petroleum Commission and Sir Henri now arranged for British private control of Dutch-Shell in peacetime and for quick transfer to direct governmental control on threat of war.  Lord Long, war-time Petroleum Minister, was named First Lord of the Admiralty.  Completion of the process of converting the coal-burning remnant of the navy into oil-burning ships was ordered.  Similar conversion of the merchant marine was encouraged.  A permanent oil reserve, sufficient for one year of war operations, was stored in England.

The Foreign Office strengthened its diplomatic lines to defend and extend claims to concessions in the Near East and elsewhere.  British companies were encouraged to become more aggressive in seeking and obtaining lands and rights in foreign countries.  In addition to Dutch-Shell activities in this direction, two organisations were chosen to furnish scouts and shock troops for the new foreign concession drive.  These were the D’Arcy Exploration Company, an Anglo-Persian subsidiary which the London Government owned directly, and British Controlled Oilfields, having a specially organised board of trustees with two Government representatives.20  One of the latter was Mr. Pretyman, former Civil Lord of the Admiralty and author of the earlier secret arrangement whereby Anglo-Persian had been kept from foreign hands and saved for the British Government.  As a final touch to the campaign, Britain tightened her Empire exclusion policy preventing Americans from acquiring petroleum lands or stock in British companies.

The plan worked well.  There was much exulting in informed quarters in London.  By May 1919, the London Times was quoting Mr. Pretyman, M.P., in this vein:  “When the War came, the position was that the British Government, with its vast interests in the whole world, controlled about two per cent of the world’s petroleum supplies. ... (Now) he thought that when adjustments were completed the British Empire would not be very far from controlling one-half of the available supplies of petroleum in the world.”  These “adjustments,” to which Mr. Pretyman referred, brought Great Britain increasingly into conflict with the State Department and American companies, and resulted in an American awakening.

Americans had been thinking about the oil lessons of the War.  News of the British drive for world oil hegemony began to come across the Atlantic.  Then there was that 1919 article by Sir Edward Mackay Edgar.  It was widely reprinted in the United States.  These repeated British jibes that America was rapidly exhausting her supply and would soon be dependent upon Britain, who dominated the world’s oil future, produced an American reaction which was a mixture of oil consciousness and of anti-British nationalism.

The American oil king 25 years earlier had a near-monopoly hold on European and Far East markets.  After 1900 heavy Russian production of the Nobel-Rothschild interests, and rise of Royal Dutch and the Shell group had challenged Standard’s sway.  King John D. tried to dispose of his most dangerous European rival, Royal Dutch, by the same tactics which had defeated his many American competitors.  He planned to buy out Royal Dutch, or failing in this, start a price-war to force Royal Dutch into his hands by the bankruptcy route.  When Standard in 1898 had forced Royal Dutch close to surrender, it was the then obscure Mr. Deterding who saved the day.  He got a loan from the Paris Rothschilds.  Since then the French have held a minority non-controlling interest in Royal Dutch.21  Having obtained financial reinforcements for continuing the price-war with Standard, Mr. Deterding in 1902 made a working agreement with Shell for joint action against the American Trust.  This led in 1907 to the Dutch-Shell merger.22  The former Dutch clerk began to earn the title of oil emperor.  He took some of the European territory from Standard.  After another long and costly battle, the two agreed in 1911 to divide equally the Chinese and Japanese markets.

Soon Dutch-Shell renewed the attack, this time invading the United States.  Beginning in 1912, Mr. Deterding’s agents started to organise or purchase in this country producing companies such as California Oilfields, and Roxana Petroleum Company.  He also was reaching southward into Mexico, and the Caribbean area through such companies as La Corona, Mexican Eagle.

Standard met Dutch-Shell expansion into the United States by stirring up the Washington Government and by loosing “British peril” propaganda.  Mr. Deterding countered the Rockefeller propaganda by permitting American investors to buy minority shares in the Dutch-Shell American companies.  He thereby incidentally let Americans furnish most of the actual capital for the British penetration of this country.  So rapid was British development that over half of Dutch-Shell’s world production was soon coming from American fields.  Standard charged the alien trust with pushing production here and holding back its non-American fields, deliberately to exhaust United States reserves.

This situation was reaching a critical point in 1917.  But then the United States entered the Great War.  On Washington’s orders anti-British propaganda was suddenly turned into pro-British propaganda.  The Kaiser was elevated into Mr. Deterding’s place as arch-fiend.  There followed an Anglo-American oil truce, with Yankee wells and tankers furnishing 80 per cent of the “blood of battles which won the War.”

After the signing of the Armistice, however, the new British oil drive was centred especially in the United States.  After acquiring in 1919-20 the Union Oil Company of Delaware, Dutch-Shell grabbed for the Union Oil Company of California.23  With the avowed purpose of checking British penetration, an American syndicate rescued the latter organisation by restricting Dutch-Shell to 26 per cent of the capital stock.  In the midst of these manoeuvres and counter-manoeuvres, the London Financial News on February 24, 1920, announced as “a modest estimate” that Great Britain’s “present command of the world’s oil resources runs to no less than 75 per cent of their entirety, compared with two per cent when that country entered the war.”  But a greater one was to describe the situation in which the British had obtained world oil power and the Americans had awakened “too late.”

“As regards competition, the fight far new production deserves our special attention,” Sir Henri said in his 1920 annual report.  “The advantage of having production not concentrated in only one country, but scattered all over the whole world, so that it may be distributed under favourable geographical conditions, has been clearly proven.  It needs hardly be mentioned that the American petroleum companies also realised, although too late, that it was not sufficient to have a large production in their own country.  It goes without saying that we are now reaping the benefits resulting from this advantageous position.  Our interests are therefore being considerably extended;  our geologists are everywhere where any chance of success exists.”24

The Americans might be “too late,” as Sir Henri and others claimed, but they were prepared at least to make a lot of noise about it.  The Senate in March 1920 asked the State Department what were the foreign government restrictions against American acquisition of oil fields abroad.  Also the Senate wanted to know what the United States Government was doing to defend the sacred American foreign policy of the Open Door.  The State Department’s answer damned its late ally in the crusade for liberty, the British Government.

“The policy of the British Empire is reported to be to bring about the exclusion of aliens from the control of the petroleum supplies of the Empire and to endeavour to secure some measure of control over oil properties in foreign countries,” the Department charged.25  “This policy appears to be developing along the following lines, which are directly or indirectly restrictive on citizens of the United States:  1.  By debarring foreigners and foreign nationals from owning or operating oil-producing properties in the British Isles, colonies, and protectorates.  2.  By direct participation in ownership and control of petroleum companies.  3.  By arrangements to prevent British oil companies from selling their properties to foreign-owned or controlled companies.  4.  By Orders In Council that prohibit the transfer of shares in British oil companies to other than British subjects or nationals.  It is understood that the British Government has a controlling interest in the Anglo-Persian Oil Company and that it has also assisted in the development of the Papuan oil fields by bearing one-half of the expense and contributing experts.”

Congress promptly passed a mineral leasing law prohibiting acquisition of public lands by nationals of countries denying such rights to Americans.26  The law, however, did not apply to private lands and therefore could not stop Dutch-Shell penetration here as British regulations excluded American producers from most of the Empire.  A bill for that purpose failed. While the State Department and Congress were indicting British policy, the London Government was negotiating secretly with France to get virtual British control in most of the major fields of the Eastern Hemisphere.  The natural riches disposed of by the two Powers in that agreement belonged neither to Britain nor to France, but to Russia and the peoples of the Near East who had been “freed from the menace of German enslavement” by “the war to make the world safe for democracy.”

The San Remo agreement of April 24, 1920, in addition to pledging mutual support in Roumanian and minor fields, provided in written or unwritten form for the following:  A British controlled company to take over the Mosul and Iraq fields, France receiving the 25 per cent share of the Turkish Petroleum Company sequestrated from Germany and agreeing to construct outlet pipe-lines across Syria;  France to support the British drive for monopoly concessions in Russia;  Britain to get distribution and sales contracts with the French Government and French private consumers, and, in payment, to hand over Syria to France as a League of Nations mandate.  As it worked out France got Syria but Great Britain did not get all the oil—or, at least, has not yet.  Great Britain was blocked partly by the Bolshevist régime in Moscow and from another angle by the Washington Government.

American public opinion was aroused by statements of Secretary of the Interior Lane and other officials.27  Politicians on the Senate floor competed in denouncing Great Britain.  A movement was started to beat London at its own game by putting the United States Government directly into the business of obtaining foreign concessions in competition with the British Government companies.  Senator Phelan of California introduced an unsuccessful resolution in May 1920 proposing organisation of a Federal company—“The United States Oil Corporation”—to direct a general American oil drive overseas and itself acquire foreign concessions.28

The State Department, under pressure of the public, Congress, and Standard, struck hard and fast.  Diplomatic notes shot back and forth between Washington and London filled with charges and countercharges.  Washington’s notes emphasised the American “impression” that Great Britain as a general policy was “preparing quietly” to monopolise the Mosul and Iraq fields.29  London replied with denials.  The State Department answered with a quotation from the San Remo agreement that the company (Turkish Petroleum Company) exploiting the Mosul-Iraq fields “shall be under permanent British control.”30  Downing Street countered with the charge that the United States Government had used its power in Costa Rica and Haiti “to secure the cancellation of oil concessions previously and legitimately obtained by British persons or companies.”31  In contrast to this, Great Britain had not driven Standard out of Canada.

The State Department finally challenged the British-French division of Near East spoils on the ground that the United States as one of the Allied victors should not “be disassociated in the rights of peace from the usual consequences of association in war.”  The British press screamed:  “Hypocrites.”  “One observes that the [American] high-sounding note of the principle of economic equality [Open Door] has now sunk into the lower note of the principle of ‘sharing the swag,'” was the way Davenport and Cooke put it.32  American protests served to delay League of Nations ratification of the mandate.  Standard continued to stir up the American public.  Senator Frank B. Kellogg, before his defeat by the voters of Minnesota and subsequent party promotion as Ambassador to London and Secretary of State, kept up the agitation in Congress.  The State Department went on writing provocative notes.33

While the Americans talked and wrote, the British acted.  Sir Henri pushed on into new foreign fields.  He arranged with the Netherlands Government for Dutch-Shell to receive a monopoly concession in the new oil fields of Djambi, then believed to be the only resources in that area not already controlled by the British company.  Standard and Sinclair interests, both angling for the concession, learned of the Deterding deal.  The State Department wrote another note on the sanctity of the Open Door, this time to The Hague, threatening retaliation by excluding Dutch companies from American private, as well as public, lands, if the Government of The Hague persisted in its discriminatory policy.34  An unsatisfactory reply from the Dutch Government brought from Washington the intimation of a possible boycott of Dutch industries by American capital generally.35  But these protests to The Hague were as ineffective as the Washington notes to London.  Dutch-Shell got the Djambi concession.  Nor did Washington carry out its threatened retaliation by excluding Dutch-Shell from the United States or imposing a general capital boycott on Dutch industry.  Loss of the Djambi field was a serious defeat for the Rockefeller firm.  When that concession went to Mr. Deterding, there disappeared one of the few remaining opportunities for Standard to get what it had sought so long, a major producing field in the Far East.

Despite Standard’s propaganda, the State Department’s report to the Senate in 1920, the diplomatic controversies over Mosul and Djambi, and sporadic gusts of anti-British sentiment, apparently the American public did not realise the full significance of the oil war until publication of the long-awaited Report of the Federal Trade Commission, on Lincoln’s Birthday 1923.  The commission’s summary, which Was a sensation at the time, said:

“The more important facts developed in this report may be concisely stated as follows:  1.  The Royal Dutch-Shell group, a combination of the Royal Dutch Company and the Shell Transport and Trading Company of London, has world-wide oil investments, including numerous refineries, an immense fleet of tank ships, and petroleum production in many lands, which, in 1921, was no less than 11 per cent of the world output.  2.  The Royal Dutch-Shell group in February 1922 consummated a merger of the principal properties and investments of the Union Oil Company (Delaware) with its chief American subsidiaries in a new company, the Shell Union Oil Corporation.  3.  The Shell Union Oil Corporation now controls over 240 thousand acres of oil lands in the United States;  has about 3.5 per cent of the total output of crude petroleum;  owns extensive properties in refineries, pipe-lines, tank-cars, and marketing equipment;  and is one of the larger companies in the domestic petroleum industry.  4.  The Union Oil Company (Delaware) owned about 26 per cent of the stock of the Union Oil Company of California, but, to prevent the Royal Dutch-Shell group from gaining control, certain stockholders of the Union of California organised an American-controlled holding company, which now owns more than half of its issued stock.

