American and British Reactions to Mexico's Expropriation of Foreign Oil Properties, 1937-1943

THE DIPLOMACY OF EXPROPRIATION: AMERICAN AND BRITISH REACTIONS TO MEXICO'S EXPROPRIATION OF FOREIGN OIL PROPERTIES, 1937-1943 Catherine E. Jayne Submitted for the Degree of Ph.D., Arts Department of International History London School of Economics University of London November 1997 UMI Number: U111299 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U111299 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. ProQuest LLC 789 East Eisenhower Parkway P.O. Box 1346 Ann Arbor, Ml 48106-1346 ^<3 32 S191 H S3S: 2 ABSTRACT On 18 March 1938 Mexican labour problems in the oil industry culminated in Mexican President Ldzaro Cdrdenas' decision to expropriate the holdings of 17 American, Dutch and British oil companies.^ The purpose of this thesis is to fill the gaps in the literature on the Mexican oil nationalisation by analyzing the policies of the oil companies, and comparing and analyzing in detail how policy was determined in both Britain and the United States at a time when Britain was trying to win US cooperation in the face of increasing hostilities in Europe and the Far East. While Whitehall wanted US cooperation in taking a firm stance against Mexico, Washington refused. Washington’s failure to cooperate with London is consistent with its resentment of Britain's still extensive trade relations with several South American countries and its attempts to form preferential trade agreements at the Ottawa conference of 1932 and subsequently an exclusive sterling bloc. Also, Washington's pursuit of the Good Neighbor policy precluded any association with 1 The companies included Mexican Eagle, which was managed and partly owned by the British and Dutch Royal/Dutch Shell, as well as subsidiaries of the American companies Standard Oil of California, Standard Oil of New Jersey and Sinclair Oil. 3 the tough policy adopted by Britain. Despite its refusal to be associated with Britain on this matter, Washington ended up taking a hard line towards Mexico, but American officials went to great lengths to make policy appear consistent with the Good Neighbor policy. Totally reliant on overseas oil at a time when war seemed imminent, policy-makers in Britain immediately decided to prevent other countries from following Mexico's example by showing Mexico's policy to be a failure. Officials in Whitehall responsible for oil policy believed that secure access to foreign oil necessitated British ownership and control of oil supplies abroad whenever possible. Not only did Whitehall's concern about oil supplies in war focus policy makers, but the governmental machinery for formation of oil policy allowed for a consistent policy towards Mexico. Washington on the other hand lacked such machinery, and American officials displayed inconsistency in their policy toward Mexico. Also, the United States had plentiful indigenous supplies of oil, and Washington's main concern, to the disappointment of Whitehall, was increased trade with Mexico and other nations, rather than defending the more specific interests of the oil companies whose properties had been expropriated in Mexico. 4 CONTENTS Acknowledgements.................................. 5 Abbreviations......................................6 Int roduct ion...................................... 7 1. Setting the Stage.............................. 24 2. Anglo-American Tension before the Expropriation: November 1936-March 1938.......................... 50 3. Washington's Reaction to the Expropriation: March 1938-November 1938.......................... 88 4. The Reaction of Whitehall and the Oil Companies: March 1938-November 1938............. 138 5. The Boycott: March 1938-September 1939........................ 182 6. US and Oil Company Policy after the Agrarian Settlement: November 1938-May 1940.............. 227 7. Whitehall's Policy after the Agrarian Settlement: November 1938-May 1940.............. 270 8. The American Settlement: May 1940-October 1943............................ 305 9. Britain and the American Settlement: May 1940-June 1943 ............................... 346 Conclusion........................................387 Hull's Note to Mexico City, 26 March 1938 ................................... 393 O'Malley's Note from His Majesty's Government to the Mexican Government, 11 May 1938.......... 397 Dramatis Personae................................ 400 Bibliography..................................... 408 Archival Sources Consulted but Not Referred to.............................. 420 5 ACKNOWLEDGEMENTS I owe a debt of gratitude to several people, without whom this project would not have been possible. First among these is my supervisor Dr. Robert Boyce who provided invaluable criticisms, suggestions, guidance and support. I am also grateful to Professor Donald Cameron Watt, under whose guidance this project began, for continuing to give tremendously constructive input even in the final stages of this project. Any errors, however, are entirely my own. I would also like to thank the helpful staff at the Churchill Archive Centre, the Bank of England, the Public Record Office, the British Library of Political and Economic Science, the Science Museum Library, the Shell International Archives Centre, the National Archives in Washington, the Library of Congress, the Franklin Roosevelt Library , the British Petroleum Archives, the National Library in Dublin and the University Library in Birmingham. The generosity of the Central Research Fund, the London Goodenough Trust and Fellowship House is also gratefully acknowledged. I would also like to thank Professor Roy MacLeod for the helpful criticism he provided. Last but by no means least I would like to thank my family and friends for their unwavering support and encouragement. ABBREVIATIONS CID-Committee of Imperial Defence Cmd-Command CTM-Mexican General Workers Union FO-Foreign Office HMSO-His Majesty's Stationery Office (before 6 February 1952); Her Majesty's Stationery Office (from 6 February 1952) PP-Parliamentary Papers RG-Record Group STPRM-Mexican Syndicate of Oil Workers Vol-volume 7 INTRODUCTION On 18 March 1938 Mexican President Ldzaro Cdrdenas issued a decree expropriating the properties of most of the foreign firms engaged in the oil industry, including subsidiaries of Anglo- Dutch Royal Dutch/Shell^ and the American companies, Sinclair Consolidated, Standard Oil of California and Standard Oil of New Jersey.2 His policy reflected a resurgence of the nationalism and zeal for social and economic reform which had characterised the Mexican revolution since 1910, at which time foreigners controlled nearly half of Mexico's wealth, and only 3 percent of the Mexican people owned la n d . 3 in an effort to redress the imbalance, Mexican presidents from 1915 expropriated American-held agricultural lands and distributed them among needy Mexicans, and in June 1937, Cdrdenas expropriated National Railways, a company partly owned by US interests, which operated approximately 55 percent of the railroad ^ In some of the published primary material, the subsidiary of Royal Dutch/Shell is referred to as 'Compania Mexicana de Petroleo "El Aguila'. Throughout this thesis, it