“5.  The most important instances of discrimination by foreign governments against citizens of this country are the exclusive policies of the Governments of Great Britain and the Netherlands in respect to the oil fields of India and the Dutch East Indies, and the 1920 San Remo agreement of Great Britain and France covering the undeveloped oil fields of Mesopotamia and of the British and French colonies.  6.  Denial of reciprocity of treatment to citizens of this country appears to exist with respect to the petroleum industry of Australia, British Borneo, certain African colonies, British Honduras, British Guiana, and Trinidad;  France and French possessions;  Italy, and the Netherlands and its dependencies.  7.  Thus forced to modify its historic policy, Congress in 1920 enacted a mineral leasing law for public lands which forbids the acquisition of properties by the nationals of any foreign country that denies reciprocity to Americans, in consequence of which certain applications for petroleum leaseholds have been denied to the Royal Dutch-Shell group.  What further efforts may be made by this combination to acquire privately-owned petroleum lands or competing oil companies, it is, of course, impossible to predict, or how far antitrust laws may be effective to prevent them.

“The supply of crude petroleum in this country is being rapidly depleted to meet the requirements of a growing domestic consumption and foreign trade.  The sources of supply of the domestic industry are concentrated within its own borders and in Mexico, while those of its principal competitor are widely distributed throughout the whole world.  It appears obvious that a nation having widely distributed supply and storage facilities and owning the means of distribution will have certain advantages in world trade against one having concentrated supply.”36

The British, not content with excluding Standard and other American companies from the Near East and Far East and with penetrating the United States, began another successful flank attack on American entrenchments in Mexico and the Caribbean countries.  This was a tactical error.  The Washington Government had special interests in that area.

An oil Administration was in power in Washington.  President Harding was an avowed friend of the big business interests which contributed liberally to his campaign fund.  In Mr. Harding’s Cabinet were several men with close oil connexions.  The most notorious was Albert B. Fall, Secretary of the Interior.  Mr. Fall was an associate of Mr. Harry F. Sinclair and Mr. Edward L. Doheny, next to the Rockefellers the then largest American oil magnates.  He accompanied the Sinclair party to Moscow seeking oil concessions.  He had Mexican oil holdings in the Doheny companies.  This was the patriot who sold out the United States naval oil reserves to Mr. Doheny and Mr. Sinclair.  After years of legal red-tape, Mr. Fall in 1929 was convicted of accepting a bribe from Mr. Doheny and sentenced to prison.  The United States Supreme Court found in the Teapot Dome case:  “He was a faithless public officer.  There is nothing in the record that tends to mitigate the sinister significance attaching to that enrichment ... Fall had been wilting to conspire [with Sinclair] to defraud the United States.”  Of the Fall-Doheny deal in the Elk Hills reserve lease, that high court said:  “The whole transaction was tainted with corruption.”37  But before these things were known, he became a power in the international oil war.  In Mexico City, in Moscow, in many capitals, policies were being shifted, concessions lost and won, because Mr. Fall was the Washington Government—or was supposed to be.

Open Door—Monroe Doctrine—Standard Oil—Doheny and Sinclair—Fall in the Harding Cabinet.  Here were ingredients of an international explosion.  An American payment of $25 million had been arranged to settle Colombia’s Panama Canal claims, partly to stop the British oil drive in Colombia.  Now an American naval vessel was sent to the Tampico oil fields of Mexico.  An American note was sent to London.  The note was so strong, the diplomats decided it was “not fit to print.”  Members of the London Government, who considered its function of maintaining friendly relations with the United States more important than its functions as an oil company, insisted on a general oil compromise.

“For the betterment of Anglo-American relations the British Government fell to bribing Standard Oil;  the bribes were to be paid in the oil of Persia and Mesopotamia,” say the Britons, Davenport and Cooke.  But, they lament:  “Did any one suppose that Standard Oil could be silenced by sops from two of the world’s oil fields as long as it did not control the rest?”38  The British Government chose Sir John Cadman to make the deal with New York and Washington.  Sir John had been the British negotiator and signer of the San Remo agreement.  He was now an official of Anglo-Persian.  He came to the United States with the British compromise offer.  Standard was promised permission to continue its Palestine exploration, which had been blocked by the British.  There was bigger bait.  Standard was to get an equal share with Anglo-Persian in the north Persian concession39  (not to be confused with the Anglo-Persian monopoly concession over the remaining central and southern Persia) and a minor share in the Turkish Petroleum Company which was to control the Mosul field.  These terms were acceptable to Standard and Washington, at least as a basis for later negotiations.  The threatening State Department notes ceased.  The much-stressed issues of Non-discrimination and the Open Door disappeared for a moment.

In the end this plan for an Anglo-American petroleum entente failed.  Secretary Fall’s ally, Mr. Sinclair, had been neglected.  While the British and Standard were agreeing to share the north Persia fields, Sinclair representatives were negotiating with the Shah for the same concession.  Franco-British conflict in the Near East and Turkey’s claim to Mosul sovereignty caused some doubt as to whether Britain in any case would have this field to divide with Standard as promised.  Sir Henri tried to exclude Standard and Sinclair from Russia.  Emergence of Venezuela and Colombia as major fields of the future, and revival of the long Mexican dispute, set the British and Americans to fighting again in the dangerous Monroe Doctrine region.


MEXICO REVOLTS


Secretary Fall’s friend, Mr. Edward L. Doheny, was the original oil tsar of Mexico.  He had gone to the southern Republic with small capital and in 1900 acquired the Hacienda del Tulillo of 280 thousand acres for $325 thousand.  Soon he was buying cheaply or seizing other lands, after providing financially for friendship of the dictator, President Diaz.  Doheny production at times was worth more than $1 million a week.  President Diaz, watching the American “wild-catter” grow rich, decided to check Doheny domination by bringing in the British.  So he granted favoured concessions to Lord Cowdray.  Mexican Eagle, the Cowdray company, had 58 per cent of the total Mexican production in 1910.

Mr. Doheny and Standard fought the Cowdray interests with every conceivable weapon.  “It was Mr. Pearson [Lord Cowdray] who, in spite of all difficulties and all Standard Oil’s intrigues—the Americans even hired bands of Mexican brigands, who destroyed Pearson’s oil-pipes and set his wells on fire—held on in Mexico, and thus prevented that country from altogether turning into an economic province of the United States,” Dr. Anton Mohr, the Norwegian geographer, wrote in his book The Oil War.40

The Americans had reason to believe that the overthrow of Diaz after 35 years’ reign was necessary to prevent British ascendancy in Mexican oil.  According to the British, Doheny and Standard agents directly caused the 1911 Madero Revolution which unseated Diaz.  Testimony of several witnesses at the U.S. Senate Foreign Relations Committee hearings in 1913 tended to show that American oil interests subsidised that revolution.41  The Washington Government, by speedy diplomatic recognition and an arms embargo against Mexican counter-revolutionists, tried to keep President Madero in power.  But within two years he was deposed and executed by General Huerta—the British favourite.  Huerta was openly opposed to the Yankee oil men and generous to Lord Cowdray.  The latter confessed he was a subscriber to the Huerta counter-revolutionary “loan.”

Mr. Wilson became President in Washington.  He was as anxious to block British oil expansion in Mexico as was his Republican predecessor, Mr. Taft.  President Wilson’s attitude, as reported by his alter ego, Colonel E.M. House, was:  “We do not love him, for we think that between Cowdray and Carden [British Minister in Mexico] a large part of our troubles in Mexico has been made.”42 a Minister Carden was trying to get supplies for the British navy, which was being converted rapidly to oil-fuel power under the Fisher program for war with Germany.  Colonel House charged that General Huerta rewarded Lord Cowdray with concessions.43  Britain and other nations recognised the Huerta Government, but President Wilson refused.

When the British Foreign Office sent Sir William Tyrrell to Secretary of State Bryan to lessen the tension over Mexico, the latter told Sir William:  “The Foreign Office has simply handed its Mexican policy over to the oil barons for predatory purposes.”  The British diplomat replied:  “Mr. Secretary, you are talking just like a Standard Oil man ... you are pursuing the policy which they have decided on.”44

While the British Foreign Office was uncovering the Standard pipelines leading into the White House and State Department, the American “Independents” were openly drilling in Congress and the press.  Mr. Doheny told the Senate Foreign Relations Committee in 1913:  “Inasmuch as both Germany and Great Britain are seeking and acquiring sources of supply for large quantities of petroleum it seems to me that there can be no question but that the United States must avail itself of the enterprise and ability and pioneer spirit of its citizens to acquire and to have and to hold a reasonable portion of the world’s petroleum supplies.”45

At this point a new factor emerged which has since continued to influence United States-Mexican relations.  Washington began to worry about the effect on Central America of Mexico’s example of nationalist revolution and defiance of Yankee interference.  Here was a “menace” to the much-expanded and reinterpreted Monroe Doctrine.  What of the safety of the Panama Canal ?  President Wilson presented the Mexican problem to Congress from this angle.46  In November 1912 orders were despatched by Mr. Wilson to “cut him [Huerta] off from foreign sympathy and aid and from domestic credit, whether moral or material, and to force him out. ... If General Huerta does not retire by force of circumstances it will become the duty of the United o use less peaceful means to put him out.”47

Realising belatedly that Washington would use military force if necessary to unseat the alleged British puppet, London tried to have a hand in picking the next dictator of Mexican concessions.  London proposed that European Powers join in requesting President Huerta to resign, enabling him to get out but to “save his face.”  Washington had no intention of sharing with Britain its “duty” of pacifying Mexico.  Such a precedent might jeopardise the Monroe Doctrine, not to think of the American oil wells there desired by British Government companies.  The British proposal was rejected.  The President instead intended to dispose of Huerta by giving American aid to the rebel chiefs.48

Huerta asserted:  “Mexico is defending not only her national sovereignty but that of all Latin America as well.”  When Argentina, Brazil, and Chile, the three strongest South American governments, were moved by Mexican sympathy and a spirit of Latin American solidarity to offer to conciliate the Huerta-Wilson dispute, the American Executive found it expedient to accept—and equally expedient to block the A B C conference at Niagara Falls when it met.  The Washington Government unaided was thus successful in putting out President Huerta through direct intervention, and at the same time was able effectively to disrupt South America’s effort to check growing Yankee control in the Caribbean countries.

When the Panama Canal tolls issue came to the fore, Washington was able to force Downing Street, though not the British oil men, to withdraw active support from General Huerta.  Mr. Wilson then isolated the Huerta regime by a financial and munitions blockade, later permitting the rebel chiefs Carranza and Villa to get American arms.  He used the Tampico flag incident as one excuse for American naval and military occupation of Vera Cruz, although General Huerta had apologised and offered to submit the dispute to The Hague tribunal for arbitration.49

American oil companies, to get rid of the pro-British Huerta, refused to pay taxes to his Government, and gave financial support to General Carranza.  At the U.S. Senate Committee hearings in 1919 Mr. Doheny expressed the opinion that “every American corporation doing business in Mexico extended sympathy or aid or both—and we extended both—to Carranza. ... It was a well-known fact that the British assisted in the sale of a large amount of Huerta bonds and they were distinctly favourable to the Huerta Government at that time.”50

But when President Carranza assumed office he did not reward his American oil friends.  Instead he endeavoured to “vindicate” the 1911 revolution.  The Carranza Constitution of 1917 attempted to regain for the Mexican people some of the country’s natural riches which had been parcelled out for a price by the dictator Diaz to foreign companies.

After 1917 the American-Mexican conflict centred around the Washington contention that Article 27 of the Constitution, and the laws and decrees putting that Article into effect, were retroactive and confiscatory.  The Mexican Government from the beginning denied these charges and defended its sovereign right to enact the disputed measures.  Article 27 provides:  “The ownership of lands and waters comprised within the limits of the national territory is vested originally in the nation which has had, and has, the right to transmit title thereof to private persons, thereby constituting private property. ... In the nation is vested the legal ownership [dominio directo] of all minerals ... petroleum, and all hydrocarbons—solid, liquid, or gaseous. ... Legal capacity to acquire ownership of lands and waters of the nation shall be governed by the following provisions:  1.  Only Mexicans by birth or naturalisation and Mexican companies have the right to acquire ownership in lands, water and their appurtenances, or to obtain concessions to develop mines, waters, or mineral fuels, in the Republic of Mexico.  The nation may grant the same right to foreigners, provided they agree before the Department of Foreign Affairs, to be considered Mexicans in respect to such property, and accordingly not to invoke the protection of their governments in respect to the same, under penalty in case of breach, of forfeiture to the nation of property so acquired.  Within a zone of 100 kilometres from the frontiers and of 50 kilometres from the seacoast, no foreigner shall under any conditions acquire direct ownership of lands and waters.”51

The State Department’s note of protest of April 2, 1918, against the first regulatory decree, stressed the argument that excessive taxation is a form of confiscation.52  Carranza informed Washington that the question of taxation was one of internal affairs inherent in its right as a sovereign state.  Some American oil interests which had helped to place Carranza in power were now trying as vigorously to overthrow him.  The notorious General Pelaez, a local power in the Tampico district, who had been used by the oil men previously, was again brought forward as the “American hope.”  Within the period 1917-1919, American companies paid thousands of dollars for his “protection.”53

Article 27 had brought American and British oil men into a temporary entente for defence of their capitalist rights against the common menace of “nationalisation.”  President Carranza’s pro-German tendency completed his damnation so far as Anglo-Americans were concerned.  The Great War made it inexpedient for Britain to continue the Mexican oil dispute with the United States.  Hence the Carranza Constitution and the War created a temporary Anglo-American truce.

The British broke the Mexican oil truce immediately after the Armistice in France.  Lord Cowdray had tired of operating oil properties suffering constant depredation by outlaw bands, allegedly hired by American oil men.  But when he tried to sell part of his holdings to American competitors, the London Government intervened and forced the sale to Dutch-Shell and other British interests.54

In the spring and summer of 1920 the State Department protested new petroleum decrees of President Carranza, saying they threatened confiscation of properties legally acquired before enactment of the objectionable Constitution.

When General Obregon came into power, Washington was determined as the price of diplomatic recognition to restrict application of the disputed constitution to limits acceptable to the American oil men.  To fill the empty national treasury by reclaiming a share of the Mexican wealth flowing out through foreign pipe-lines and tankers, he put down a 60 per cent export tax.  This initial act, and the apparent determination of the new Government to make effective the paper constitution, seemed to leave no opportunity for Washington to support the new Government.

Here was a chance for the British.  They had visions of displacing the Americans as the dominant factor in Mexican oil.  To this end they dealt secretly with Senor Obregon.  All the protests of Secretary Fall could not stop them.  They were playing for big stakes.  Mexican Government estimates place the total oil investments including lands at $618 million.  United States capital in 1923, with more than 58 per cent of total investments, had about 70 per cent of total production.55  The British had only about 40 per cent of the investments and 27 per cent of production.  There were other reasons for the British to deal separately with the Government.  They were in a less vulnerable position under Article 27 than the Americans because of the early shrewdness of Lord Cowdray and other British companies in incorporating subsidiaries as Mexican companies.

President Obregon, instead of making separate terms with the British, played the foreign companies and governments against each other.

Paralleling these developments there was an oil “awakening” north of the Rio Grande.  Talk in the United States of the menace of the British oil invasion in the Americas and the British exclusion policy abroad had resulted in the Federal Trade Commission investigation.

Washington in 1923 sought a settlement with Mexico, to check growing British power in the southern Republic, and eliminate the Article 27 issue.  It counted upon the Mexican financial stringency to put President Obregon in receptive mood.  Such was the setting of the Warren-Payne negotiations in Mexico City which led to the agreement of September 1923.  The two governments agreed to submit claims arising during the revolutionary and pre-revolutionary periods to special and general mixed claims commissions.56  United States diplomatic recognition was accorded on the basis of a Mexican pledge not to apply retroactively the alleged confiscatory provisions of Article 27.  That pledge was given in the negotiations at Mexico City, August 2, 1923.57

As a result of the claims conventions, a foreign debt-funding agreement, and the Warren-Payne oil-land settlement, the Washington Government supported the Obregon regime when Adolfo de la Huerta started a counter-revolution.  Some American oil interests backed the rebellion.  But with the consent of New York bankers and some of the larger American oil interests, the State Department placed an embargo on shipments of arms and munitions to the rebels, and sold military supplies to Obregon.  Washington despatched the cruiser Richmond and broke the rebel blockade.  The counter-revolutionists, lacking American monetary and military support, were soon defeated by the Obregon forces.  The Washington Administration had to explain to the American public and to the world its intervention in the civil war of a neighbouring state.

Decisive aid given the Obregon regime at a time of peril, and Secretary Hughes’s moral defence of such action, must be understood to appreciate the bitterness of Washington’s reaction later, when President Obregon allegedly “bit the hand that fed him.”  In payment for American services received, the Mexican President was expected to put Article 27 in cold storage and keep it there.  There was a brief reassertion of Mexican “rights” in the case of American oil interests which had willingly or unwillingly subsidised the counter-revolution by paying taxes to the rebels.  But the State Department quickly forced President Obregon to back down.

This Mexican-American accord was short-lived.  Mr. Hughes left the State Department in March 1925 to become counsel for the American Petroleum Institute, Standard Oil, and other corporations.  General Obregon was succeeded by his friend, President Calles.  Senor Calles was elected with the militant support of the CROM, or Mexican Federation of Labour.  The CROM demanded that Article 27 be made effective.  To handle this delicate situation, the United States had Ambassador Sheffield in its Mexico City Embassy and Mr. Frank B. Kellogg in the State Department.  On June 12, 1925, Secretary Kellogg issued an astounding statement.  It precipitated two and a half years of strained relations, during which the United States repeatedly was on the point of breaking diplomatic relations or of intervening directly against the Calles regime.  It placed the Mexican Government “on trial before the world.”58  It gave encouragement to a counter-revolutionary movement being planned by certain American oil companies.  It is one of the few insults of its kind in diplomatic history which was not followed by diplomatic rupture or by war.  It probably will be in the future, as in the past, an incentive to anti-Americanism in Mexico and in other Latin American countries where Yankee oil men operate.  President Calles, of course, replied in kind.  A group in each country pressed for an immediate break in diplomatic relations.  But a majority group of American oil interests and New York bankers decided “anything might happen to American property” if the United States withdrew its diplomatic representatives.  So Mr. Sheffield returned to his post and the battle of oil notes began.

Ten notes and memoranda were exchanged from November 1925 to March 192659 concerning the petroleum law, which was passed on December 18 in the midst of the diplomatic barrage.  These exchanges cover from many angles the basic dispute between the United States and Mexico, which will probably reappear at intervals to threaten peaceful relations until Mexican wells cease to flow.  But the final Mexican note gave a pledge that the laws regarded by the United States as confiscatory of American property would not be applied retroactively, that renewable concessions would be given to American owners confirming their old ownership titles.  There was a lull in the controversy.

Suddenly, however, a new issue arose.  That issue was the Nicaraguan revolution in which Washington supported its puppet, President Diaz, and Mexico supported the Liberal claimant to the presidency, Dr. Sacasa.60  The Nicaraguan dispute created an atmosphere in which settlement of the oil controversy was impossible.  In the eyes of Washington the issue had become one of prestige in Latin America.  The Administration was determined that the world should know that no foreign Power could challenge United States supremacy in the Caribbean.  Washington was prepared at any cost to demonstrate its strength.  If a Nicaraguan revolutionary party with the aid of Mexico could defy Washington’s will, anti-Yankee forces in the other Central American countries would be encouraged to do likewise.  Thus strengthened, Mexico would be less ready to retreat from its “radical” oil legislation.  The example of radical Mexican laws might spread southward to all Latin America.  So at least Washington officials believed.

The Administration policy was successful from the State Department’s point of view.  The Nicaraguan revolutionists, on the verge of military victory at the gates of the Diaz capital, Managua, were forced by the United States to make terms.  Col. Henry L. Stimson, former Secretary of War and later Governor General of the Philippines and Secretary of State, went to the war zone as President Coolidge’s special representative.  He divided the revolutionists.  Sacasa and Sandino refused to accept his terms, but General Moncada and most of the Liberal forces surrendered their arms to the marines.  Col. Stimson’s “pacification program” provided for disarming of both sides, the United States to police the country and guarantee a free and fair election in 1928, President Diaz remaining in power in the interim.  By that election Moncada was made president.  American marines remained.

When the Senate, at the height of the Nicaraguan controversy, unanimously passed a resolution favouring arbitration of issues between this country and Mexico, the State Department shelved the proposal in accord with the President’s policy.

Washington’s hostility to Calles during the Nicaraguan dispute encouraged certain American officials and oil interests to support the 1927 counter-revolution in Mexico.61  The State Department applied its arms embargo against the Mexican Government.  General Gomez, the rebel, promised American oil men to modify objectionable oil laws and regulations in line with State Department demands.62  But the revolt failed.

Though the Calles-Obregon party had won on the military field, it was losing on the economic front.  Restrictive legislation and consequent sabotage by American companies reduced oil production and Mexican revenues.  A fall in the price of silver, Mexico’s second most valued export, increased the Government’s financial stress.  Mexico needed American capital.63  Why continue the struggle against the stronger Power of the north ?

As this conciliatory mood grew in the Presidential Palace in Mexico City, important changes were occurring in Washington.  A national political campaign was coming on.  The Senate had passed its arbitration resolution.  The Catholic campaign against Mexico’s religious laws had developed a strong Protestant opinion suspicious of anti-Mexican policy.  The New York bankers wanted payment on the funded Mexican foreign debt under the Lamont agreement, but saw little prospect of getting their money unless Mexico was helped along the road to economic recovery.  The oil men themselves were restive.  A minority had supported the Gomez-Serrano revolt, and failed to dislodge the Calles-Obregon combination.  The majority group wanted a State Department policy that would produce results.  A theoretic victory in a diplomatic argument would not produce oil.  Their capital was tied up in the Mexican field.  No profits were coming in.  So far as the White House was concerned its Nicaraguan victory had saved United States prestige, and Mexican gun-running had ceased.

Out of these political and economic factors sprang a new “policy.”  Ambassador Sheffield was “allowed” to resign.  Mr. Dwight W. Morrow, friend of the President and a Morgan partner, was chosen as the new ambassador.

Immediately the Mexican Supreme Court handed down a long-awaited decision favourable to American oil interest, restraining the Mexican Government from enforcing its denial of drilling permits to companies not complying with the disputed petroleum law.  Companies representing about 75 per cent of Mexican oil production had failed to comply.  Article 14 of the law required all foreign companies within one year to exchange titles for 50-year “confirmatory concessions.”  Article 15 provided that companies should lose their rights for non-compliance with Article 14.  The Supreme Court by a nine to two decision in the case held Articles 14 and 15 unconstitutional.  This decision was hailed in Washington as “a step in the right direction.”  American oil men were divided in their attitude toward the Court’s decision.  Some argued that the decision did not declare the petroleum law as such unconstitutional;  that the “positive acts” provision of the law, under which companies might lose undeveloped lands, still stood;  that companies must still prove titles.  But Ambassador Morrow advised that the Court decision be taken as evidence of Mexico’s intention to deal justly with American property rights.

In December 1927, President Calles proposed sweeping amendments to Articles 14 and 15, which were passed by Congress.64  Shares of the Mexican Petroleum Company, following the announcement of President Calles’s amendments, advanced in Wall Street 60 points within one day on a comparatively small turnover.  Additional court and administrative rulings soon indicated the speed with which Mexico was approaching the American idea of oil rights.  On January 7, 1928, a decision by the Third Supernumerary District Judge of the Federal District granted amparos [injunctions] to the Huasteca, Mexican, Tuxpan and Tamiahua Petroleum companies, and declared Articles 2, 4, 14, and 15 of the Petroleum Law of December 26, 1925, unconstitutional.  President Calles on March 27, 1928 signed an executive decree regulating and making effective the December 1927 amendments to the law.  The decree stated, in part:  “Article 155.  The confirmatory concessions shall be issued in accordance with the provisions of Article 14 of the law, without limitations of time when they be issued in favour of surface owners, and for the term stipulated in the contracts when they be issued in favour of lessees or concessionaires. ...”65

As a result of the Calles decree, the State Department next day announced that the long dispute was practically over:  “The Department feels, as does Ambassador Morrow, that such questions, if any, as may hereafter arise can be settled through the due operation of the Mexican administrative department and the Mexican courts.”66  Ambassador Morrow was somewhat franker:  “There remains, of course, the determination of what rights the oil companies held on May 1, 1917, the date the constitution became effective.”67  The settlement, unfortunately, is not so complete as the official statements implied and the press believed.  The United States Government desires a clarification of the meaning of the word “concession” as used in Mexican legislation and decrees.  Though the Calles Administration removed the 50 to 80-year duration of concessions, it is still necessary for companies to exchange titles for these concessions.  It is not sufficient, in the view of Washington, that such confirmatory concession be valid for the duration of the original title, as provided in the amended law.  The State Department, when it is expedient to do so, may reaffirm its contention that the only acceptable exchange, if any, for a fee simple title acquired by an American prior to the constitution of 1917, is a confirmatory title, rather than a confirmatory “concession.”  Future Mexican governments may be less liberal in interpreting the legal rights of concession holders.

A second dispute involves the allied question of the validity of original titles, many of which were acquired in the early days by fraud or force.  An equitable title decision can be derived, in Washington’s judgment, only by properly constituted courts.

Under the amended law, the Mexican executive through the Ministry of Industry, Commerce, and Labour, is empowered to pass upon validity of titles in the wholesale re-proving process required by the law.  Standard and some other companies charge that any system placing such essentially juridical powers in the hands of political officials is conducive to favouritism and graft, and therefore equally undesirable from the standpoint of the nation itself and of foreign producers.  They also dislike the “positive acts” provision of the law preventing them from holding land without an earnest of development.

Meanwhile they had gained major advantages.  The time limit on confirmatory concessions was extended to the length of the original title.  The forfeiture penalty of the original law, for non-compliance with the concession-application provision, affected foreign companies controlling 90 per cent of the petroleum-producing lands and 70 per cent of the output was postponed.

The trend toward temporary rapprochement between the United States and Mexican governments for the time being has thwarted British efforts to obtain a favoured position at the expense of American producers.  During the Kellogg-Sheffield provocative tactics of 1926-27, the British tried to capitalise anti-Yankee sentiment in Mexico City.  These efforts failed for several reasons.  Dutch-Shell was beginning to expand in the new field of Venezuela, though as the largest single producer in Mexico (i.e., through its subsidiary Mexican Eagle) it continued reduced operations in that country rather than take the heavy loss incident to withdrawal.  Venezuela lacked the Mexican restrictive legislation, invited British exploitation, and geographically was in a better position for serving world markets than were the Tampico fields.  If British oil capital was to expand in South America, it could not at the same time challenge successfully the entrenched American position in Mexico.  This applied with greater force in the case of British Controlled Oilfields, which was close to bankruptcy because British Imperial policy rather than business judgment had determined its investments and activities.  Anglo-Persian was preparing to capture a monopoly concession on Colombian national lands.  Most British companies were coming to question whether the Mexican game was worth the price.  Unwillingness of the Calles Government to treat with them on satisfactory terms confirmed their pessimistic attitude toward Mexico’s petroleum future.  President Gil continued the Calles policy.

The British therefore tend to accept the opinion of those geologists who believe Mexican resources which may be profitably exploited are almost exhausted.  The accuracy of this opinion, which is shared by some American producers, is difficult to determine.  Many geologists think present Mexican fields will be practically exhausted, at a reasonable rate of production, within a relatively short time, say a decade.  But Mr. Doheny, whose judgment on Mexican oil in the past has been better than that of his competitors, points out that the interior of that country has hardly been scratched.  Even if Mexican contentions are substantiated by future exploration, the problem of transporting oil to the coast will make such interior fields less attractive than the present wells.

Production fell from 193 million barrels in 1921 to 45 million in 1929.  After ranking for many years as second only to the United States in world output, Mexico in 1928 dropped to fourth place (below Venezuela and Russia), and is now falling behind Persia.

In negotiating with Britons and Americans under the new conciliation tactics, the Government has been aware of the reduced importance of Mexico in the petroleum world.  Revival of the Russian industry, initial drilling in Mosul, new gushers in the United States Seminole, west Texas, and California fields, and particularly the emergence of Venezuela and Colombia within the last three years as direct competitors of the Tampico fields, lessen the bargaining power of the Mexican Government in dealing with foreign interests.  The time is approaching, or has arrived, when foreign oil capital is more necessary to Mexico than Mexico is necessary to it.  Gulf Oil (Mellon), displeased with the Morrow agreement and looking to fairer Venezuelan fields, was reported withdrawing from Mexico in 1929.

But Standard and other American companies have considered their present heavy investments there.  Even though some share in part the pessimistic point of view regarding future supplies and governmental restrictions, these American companies feel obliged to make the best of a bad matter and continue operations, at least for a while.  This interdependence of American companies and the Mexican Government explains in part the failure of the British to obtain a favoured position and the ability of Ambassador Morrow to make a temporary agreement.  Mexico’s dependence on American oil producers for taxes, industrial development, and employment of native labour is only part of her dependence on American capital as a whole.  Mexico’s economic crisis, caused by reduced oil revenues, fall of the silver market, and attempted counter-revolutions, coincided with increased financial demands.  The moratorium on foreign debt service expired on December 31, 1927, leaving the Government with $59 million to pay in interest and amortisation in 1928.  To meet these obligations, 42 per cent of her estimated budget income would be required.  This led President Calles in December to ask and receive from Congress extraordinary powers to deal with this problem.  The situation was equally disconcerting to Mexico City and New York.  The Mexican Government did not want to ruin its international credit, and the American bankers would lose if their debtor were forced toward bankruptcy.  The bankers prepared to extend easier terms.  In the interest of both parties a period of productive peace, based on Mexican-American co-operation, was essential.  This thought was uppermost, perhaps, in the minds of the American banker-Ambassador and Senor Calles in their efforts to get the oil dispute temporarily out of the way.  Moreover, new American capital is needed for reconstruction and industrialisation of the country.  Mexico can exist without American financial participation in the development of natural resources, but the process would be a very slow one.

But this increasing financial dependence of Mexico upon the United States is accepted with regret.  While both countries were rejoicing over the “final settlement” of the oil dispute as embodied in the Calles decree of March 27, 1928, the Mexico City Excelsior was lamenting that European capital, formerly so strong there, was now afraid to challenge the United States’s policy of financial and political “domination.”  Excelsior concluded:  “We find ourselves, then, at the mercy—Mexico the same as other continent Republics—of American capitalists, reigned over by bankers.”68

Recognition by Ambassador Morrow and Calles’s successor, President Gil, of the advantages which can accrue both to American capital and to the Mexican Government from a co-operation policy was chiefly responsible for the conciliatory attitude in both capitals.  Thus Washington directly and indirectly helped Gil and Calles to defeat the 1929 military rebellion.

But, in weighing the present situation and the probabilities of continued co-operation between the two governments in handling the oil question, one factor is usually overlooked in the United States.  Mexico has paid almost the entire price for the present temporary rapprochement.  She has retreated from her revolutionary principles of 1917.  Granting that the Calles-Gil “strategic retreat”—to use the phrase made famous by Lenin—is necessary for the final victory of the revolution, the Mexican masses may soon be of different mind.  There is little, if any, similarity between the Russian revolution and the Mexican revolutions which preceded it, except the agrarian problems common to each.  But just because the semi-socialistic Mexican Government has less immediate and direct control over the masses than has the Communist Moscow dictatorship, the former may be unable to force the Mexican workers and peons to accept the retreat tactics which the Russian dictators imposed with such difficulty.  As the Mexican Government swings more and more to the Right to team with American capital, increased protests are anticipated from labour and agrarian organisations.  If this radical movement does not succeed in dominating Mexican politics, presumably it at least will check somewhat the Calles-Gil conservative policy.69  Protests of radical groups in Mexico against too complete compromise with American capital are apt to become acute over the land law issue.  The Washington Government opposes the land law as confiscatory.  The land and petroleum laws are so closely allied, any failure to reach a final settlement on the former will react unfavourably on the present partial and unstable settlement of the oil dispute.  The crux of American-Mexican relations now, as in the past, is Washington’s unwillingness to make major compromises on this general property rights dispute of which oil is a part.  The much-lauded Morrow policy represents an important change in method, but no change whatever in aim.  It has involved sacrifice of none of the principles asserted so belligerently by Washington since the enactment of the revolutionary 1917 constitution.  The Morrow method has been successful temporarily because it permits Mexico to retreat without losing face.  When Mexicans stop retreating and begin again to defend the nationalisation principles of the 1917 Revolution, the conflict between Washington and Mexico City probably will be renewed.

And if, when that time comes, Mexican oil has not altogether lost its international importance, Britain may resume the anti-Yankee intrigue to which she has resorted in every other American-Mexican crisis.


BRITAIN PENETRATES THE CARIBBEAN


Washington looks with suspicion and hostility on British penetration in the Caribbean.  In that region the United States claims a special sphere of influence.  British oil activities there are prompted “as a precaution in case war should break out between Britain and the United States;  for, even with the help of the Japanese fleet, the British navy might not be able to seize the Panama Canal,” according to M. Pierre l’Espagnol de la Tramerye, in a chapter on “An American Balkanism” in his World Struggle for Oil.  There were British efforts as early as 1914 to obtain concessions in Central American republics.  Immediately after its organisation in 1918 to make Caribbean oil safe for the Union Jack, British Controlled Oilfields obtained a seven million acre concession from the revolutionary Tinoco Government of Costa Rica.  General Tinoco seized power with British help, according to Americans.  His oil grant to the British company conflicted with earlier American concessions.  London recognised the Tinoco regime.  Washington refused to do so.  “The attitude of the United States encouraged a successful rebellion against Tinoco in 1919,” according to Parker Thomas Moon.  Dr. Moon adds:  “Costa Rica is ‘independent,’ but her Government must respect the new Monroe Doctrine, the doctrine that the United States has a veto on concessions.”70  The new Costa Rican Ministry cancelled the British concession.  Washington bided its time until 1921, then permitted Panama to push a frontier dispute against Costa Rica.  As soon as the boundary war got under way, Washington intervened and an American arbitrator drew a frontier which satisfied the Costa Rican Government.  The latter having revoked the British concessions, later gave a nine million acre concession to the American Doheny interests and another to the Sinclair company.

Downing Street, in the exchange of notes on the San Remo-Mosul controversy, defended its Near East exclusion policy in part on the ground that the United States was guilty of the same practice in influencing the Costa Rican and Haitian governments to revoke legally acquired British concessions.71  Costa Rican dissatisfaction over Washington’s refusal to accept the Pan-American Court’s ruling in the Nicaraguan dispute, later jeopardised United States prestige there and the Doheny-Sinclair concessions.

Despite repeated London denials, British Controlled Oilfields has been controlled by trustees, some of whom were nominated by the British Government.  From the standpoint of naval strategy this company has been most successful, especially in acquiring lands in the Panama Canal region.  As a commercial organisation, it has practically failed—though this is of less importance to the British Government.  At the latter’s suggestion the company was organised in a unique way, stockholders renouncing control in favour of seven “Voting Trustees.”  Following incorporation of the concern in Canada by Mr. Alves, the control system was established by a “Trust” on January 20, 1920.  Trustees representing the London Government directly were Mr. E.G. Pretyman and Sir Edward Mackay Edgar, whose boasts of British oil supremacy are quoted above.  The Trustees were empowered to appoint directors.  Company shares were distributed throughout the Empire but carried on the books in the name of Messrs. Sperling, a bank of which Sir Edward is an official.

A revolt of these disfranchised stockholders led in 1925 to forced appointment of new directors.  This board revealed that $30 million, two-thirds of the company’s capital, had been lost under the system and policy of political management.  The struggle between the nonvoting shareholders and the British Government, represented by the Trustees, continued until it was carried into the courts in the winter of 1926-27.  Belatedly the Trustees agreed to abolition of the Voting Trust and to financial reorganisation.  But in the process of forcing this reorganisation certain details of British Government policy in the western hemisphere inadvertently were shown to the world.  Mr. E.A. Harney, M.P., in addressing a protest meeting of stockholders was quoted by the London Times, January 27, 1927, as follows:  “When their own company started it was the suggestion of the British Government that things should be arranged in such a way that neither the Standard Oil Company nor any foreign company should get the oil which it was hoped would come out of the property, and two nominees of the British Government were placed upon the Trust.”

While stockholders were insisting on reorganisation, the Voting Trustees issued on October 11, 1926, the following statement defending political control of the company on the ground that it served British Imperial interest:  “As was publicly stated at the inception of the company the dominant object for the creation of the Voting Trust was to secure the control of the company for all time by British subjects in order in times of need to be in a position to direct the output of the fields into channels best calculated to serve Imperial interest, and for this object, and this object alone, the Trustees accepted the Trust.  Sir William Mercer, who held the office of Chief of the Crown Agents, obtained the sanction of the Colonial Office to his appointment, and Mr. Pretyman became a Voting Trustee at the request of Lord Long, who was the Cabinet minister at the head of the Petroleum Department.”72

It operates in Venezuela and other Latin American countries in part through Dutch-Shell.  In Trinidad much of its land is worked by Anglo-Persian.  Though the Alves organisation under British Government influence succeeded in being first on the field and in acquiring more lands in Latin America than any other company, its actual production has never been large.

Why British Government control in the case of the Alves company should have been so disastrous financially, in contrast to the commercial success of the British Government-owned Anglo-Persian Company, is not altogether clear.  Americans believe that much of the Alves land was acquired and is retained, for strategic purposes, with the knowledge that oil is not present.  Anglo-Persian in some Latin American fields has made big money.  In others it has followed the Alves example of spending large sums for what is apparently strategic territory of little actual petroleum value.  Anglo-Persian profits from Persian wells and some Latin American pools are sufficient, however, to conceal “losses” incurred in political ventures.  Within 10 years after its purchase of Anglo-Persian control for $11 million, the British Government had profited to the extent of 9200 million, according to Mr. Winston Churchill’s estimate in his The World Crisis.  The political exploration activities of the company through subsidiaries in the Caribbean-South American region and elsewhere are shown by the company’s balance sheet to be expanding rapidly.  Though no details were given, the budget of expenditures submitted to the annual meeting for 1926-27 included an item of $124 million as “purchase price of concession, shares in, and advances to associated companies.”

Activities of Dutch-Shell, Anglo-Persian, and British Controlled Oilfields challenged commercial interests of Standard and other American companies and endangered the United States claim to special political interests in the Caribbean.  Though the eyes of the Americans were opened late, to use the British phrase, the Yankees fought back.  As a result, American holdings in the Caribbean region and southward are now much larger.  American dominance was easy to achieve in countries over which the United States Government or its so-called “treaty officials” exercise wide authority.  In the Dominican Republic, the Texas Company through its subsidiary Antillean Petroleum has acquired four concessions covering all of Azua province and parts of adjoining provinces.  The British have been more successful in Bolivia and Ecuador, though neither of those fields is important as yet.  A London firm, Anglo-Ecuadorian, is the only company with commercial production in the latter country.  British interests in 1927 acquired a large block of stock of Inter-Continent Petroleum Corporation, a mixed company holding about eight million acres in Ecuador, Mexico, Guatemala, British Guiana, and Venezuela.

Though Brazil in 1926 nationalised all mineral deposits in anticipation of important petroleum discoveries, exploration and drilling operations are still in an initial stage.  Chile also has passed restrictive legislation, though oil has not yet been found in commercial quantities.  A bill to place a prohibitive tax on oil imports, to force American copper companies to use native coal, was side-tracked in 1928 when Washington unofficially protested.

Argentina in 1928 produced a total of nine million barrels, and was tenth in world output.  Foreign capital has been at a disadvantage.  The Government exploits the best fields and practically prohibits exports.  Nationalisation of the industry throughout the Republic, State monopoly of oil transportation, and exclusive State exploration are provided in a bill passed by the Argentina Chamber of Deputies in 1927.  Foreign companies in 1928 and 1929 blocked the bill in the Senate.  British Railways and Anglo-Persian are the largest private producers;  Standard (N.J.) and Dutch-Shell output is insignificant.  Standard has been cited by the Supreme Court.  Rising Argentine nationalist opposition to Standard was indicated by O’Shaughnessy’s South American Oil Reports, March 1928;  “The theme of all this propaganda was that the Standard Oil Company (backed by the United States Government) as part of its world program, was endeavouring to monopolise or control the supposedly tremendous oil resources of the Argentine, and that it was essential that legislation be enacted immediately depriving the provinces of the ownership of petroleum wells and vesting all title and control in the Federal Government (nationalisation) and thus prevent such a situation ... the discussions in Congress were practically a continuous tirade against the Standard Oil Company, with a great deal of attention devoted to the alleged imperialistic ‘oil policy’ of the United States Government. ...”

Bolivia has been chosen by the British for a grandiose exploitation scheme under grants obtained by a London concern, Bolivia Concessions, Ltd.73  The vast concession covers 50 million acres, including 20 million under option.  The company’s rights cover oil, mineral, timber, and agricultural concessions in the eastern part of the country.  A port has been built on the Paraguay River near the Brazilian border and 600 miles from the coast, and a railway and wireless station projected by the company.  Petroleum deposits have been found in a score of places between Yacuiba and San Cruz, Bolivia.  Standard has small productive wells in the Yacuiba territory, near the British concession.  Guggenheim and other United States mining and financial interests are a power in that country, as we have seen in the chapter on tin.  Unfavourable inland location of the country and transportation obstacles, however, have retarded oil development.  A pipe-line across the Andes would have to cross Chilean and Peruvian territory, raising political difficulties in addition to the heavy investment required.  The longer outlet down the Paraguay River was projected in 1930.

Peru is the most important oil country in South America, except Colombia and Venezuela.  With an annual production of 12 million barrels in 1928 it ranked ninth among the producing countries of the world.  There are three Peruvian fields on or near the coast, Zorritos, Lobitos, and Negritos.  Less accessible are the Titicaca deposits in the Andes.  Standard (N.J.), through its subsidiary, International Petroleum, the largest producer in Colombia, holds the La Brea y Patinas concession of 400 thousand acres in north-eastern Peru, and smaller tracts aggregating 850 thousand acres more.  The Rockefeller company is holding output to about seven million barrels a year on account of present world over-production.  Part of Standard’s acreage was obtained from British Controlled Oilfields, when that company’s near-bankruptcy was discovered by its stockholders.  A British concern, Lobitos, produces annually about 2.5 million barrels.  Dutch-Shell, like British Controlled Oilfields, went into Peru several years ago, but grew discouraged too soon.  The Deterding combine let its largest concession option lapse through failure to exploit the tract.  An American company, Phillips Petroleum, in 1927 obtained that concession on a Government royalty basis.  The tract of almost 1.5 million acres is along the coast in Piura Department.  Other American companies are exploring government lands.  A British promoter, Mr. G.V. Holden, became very active in Lima in 1927, finally winning the friendship of President Leguia.  He was promised a refinery concession and gasoline sale “monopoly” on a 12.5 per cent Government royalty basis.  The Chamber of Deputies refused to ratify the Holden “monopoly” contract in October 1927, but reversed its decision in 1928.  Apart from this apparent favouritism toward some British interests, American companies for the moment are fairly well satisfied with conditions in Peru.  They were able in January 1927 to get from the President an executive decree, which “clarified” the petroleum nationalisation law in line with American demands.  The decree extended the length of concessions to 40 years.  Various legislative and administrative restrictions also were relaxed.

Venezuela has suddenly emerged as one of the important oil fields of the world, ranking second to the United States in production.  In 1927 it almost doubled its output, and with a total of 64 million barrels edged Mexico out of third place.  In 1928 it passed Russia by producing 106 million barrels.  In 1929 its production total should reach more than 135 million.

The chief struggle is between Standard and Dutch-Shell.  Early British production supremacy has been overcome;  the 1929 output ratio was British 40 per cent and American 60 per cent approximately.  The importance of Venezuelan wells is enhanced by the favourable position of the country.  It is close to the Panama Canal, on the short route to the Far East markets, and 100 miles nearer than Tampico, Mexico, to New York, and 800 miles nearer London.  Deterding’s organisation was first on the ground.  British Controlled Oilfields followed.  Standard (Ind.) arrived four years later in 1922.  Then came the Gulf interests of Mr. Andrew W. Mellon, United States Secretary of the Treasury.74

Political conditions are similar to those of Mexico in the days of Diaz.  General Juan Vicente Gomez, who is still political dictator and army chief despite his presidential resignation in 1929 after 20 years in that office, gives the country a reign in which the rights of labour are restricted and foreign capital is favoured for a consideration.  The British drilled into the Gomez regime and grabbed the best oil lands before the Americans realised the importance of Venezuela, just as the Americans had done in the Mexico of Diaz.  Like Diaz, however, Senor Gomez has found it expedient to balance the monopolistic power of one foreign group by letting in a second group, in this case American.  Lawless methods of competition, running into violence, are charged against Britons and Americans.75  Political graft has a part in obtaining and holding concessions.  Much of the land is unsurveyed wilderness, hence disputed titles and bribery.  The gushers of the La Rosa-Lagunillas district at Lake Maracaibo are in the state of Zulia, which is relatively inaccessible and far from the capital, Caracas.  President Perez Soto of Zulia boasts of his alliance with foreign oil interests.  Separation of Zulia from Venezuela is favoured by certain American companies fearing the fall of Gomez.

Petroleum and mineral rights are vested in the Federal Government.  This is traditional, dating from colonial days when the Spanish Crown granted land titles but retained the mineral resources.  Under the present law the landowner has no vested subsoil rights.  Concessions granted by the Government are limited by the hydrocarbons law of 1925 to 40 years.  Royalties range from 7.5 to 11.25 per cent.  There is no corporation tax.  Other oil taxes include 10 per cent on production at market value, and small taxes on export, tanker clearance, exploration, and exploitation.  After passing mining laws not entirely satisfactory to foreign capital, the Venezuelan Government in 1922 called in American and British oil men to write a law practically to suit themselves.  With only slight changes this foreign draft was enacted and oil capital began to flow into the country as desired.  Satisfactory arrangements were made regarding old concessions of foreigners, which had been adversely affected by a regulation of 1920.  The 1922 law, rewritten without basic changes in 1925, is praised by the companies as a model for all other Latin American countries.

But foreign companies fear that Venezuela, under Gomez’s successor, may follow the Mexican lead and take a heavier toll by taxes and restrictive legislation.  The abortive student-military rebellions of 1928 and 1929 increase this foreign fear of a future “radical” regime.  Labour problems grow increasingly serious, though the predominantly Indian population has achieved no strong labour organisation.

Transport difficulties are the chief immediate obstacle.  The present producing area is the Lake Maracaibo basin, covering about 30 thousand square miles in the north-western part of the country.  Moving sand-bars at the lake outlet to the sea block the passage of ocean tankers.  Specially constructed lake tankers are required for import of material to the fields, and export of crude.  Pipe-lines to the coast and extensive lake-channel dredging operations are planned, but for several years the companies expect to depend upon the present method of transport.  Limited transport necessitates restriction of output in all fields of the basin.  But American and British companies are pushing exploration and initial drilling in the race which is extending over practically the entire northern half of the country.

Dutch-Shell in the Mene Grande field of the Maracaibo basin began small scale production in 1917, through its subsidiary, Venezuelan Oil Concessions.  That company is still the largest single producer.  In the period of 1918-20 British Controlled Oilfields, under tutelage of the London Government, bought up as much Venezuelan land as it could.  This included a large tract, still undeveloped, in the eastern Orinoco Delta region.  Of more importance it acquired the Buchivacoa concession in the Maracaibo district, covering 15 thousand square miles.  Being essentially a political company without producing experience, British Controlled Oilfields spent much money without being able to develop this extensive tract.  It chose the safe method of permitting Standard to prove and develop the eastern part of the concession for it on a 12.5 per cent royalty basis, under careful time and other restrictions.  A better portion of the concession was leased or sold under restrictions to Dutch-Shell.  The remaining western part of Buchivacoa was developed slowly and inefficiently by British Controlled Oilfields.  At this same time Anglo-Persian, Dutch-Shell, and Standard were taking up open lands, and Gulf was coming in on a large scale.

By 1929 there were five large operating companies.  The two Dutch-Shell subsidiaries (V.O.C. and Caribbean Petroleum) were running less than 4.5 million barrels a month, compared with about 6.3 million barrels for Standard of Indiana (Lago), Gulf, and Standard of New Jersey (Creole Petroleum).

Other companies are entering the field, including Sinclair (Venezuelan Petroleum).  Atlantic Refining (American) in 1927 acquired half interest in the Andes Petroleum tract of four million acres.  California Petroleum and Union Oil of California contracted late in 1927 to spend $7 million within six years in developing 1.5 million acres on the Pantepec Oil tract.  Anglo-Persian plans extensive developments on its large tract in the State of Falcon.  Fearing a radical Government may come into power when the dictator Gomez dies, British and American companies hesitate to invest capital in refineries there.  Dutch-Shell, British Controlled, and Standard have only very small “topping” plants in that country.  Sir Henri chose the neighbouring Dutch West Indies.  His refinery at Willemstadt, Curacao, handles most of his company’s Venezuelan production.  Dutch-Shell in 1928 completed another refinery at Oranjestadt, Aruba.  Standard (Ind.) completed its large refinery on the same island in 1929.  American companies have storage capacity in Venezuela of 14 million barrels compared with four million for the British.

Profits mount despite transport obstacles.  Dutch-Shell’s subsidiary, V.O.C., in 1927 paid a 55 per cent dividend, besides a 15 per cent dividend to its holding company.  Shares in some British and American operating companies increased in value about 600 per cent from 1924 to 1927.

American success in the production and profits race does not mean, however, that British companies have been driven from their dominant position.  Most of the acreage of proven lands is still owned by Dutch-Shell and British Controlled Oilfields.  British policy requires that much of this land remain undeveloped until present operating fields are exhausted.  Even in some producing fields, the British restrict production more than the transport limitations require.  They expect American companies to be as prodigal and short-sighted in Venezuela as in the United States.  But under provisions of the petroleum law by which half of land originally explored by a concessionnaire must revert to the State, Americans may get some of the present British land if they are on better terms than their competitors with the Government.

In Colombia an international oil explosion is threatened by efforts of Anglo-Persian, a British Government company, to get a concession with canal rights flanking the Panaman defences of the United States.  All the elements of danger are there:  alleged British Government defiance of the “Monroe Doctrine Corollary,” conflict between Standard and British companies, Nature blocking petroleum exploitation, primitive tribes suspicious of alien invasion, labour trouble, “Mexicanised” laws and regulations, disputed land and subsoil titles, foreign financial penetration and diplomatic intervention.  On top of this explosive well sits Standard.  The Anglo-American struggle there dates from 1913, when the British Cowdray (Pearson) interests, after challenging the Yankee monopoly in Mexico and Central America, obtained a concession from the Bogota executive.  That contract granted to the British the right to exploit 10 thousand square kilometres of oil lands anywhere in the country, including the frontier over-looking the Panama Canal.  The significant right to build communications systems and a canal was included.  This aroused the enmity of American oil interests, and fear in the State and Navy departments at Washington.  President Wilson saw a threat to the Monroe Doctrine.  Secretary of State Bryan stormed against the machinations and intrigues of foreign concessionaires.  American diplomatic pressure was applied in Bogota and London.  And in January 1914 Ambassador Page was able to report from London that the British Government had considered “the dangers that lurked in the Government’s contract with Cowdray for oil;  and they pulled Cowdray out of Colombia. ...”76 Washington in turn granted the British demands for repeal of the law exempting American ships from Panama Canal tolls.  To what extent this was a direct trade for London’s withdrawal of support for the Cowdray concession is not clear.  Meanwhile the Colombian Congress had refused to approve that concession, and had shown its growing distrust of foreign capital by passing a law nationalising oil rights in public lands and restricting the granting of concessions on such lands.  Since then the importance of Colombian oil has greatly increased.

The United States now looks to Colombia to take Mexico’s place as the source of American petroleum reserves.  Following the report of the Coolidge Conservation Commission on the coming shortage in the United States, the interest of Washington and New York in the republic adjoining the Panama Canal has increased rapidly.  British initial success in getting neighbouring Venezuelan fields intensifies the American drive on Colombia.  No one knows the extent of Colombia’s petroleum resources.  Apparently they stretch hundreds of miles back through tropical jungle to the Andes.  But there is no natural outlet.  The Magdalena River, running through the oil country, is too shallow even at its mouth for sea-going tankers.  This obstacle for several years retarded subsoil development.  Then Standard (N.J.) rushed in where only giant capital can follow.

Roberto de Mares, a French engineer, later naturalised, obtained in 1905 a 50-year concession in the heart of the Carare country.  The tract lacked definite boundaries, but was later found to contain about 1.3 million acres.  Standard in 1916 purchased his rights.

Standard operated through its subsidiaries, Tropical Oil and Andean National Corporation.  Tropical started exploration at once.  But annual production in the period of 1922-25 was held to about 500 thousand barrels.  Then the pipe-line, 360 miles through the jungle to Mamonal on the coast, was completed.  The company built refineries, factories, harbours, boats, roads, railways, and cities.  Within five years Standard invested $60 million.  Production for 1928 was 20 million barrels.  To construct the pipe-line, Standard had acquired in 1923 a special concession from the Government.  The company claims it spent the large sum involved in construction only after assuring itself that the Bogota Government would pursue in the future a favourable legislative and administrative policy.  This general promise has not been borne out.  But the company was able to settle favourably a royalty dispute with the Government in 1928.

Other companies, American and British, have gone into the country.  But lack of transport facilities prevents commercial production outside of Standard’s De Mares field.  Among interested American corporations are Gulf (Mellon), Transcontinental, Texas, Magdalena Syndicate, Colombia Syndicate, Leonard, Bogota Syndicate, Sinclair, and Standard of California.  The latter’s holdings are in addition to the Standard of New Jersey Tropical concession.

The chief conflict between American and British companies centres in and around the Barco concession area, far back in the interior against the Venezuelan frontier.  General Virgilio de Barco, who had defeated the rebel army in Colombia’s civil war, in 1905 received as a reward more than a million acres of jungle land.  In 1916 he sold it to an American-British syndicate.  The Americans held a majority interest.  Dutch-Shell was indirectly represented.  But this syndicate could not solve the transport problem.  There were two possible outlets, both expensive.  One lay over the Andes, the other across the Venezuelan frontier to Lake Maracaibo and the sea.  The first was rejected 6y engineers as too difficult and costly.  The alternative route was blocked by a Colombian-Venezuelan boundary dispute.  When this controversy was settled the syndicate was unable to make satisfactory pipe-line arrangements with the Caracas Government.  Then the issue of titles arose to plague the syndicate.  Colombian titles are described by petroleum lawyers as “the most involved titles of any oil country in the world.”  The syndicate’s titles were questioned.  Too many other persons, native and foreign, were interested in the Barco region.

As a result of these complications in 1925, Mr. Henry L. Doherty, chief American holder in the syndicate, arranged for the Gulf (Mellon) interests to obtain control through the Colombian Petroleum Corporation.  Gulf has 75 per cent interest;  the Carib Syndicate, American-Doherty capital, retains 25 per cent.  Within less than two months after the family of the United States Secretary of the Treasury acquired control of the Barco fields, Venezuela agreed to permit a pipe-line across its territory.

But the Colombian Minister of Industries in February 1926 had declared the company’s Barco concession invalid.  The new Mellon interests were not able to get favourable action from the Mendez Cabinet, which took office about that time.  It was easy enough for Secretary Mellon in Washington to cause United States diplomatic and financial pressure.  But when the American Minister, Mr. Piles, early in 1928 protested Bogota’s delay in clearing the Barco title, Colombia was fired with anti-Yankee hatred.  Driven by popular resentment, the Colombian Foreign Minister replied:  “The Secretary of State of the United States has committed an error in initiating this intervention in respect to an affair which, since it deals with the judicial relations between the Government and a national entity, pertains exclusively to the tribunals of the country.”77

Minister Piles continued his protests.  Bogota replied on August 4, 1928, by reaffirming cancellation of the concession—this time on grounds of non-exploitation of the resources by the company in the period 1923-26.

There followed a sharp exchange of notes in which the United States expressed its “surprise” that Colombia should be guilty of practices allegedly contrary to the customary treatment accorded friendly nations.  Specifically, Washington insisted that Bogota reply to the Mellon company’s demand for a month in which to submit an appeal from the cancellation decision.  Then the Foreign Minister put the dispute before his Congress, which enthusiastically and unanimously approved the defiant attitude toward Washington’s “intervention” in what was described as the domestic affair of the sovereign and independent Colombian Republic.  Quick to seize another opportunity to attack the alleged Yankee menace, leading newspapers elsewhere in Latin America increased their anti-American agitation.  This wide backfire abroad, together with liberal opposition in the United States to a provocative State Department policy in behalf of Secretary of the Treasury Mellon’s company, forced Secretary Kellogg to modify his demands.  Moreover, the Republican Administration could not afford to be embarrassed by a Mellon issue during the 1928 election campaign.  Diplomatic representations then were no longer directly insistent on reconsideration of the concession cancellation, but only indirectly so, by pressure for the Government to reply to the company.  This indicated that Washington had lost the fight, or rather had withdrawn to a more strategic battle ground—that of financial pressure.  Meanwhile the faithful Mr. Piles was relieved, and American Minister Caffrey was sent from Salvador in November 1928 to take his place.

A year later the Bogota Government included the Barco concession area in the lands to be nationalised by its proposed petroleum law.  But if Washington and Mr. Mellon can help it, the Barco fight is far from over.  It will be fought out on the charge of confiscation without compensation.  There are sporadic political separatist movements in the Barco region, reported to have oil motives.

Lobitos and Costol Oilfields among the British companies in Colombia are Dutch-Shell, but the most active is the British Government company, Anglo-Persian.

Henry Irving Frederick Yates landed in Colombia early in 1927.  This gentleman is a Briton by nationality, a colonel by title, an agent of the British Government’s Anglo-Persian Oil Company by vocation.  He arrived with a diplomatic passport, and the prestige and immunity which that gives.  His way had been prepared by the British Legation at Bogota.  He negotiated with Colombian officials.  The daring Colonel proposed that the Colombian Government grant to the British Government company a 50-year monopoly concession for the vast area of national lands adjoining Panama and dominating the Canal approaches.  Minister of Industry Montalvo, the President, and the Cabinet agreed.  But certain Americans, whose business it is to know what foreign agents do in the Panama Canal region, promptly learned of the secret agreement.  They were especially alarmed by the right granted the concessionaire to establish air bases and construct a transoceanic canal.

What was the United States Government to do ?  Ordinarily its formal protest under the Monroe Doctrine would be quick and sharp.  But this situation was not so simple.  In the process of protecting that same Monroe Doctrine and its “Coolidge Corollary,” the United States at that time was threatening Mexico, allegedly violating Panama’s sovereignty with a military treaty rejected by the National Assembly, and “pacifying” Nicaragua with battleships and marines.  Washington’s exercise of these “duties” had been “misunderstood” throughout Latin America.  Anti-Yankee sentiment was running high, especially in the South American republic next to the Panama Canal.  President Coolidge had justified his Nicaraguan intervention by a declaration of “special interests.”  Colombians were asking:  “Will our country be next?” Colombian leaders were sending protests to President Mendez, warning against American financial and economic penetration as the first step in the invasion of their country’s sovereignty.78  Clearly it was no time for the State Department to protest to Colombia, even under the Monroe Doctrine.  Open opposition to the British Government’s scheme to acquire territory flanking the Panama Canal was left, therefore, to certain Colombians whose own interests were also jeopardised.  They protested on the ground that the Colombian constitution and laws prohibited a foreign government from acquiring, directly or indirectly, such rights.

Popular sentiment forced the Bogota Government, led by the British Colonel, to a strategic retreat.  The Colonel agreed that this was no sort of concession to be given to a foreign government.  But that it should be given to Mr. Yates as an individual obviously was an entirely different matter.  The Bogota Government gave him the concession to six million acres—along the Panaman border.

But the objections continued.  The strategist decided to leave the country.  He departed as plain Mr. Yates, but allegedly with a diplomatic passport and with his records and luggage under immunity and seal of the British Government.  The British Minister continued negotiations for the concession.  Then London sent another Anglo-Persian agent, Lieutenant-Colonel Sir Arnold T. Wilson, who was experienced in pulling wires in Mosul and Persia.  He tried to revive the Yates contract.  But up to 1929 he had not succeeded.

Colombian opposition to the proposed Yates-Montalvo concession is led by Dr. Laureno Gomez, former Minister of Public Works.  “The reserve of Uraba, which Law 72 established for the Republic of Colombia and incorporated in its patrimony, becomes (under the contract) a reserve of the British Government or of its oil operators,” according to an “expose” by Dr. Gomez in the Bogota El Tiempo, October 18, 1927:  “There is something offensive to Colombian good sense in the manner in which Yates wanted to get the concession for the new canal.”

The text of the amended contract is long and involved, many of the major points being obscured in technicalities.  The extract given below is from the English text appearing in O’Shaughnessy’s South American Oil Reports, December 1927, which officials consider reliable.  The Opposition argument is inserted here in parenthesis:  “Clause 13. ... Whenever, for the purpose of the official exploitation to which this contract refers, it is necessary to establish telephonic, telegraphic or radio-telegraphic communications, or to construct railways or other means of communication of analogous or of greater importance, they may be constructed by virtue of a separate contract, the cost thereof to be charged by the Administrator to the 60 per cent treated in the seventh clause hereof.”

(Gomez’s criticism:  “This clause is of exceptional gravity.  The difference attracts attention as between that established when they treat of constructing pipe-lines, ports, and docks which require authorisation on the part of the Government and ‘the construction of telephones, telegraphs, railroads, or other similar ways of transportation of major importance’ in which it is not established that authorisation is necessary.  The fact of enumerating them separately implies that this authorisation is not previously necessary because it is considered to be conceded by the contract itself.  With regard to these works it says ‘that they will be able to be done by separate contract.’ Here Clause 2 commences to function.  The contractor [Yates], ‘representative of the Government for all the operations which should be carried out in the development of this contract,’ will be able to make the separate contract in the name of the Government with the entity add that may suit him, for the construction of railroads or the opening of the interoceanic canal. ... The contractor [Yates] ‘is enabled to contract separately for the construction of the canal,’ without the necessity of a permit and without advice to the Government.”)

The President and Cabinet had tried to give away a right of which Congress alone could legally dispose.  There was no way out then for the British and the Government except to put through Congress legislation empowering the executive to grant such concessions.  A measure known as the Sanchez bill was written by Minister Montalvo, and introduced in Congress in the summer of 1927.  Its passage was blocked.  Downing Street intervened.  This incident was described by the Bogota press, according to an American agency despatch of October 23, as follows:  “El Tiempo announces that the British Minister sent a note to the Government demanding extension of the session of Congress while discussion of indemnification of $12 million for expropriation of a British company’s mines of Supia and Marmato is pending, assuring that the Foreign Office would compromise for $6 million provided the Yates contract is approved.  El Tiempo adds the Foreign Minister read the British note in secret session of the Senate, where it caused great indignation, the Senate deciding to protest it and to reject the settlement, which will be arranged by the Government administratively.”

Britain’s resort to strong-arm methods and the consequent anti-British reaction in Colombia prevented Congressional action on the contract.  The British and the Bogota Government, unwilling to admit defeat, introduced in place of the Sanchez measure an emergency petroleum bill with a similar rider empowering the executive to dispose of national lands to concessionaires.  This rider was defeated by Congress.  Under the amended emergency petroleum law (Law No. 84), the Yates contract must be suspended pending its acceptance by Congress or passage of a new law empowering the executive to grant the concession.

The Bogota Government’s act in negotiating this concession and attempt to put it into effect over the protest of Congress is tremendously significant.  Perhaps no more daring gesture against the United States’s assumed authority over the Caribbean has ever been made by a South American government.  What is behind this, and where will it lead ?  That is what Washington is wondering.

Is this Colombia’s revenge for the alleged theft of her Panaman province by the United States in 1903?  Washington knows that wound has not healed, despite American payment of the monetary claim.  But Washington has not supposed that the Bogota Government seeks retaliation, if such is the case.  Senator William E. Borah, now chairman of the Foreign Relations Committee, in his unsuccessful opposition to the $25 million payment treaty79 characterised that settlement as an effort at “purchasing the friendship of Colombia.”  In his Senate speech of April 14, 1921, Mr. Borah pointed out:  “Colombia, as we all know, has always assumed to treat any such suggestion as an insult.  For 17 years this controversy has been going on.  It was initiated in the claim upon the part of Colombia that the United States Government had violated international law, that its President, usurping power, had oppressed a helpless people or a weaker people, and that we had aided and abetted in the tearing asunder of the Colombian Republic.”  The Senator did not quote the famous explanations made in 1911 by Mr. Roosevelt, which are frequently repeated in Bogota—“I took the Canal Zone and let the Congress debate, and, while the debate goes on, the Canal does also. ... I was prepared, if necessary, to submit to Congress a recommendation that we should proceed with the work in spite of Colombia’s opposition.”80  It was freely charged that oil interests were partly responsible for the Harding Administration putting through the payment treaty.81

Perhaps the Colombian Government’s share in formulating the Yates contract can be understood, but what about the British Government ?  This is not a question which Washington officials discuss for the public.  Assuming that some responsible officials in London see the international menace of their Government’s ownership of Anglo-Persian, perhaps they were not originally aware of that company’s clumsy and provocative acts in Colombia.  If that is the explanation, why does the British Legation in Bogota continue its efforts to get the concession in Mr. Yates’s name ?  What gain can compensate for the cost the London Government must pay in international distrust ?  These are some of Washington’s unanswered questions.

These questions are barbed by reports of some American oil men to Washington that their survey showed no petroleum in the concession area—which may or may not prove true.  They also cite the experience of the Gulf company which, after spending a reported $l million on unsuccessful exploration and drilling in 1929 withdrew completely from the adjacent Panama field.  They believe the Yates concession unimportant to any British company—if oil is the only motive.  The American judgment that there is little or no oil in the proposed British concession area south of the Panaman border coincides with the American judgment that there is no gold in the British “gold” concession between the Colombian border and the Panama Canal.  The Panama Corporation, a British syndicate promoted by the Earl of Cavan and Lord Melchett, in 1925 obtained from the Panaman Government a 10-year monopoly gold concession.82  Mr. Richard O. Marsh, explorer and discoverer of the “white Indians,” filed charges with the State Department against Britain.  Mr. Marsh alleged that the British Government through this concession obtained important naval bases in Panama, the right to police territory near the Canal and exclusive rights to the potential Panaman rubber desired by Americans to block British world rubber monopoly.83  Anti-British sentiment was revived in the United States as a result of these charges and sensational press stories.

The Senate passed a Borah resolution “directing the Secretary of War to advise the Senate of all facts and circumstances relative to concessions secured by the British Government in the Republic of Panama.”84  Investigations failed to substantiate the extreme charges.  The concession covers 1,150 square miles in Veraguas province, the El Remance mines in that province and the Darien tract of 3,400 square miles in south Panama.  The corporation has exclusive 10-year rights to prospect for gold, and thereafter to work its mines as perpetual owner.  All mines within the area to which it establishes claim and which it actually operates are tax-exempt.  The corporation has use of national communications and waterways.  The Panaman Government receives a two per cent royalty of gross receipts from mines after one year of operation.  The area covers harbours but no major ports.  Concession lands are in no case closer to the Canal than 100 miles.  Though the military guard is paid by the corporation it is “appointed” by the Government.  There are other Panaman lands as well adapted to rubber cultivation.  The British Government has no apparent holding in the company.

There remain, however, several questions concerning this concession which trouble some Washington officials.  First, there is believed to be not sufficient gold in that region to explain under ordinary circumstances the organisation of a $10 million corporation.  Secondly, the concession promoters are men who are, or have been, British Government officials.  The importance of Lord Melchett has been discussed in preceding chapters.  Mr. Andrew Percy Bennett is former British Minister to Costa Rica, Venezuela, and Panama.  But the most important person, from the American point of view, is the chairman, Mr. Duncan Elliot Alves.  Mr. Alves will be remembered as head of British Controlled Oilfields, organised under British Government control for the avowed purpose of obtaining Latin America’s resources to be held for exclusive British Government service in time of need.  Mr. Marsh’s idea that the London Government could establish naval bases in this concession area near the Panama Canal, without being observed and stopped by the United States, is naive.  Military and naval men think about all the British Government can obtain from this concession, if it so desires, is a very thorough knowledge of this rather inaccessible region, which would be of value in event of war between the two countries.  Washington blocked Mr. Alves’s effort in 1928 to obtain a permit to build a trans-isthmian highway.

Mr. Alves’s record with the British Controlled Oilfields and his association with this extensive and apparently valueless tract near the Panama Canal however, increases the mystery in Washington’s mind.  That mystery deepens when a British Government company attempts to get possession of another large neighbouring territory across the border in Colombia.  The United States Government is especially sensitive to any act in Panama or the Canal regions, which suggests that a foreign Power is interested.  Establishment of air bases by Colonel Yates, as permitted by the proposed Colombian concession, would disturb greatly the American military and naval strategists.  Washington’s suspicion regarding holdings of foreign Powers extends a long distance from the Panama Canal itself.  When a Japanese syndicate was reported seeking to acquire the Magdalena concession in Mexico, the State Department announced it would view with grave concern the “actual or potential possession of a harbour or any other place” by any non-American government in an area which might threaten the defences and communications of the United States.  This was the attitude of the Senate in the Lodge resolution.85  Transfer of the Magdalena concession to the Japanese company, according to the Department, “would be quite certain to be interpreted in some quarters in a manner to cause a great outcry and such a result would be so obvious a cause of regret to the Government of the United States that it would appear unnecessary further to comment on the disposition of the Federal Government.”

Yates’s proposed concession in Colombia would give to the British, hundreds of miles nearer the Panama Canal than Magdalena Bay, “the actual and potential possession of a harbour or any other place,” which Washington declares a matter of grave concern.  The merest hint of such a British interoceanic canal as permitted by the Yates concession is considered a threat to basic United States commercial and naval policies.  Under no conceivable circumstances will Washington permit construction of any canal connecting the Caribbean and Pacific which is not under absolute United States control.  This fixed policy resulted in United States acquisition by the Wilson Administration of exclusive perpetual rights to build such a Nicaraguan canal.  The amount paid was $3 million.  That action was taken because other foreign Powers desired canal rights.  Not until several years later was it apparent that the United States could well use for commercial and naval purposes two canals.  Protection of these Nicaraguan canal rights, and supplemental naval base rights at Corn Islands and Fonseca Bay, was given by President Coolidge in a special message to Congress as a major reason for military intervention in that country in 1927.86  Congress has since authorised a survey for such a canal.

Political conditions in Panama also partly explain Washington’s sensitiveness to the Yates contract.  While British agents and the British Minister in Bogota are trying to obtain territory flanking the Panama Canal, the Panamans themselves are protesting the United States’s claim to complete sovereignty over the Canal Zone.  The Panamans are not only disputing this delicate issue with Washington, they are challenging the United States’s claims before the League of Nations.  Senor Morales, Panaman Minister of Finance and Geneva delegate, said in an address to the League Assembly:  “It is, however, a serious question in reply to which no compromise is possible between the two governments, because it cannot be settled unless one of the participants changes its view wholly and completely, and adopts the other’s views.  The United States maintains that Panama has transferred its right of sovereignty over the Canal Zone, while Panama maintains that it has only granted such rights and authority as they would possess if they were, in fact, the sovereign Power, for the specific purpose of constructing, maintaining, operating, sanitating, and protecting the Canal.”87  Refusal of the Panaman Assembly to ratify the United States treaty, and the prospect of continuance indefinitely of that dispute, heightens Washington’s concern over complications or possible foreign intervention in the Canal region as implied in the Yates contract.

While Washington was worrying over international implications of the British concession and provisions of the Sanchez bill to make the contract effective, American oil interests were concerned with restrictive provisions of the bill affecting their industry.  They were convinced that no oil was to be found in the Yates region and were mildly interested in alleged political and naval intrigues of the British Government.  But they were ready to fight against the Colombian Government’s new policy of “Mexicanisation.”

This nationalisation policy was expressed in part in the emergency law (Law No. 84) of November 1927.  It required foreign companies to re-prove title, indefinitely suspended action on all pending contract applications, and doubled the exploitation tax.  The companies cried “confiscation.”  Two months later an Executive Decree (No. 150) in creased the severity of the law by shortening the half-year proving period to one month, and by giving to the Minister of Interior, instead of the courts, power to pass upon titles.  This followed the protested Mexican provision almost to the letter, and in a country where land and subsoil titles are perhaps more confused than in any other oil area in the world.  Again Washington applied diplomatic pressure.  As a result President Mendez revoked Decree No. 50, thus automatically postponing operation of Law No. 84.  The Colombian press was infuriated by this Yankee “intervention.”  A rather complete nationalisation bill was blocked by the companies in the autumn of 1928.  Then the Government was induced to call in a group of foreign experts to write a new bill, and this included Mr. H. Foster Bain of the U.S. Bureau of Mines and Mr. J.W. Steel of the U.S. Geological Survey.

This bill passed the Senate but died in the Chamber in 1929.  It was to be introduced again in 1930.  It provides for nationalisation of most of the potential oil lands.  The nationalisation provision covers the Santander del Norte or Barco concession area, but does not mention the Uraba or Yates contract region.  Exploitation of national reserves is made subject to Congressional authorisation, the limit of concession to any one company being 100 thousand hectares.  The nation reserves to itself in each field an area equal to private concessions, the latter being for 30 years with an additional 10-year extension.  An elaborate and high system of royalties is provided.  American oil companies object to the bill.  Their attitude is reflected by the Wall Street Journal, which stated editorially, August 30, 1929:  “Assuming that the framers of the bill wish to secure a workable petroleum law, one that would lead to the development of Colombia’s resources, they have missed the mark.  A law along the lines of this bill would make such development impossible. ... If a company acquires privately owned lands, the consent of the Government must be obtained to drill wells, and the Minister of Industries may even contest the titles legally acquired from the private owners.”

In retaliation against “Mexicanisation” of Colombian oil, American companies have decided upon a quasi-boycott of Colombia.  Standard of New Jersey, with its large investments sunk in the Tropical wells, Andean pipe-line and tanks, of course, will carry on.  But others will resort to a watchful waiting policy.  These tactics are based on the premise that Colombia is entirely dependent upon large-scale capital for development of its subsoil riches.  With Russian production mounting rapidly, and a “friendly” Government in the neighbouring competing fields of Venezuela, Colombia is not in a position to drive a hard bargain with the American companies, according to the latter.  Whether the British will join with the Americans in a temporary united front to enforce such a boycott is another question.  Attempted Anglo-American co-operation in boycotting or injuring Russian and Mexican oil production has not been such as to alarm the Colombians.

That Bogota is playing a canny game diplomatically is indicated by its refusal to sign the recent Washington Pan-American arbitration treaty, without reservation excluding such domestic issues as oil disputes.

Washington, in the main, counts on the American economic and financial hold upon Colombia to check that country’s tendency to “go Mexican.”88  The official Colombian Review of the Bogota Government stated in September 1927:  “The ambitious [railway and general construction] program on which Colombia is now embarking has been made possible by reorganisation of her finances under the plan of the [United States] Kemmerer Commission.”  In 1926-27 Colombia borrowed $81.5 million from the United States.  At the close of that period the Treasury deficit was over $8 million.  There followed in April 1928 an additional New York loan of $35 million.  Colombia probably is in too deep as a debtor to ignore or to defy United States policy successfully.  Proof that the United States Government is using financial pressure as a weapon in oil diplomacy is seen by Bogota in a much resented warning issued by the U.S. Department of Commerce in 1929 to American bankers, expressing lack of confidence in that country’s financial stability.  That is a virtual credit and investment boycott, according to Colombians.

In reacting against this alleged bondage to the United States, the Colombian Government apparently has decided the only escape is to play Great Britain against the United States, encouraging the two Powers to weaken each other.  During Congressional debate on the emergency petroleum bill, Representative Uribe Afanador and other opponents of the measure were charged by Minister Montalvo with acting for American companies.  The Minister in turn was charged with representing the interests of Colonel Yates and the British.

Little Colombian encouragement is required to stimulate Anglo-American conflict, already growing elsewhere in the world.  But Colombians should realise that the battle ground of giants is no healthy place to be.


ROUMANIA TAKES ORDERS


Most of the familiar oil problems of other producing countries exist in Roumania.  There are nationalisation and restriction laws, government ownership of part of the pipe-line systems and regulation of export, high taxes, alleged bribery of officials, Anglo-American conflict inherited from the San Remo pact, and diplomatic controversy.

The State Department protested that provisions of the 1924 mining law in effect confiscated Standard’s (N.J.) rights and investment of 870 million.  But foreign companies suffered little from that law.  Allegedly by financial donations to certain high Roumanian officials, some foreign corporations continued to operate old properties with a minimum of governmental interference.  Dutch-Shell and Anglo-Persian are said to have obtained new lands through formation of “straw” companies with dummy native officers.  They have also acquired Crown land concessions.

The law was changed in 1929.  Foreign companies are not entirely satisfied, though in the opinion of the American consul at Bucharest the new law “abolishes all the discriminations against foreign investments.”89

Foreign companies hold five-sixths of present reserves.  Of 160 operating companies, 10 predominantly foreign firms have 92 per cent of total output.  Measured by standards in the United States, Russia, Venezuela, Mexico, or Persia, Roumanian output has been a minor factor in the world market.  But engineers expect the output to double now that the Government has lifted restrictions on foreign exploitation.  In 1928 output was 30.6 million barrels, compared with 10.8 million in 1923.

Dutch-Shell and Anglo-Persian tried through the San Remo agreement to keep Standard from becoming a large producer in that country.  They failed to keep out the American trust, but these two British companies continued to dominate production.  Dutch-Shell and Anglo-Persian own Astra-Romana, the largest company in the country;  they have part interest in Steaua Romana, the third largest producer, and in other important corporations such as Orion and Phoenix.  The Service Petroleum Company of London was organised in 1927 with a capital of $5 million and acquired the old Industrie Roumaine Miniere.  Standard has controlling interest in Romano Americana, which ranks second in single production, but that is the only American property of significance.  French capital, through Steaua Romana, Concorda, Colombia, and Aguila Franco-Romana, ranks next to the British in total production and control of reserves.

But Roumania is not so vital to the United States as are the areas of the Caribbean, Russia, and the Near East, where larger petroleum resources and international issues intensify the struggle.


to continue

 

1. Parts of this chapter are taken verbatim from the author’s We Fight for Oil, 1928, the purpose being to condense and bring down to date that study of the earlier battles of oil diplomacy.

2. Note of Dec. 15, 1917.

3. Address to Inter-Allied Petroleum Council, London, Nov. 21, 1928.

4. Quoted from Pierre l’Espagnol de la Tramerye, The World Struggle for Oil. 1923.

5. London Sperling’s Journal, September 1919.

6. Federal Trade Commission, Report on Foreign Ownership in the Petroleum Industry, p.x. 1923.

7. —, p. 39.

8. 66th Congress, 2nd Session, Senate Document No. 272, p. 17.

9. Federal Oil Conservation Board, Public Hearing, May, 27, 1926, p. 7.

10. For a briefer account of Standard than Ida Tarbell, History of the Standard Oil Company, and the Government Printing Office index on anti-trust hearings and reports, cf., John Ise, The United States Oil Policy, pp. 46-51, 225-273. 1926.

11. Cf., Political Science Quarterly, Vol. xxxix, No. 2, Edward Mead Earle, “The Turkish Petroleum Company—A Study in Oleaginous Diplomacy.”  Earle, Turkey, the Great Powers and the Bagdad Railway. 1923.

12. Quoted from E.H. Davenport and S.R. Cooke, The Oil Trusts and Anglo-American Relations, p. 27. 1923.

13. —, p. 5.

14. The New York Wall Street Journal, March 27, 1928, published the following:  “Because of statements recently in various publications that Sir Henri Deterding, managing director of Royal Dutch-Shell Group, had changed from Dutch to British citizenship, Richard Airey, president of Asiatic Petroleum Co., a Royal Dutch subsidiary, states that Sir Henri has never changed his nationality.  ‘He was born a native Dutch subject, is, and in my opinion, will remain so until his death,’ Mr. Airey states.  He further points out Royal Dutch Co. charter requires all officers and directors be Dutch subjects. ... He further points out 60 per cent of the operating subsidiaries are owned by Royal Dutch Co. and 40 per cent by Shell Transport.  Also that the British Government has repeatedly denied it owns any Royal Dutch stock.”  Although not directly stated, this apparently is intended to convey the impression that Dutch capital, rather than British capital, has majority control of Dutch-Shell.
    The British Embassy, when questioned March 27, 1925, by the author, said to the best of its knowledge it believed Sir Henri was a naturalized British citizen, and added that the British title borne by him was not usually bestowed on an alien.  The British Who’s Who states he was knighted in 1920.
    The British authors Davenport and Cooke, supra, p. 41, say:  “The personality which engaged the attention of the P.I.P. Committee [British Petroleum Imperial Policy Committee of 1915] was Sir Henri Deterding, the Napoleon of the Royal Dutch-Shell combine.  Even before the war his Napoleonism had given way to love of England in the affair of the Turkish Petroleum Company, and in December 1915 he had been naturalized [Italics mine].  He now lent a willing ear to the Committee.  What could be arranged ?  The objective would be most simply attained if the British interests in the Royal Dutch Company could increase their share holdings and obtain a majority stock control.  How could this be effected?  Obviously there might be a transfer of a block of shares to Sir Henri Deterding, and from him thence to British nominees.  Sir Harry McGowan, as the civilian member of the Committee, was instructed to make the financial arrangements with Sir Henri Deterding.  That something like the desired control was obtained is obvious from unguarded references in a speech made by Mr. Pretyman on a great oil occasion, the laying of the foundation-stone of the Anglo-Persian Oil Company’s refinery on May 7, 1919. ... It was, however, quite wrongly taken for granted that the British Government, directly or indirectly, was interested in the Royal Dutch-Shell combination.  The Foreign Office has more than once given an unqualified denial to this report.  The British State was not officially interested at all.  But British citizens had quietly carried out a coup d’état.  Without a British share control of the Royal Dutch Petroleum Company, which then held the majority control in the Royal Dutch-Shell group of companies, how else could the British Empire have been said [by Mr. Pretyman—L.D.] to be near controlling one half of the available supplies of petroleum in the world?  Yet it was not the British Government, but British nationals, who effected the desired result. ... It will be remembered that the British Government had already, during the course of the war, taken over its nationals’ holdings in the Royal Dutch in order to stabilize the exchange.  In the next war it might do likewise.  And in that event it would take over shares amounting to majority control, thanks to the P.I.P. Committee.  That, as Sir Henri Deterding must have argued, was the most effective and least objectionable way of making Royal Dutch-Shell another Anglo-Persian.”
    For official discussions of British capital in Dutch-Shell, see 68th Congress, 1st Session, Senate Document No. 97, Oil Concessions in Foreign Countries, especially the British note of April 10, 1921, and United States reply of June 10, 1921.  The latter quotes from a Memorandum of the Secretary of the Interior, the following (p. 17):  “It will readily be seen that intentionally, or otherwise, the controlling interest in the ‘Royal Dutch-Shell’ combine, and its constituent or subsidiary corporations, is so inextricably confused that it would require weeks or more, and access to the minute books, as well as the Articles of Incorporation of the original, constituent, and subsidiary companies to ascertain exactly the controlling financial interest and the controlling direction in any given instance.”

15. Davenport and Cooke, supra, p. 15.

16. Statement to House of Commons, July 17, 1923.

17. Address to Inter-Allied Petroleum Council, Nov. 21, 1918.

18. Note of Dec. 15, 1917.

19. Address to Inter-Allied Petroleum Council, Nov. 21, 1918.

20. Cf., p. 254.

21. De la Tramerye, supra, p. 45.

22. Federal Trade Commission, supra, pp. 3, 8, 11.

23. —, pp. 21-32, 70-88.

24. —, p. 13.

25. 66th Congress, 2nd Session, Senate Document No. 272.

26. 66th Congress, 1st Session, Senate Document No. 3334.

27. Interior Department, Report of the Secretary, Year ending June 30, 1919.

28. 66th Congress, 2nd Session, Senate Document No. 4396.

29. Note of May 12, 1920.

30. Note of Nov. 20, 1920.

31. Notes of Aug. 9, 1920, Feb. 28, 1921.

32. Davenport and Cooke, supra, p. 120.

33. 68th Congress, 1st Session, Senate Document No. 97, pp. 47-57.

34. —, p. 70.

35. —, p. 72.

36. Federal Trade Commission, supra, pp. ix-x.

37. New York Times, March 1, 1927.

38. Davenport and Cooke, supra, p. 112.

39. Federal Trade Commission, supra, p. 127.

40. Anton Mohr, The Oil War, pp. 209-210. 1925.

41. Senate Foreign Relations Committee, Hearings 1913, Revolutions in Mexico, pp. 104, 462.

42. Hendrick, supra, vol. I, p. 218. 1922.

43. —, vol. 1, p. 206.

44. —, vol. 1, p. 103.

45. 66th Congress, 2nd Session, Senate Documents vol. 9, pp. 255-256.

46. State Department, Foreign Relations of the United States, 1913, p. 820.

47. —, p. 856.

48. State Department, Foreign Relations of the United States, 1914, p. 444.

49. Cf., Scott Nearing and Joseph Freeman, Dollar Diplomacy, pp. 100-111. 1925.

50. 66th Congress, 2nd Session, Senate Documents, vol. 9, p. 284.

51. Annals of the American Academy of Political Science, Supplement May 1917, “The Mexican Constitution of 1917.”

52. 66th Congress, 2nd Session, Senate Documents, vol. 10, p. 3120.

53. —, vol. 9, p. 289.

54. Federal Trade Commission, supra, p. 94.

55. Federal Trade Commission, supra, pp. xx-xxi. Cf., 69th Congress, 2nd Session, Senate Document No. 210, for list of American oil companies in Mexico.

56. State Department, Treaty Series, 1924, Nos. 676, 678.

57. State Department, Proceedings of the United States-Mexican Commission, Convened in Mexico City, May 14, 1923.

58. State Department, press release, June 12, 1925.

59. Ibid., April 11, 1926, texts of 10 notes.

60. Cf., Henry L. Stimson, American Policy in Nicaragua;  approved by President Coolidge as an official statement. 1927.  For anti-United States narrative, Rafael de Nogales, The Looting of Nicaragua, 1928.  General references:  69th Congress, 2nd Session, Senate Hearings, Foreign Loans.  68th Congress, 2nd Session, Senate Hearings, Foreign Loans.  Isaac Joslin Cox, Nicaragua and the United States, 1909-1927. 1927.  Harold Norman Denny, Dollars for Bullets, The Story of American Rule in Nicaragua. 1929.

61. New York World, April 4, 1928.

62. Cf., New York Nation, Oct. 19, 1927.

63. Commerce Department, Commerce Year Book, 1926, Vol. 2, pp. 370-379.

64. Texts in We Fight far Oil, supra, pp. 78-80.

65. Washington United States Daily, April 7, 1928.

66. —, March 28, 1928.

67. New York Times, March 28, 1928.

68. New York Herald Tribune, April 1, 1928.

69. Cf., Carlton Beals, Mexico: An Interpretation. 1923. President Calles, Mexico Before the World, pp. 8-34, 5;-61, 68-6g, 183. 1927. William English Walling, The Mexican Question, pp. 81-144. 1927. Ernest Gruening, Mexico and Its Heritage. 1928.

70. Moon, supra, p. 429. 1926.

71. Notes of Aug. 9, 1920, Feb. 28, 1921.

72. London Times, Oct. 12, 1926.

73. Cf., New York Times, Jan. 13, 1928. Boston Living Age, April 1, 1927.

74. Cf., New York Wall Street Journal, Jan. 6, 1928, for Gulf Oil Company Organisation.

75. Cf., London Contemporary Review, December 1927. New York Foreign Affairs, October 1927. New York Nation, April 25, 1928, article by Mauritz A. Hallgren.

76. Hendrick, supra, Vol. 1, p. 251.

77. For fuller discussion of the legal aspects of the Barco concession dispute, cf., J. Fred Rippy, The United States and Colombian Oil, Foreign Policy Association Information Service, April 3, 1929.

78. New York, O’Shaughnessy’s South American Oil Reports, June 1927.

79. State Department, Foreign Relations, 1924, p. 163.

80. Nearing and Freeman, supra, p. 83, Washington Post, March 24, 1911.

81. New York Times, March 14, 1921.

82. Text in Panaman Gaceta Oficial, March 26, 1925.

83. Cf., New York World, April 5, June 6, 1926.

84. New York Times, June 6, 1926.

85. Cf., Moon, supra, pp. 413-414.

86. 69th Congress, 2nd Session, House Document No. 633.

87. League of Nations, Minutes of Eighth Ordinary Session of the Assembly, 11th Plenary Meeting, Sept. 10, 1927.

88. Cf., Robert W. Dunn, American Foreign Investments, p. 74. 1926.

89. Commerce Reports, June 3, 1929.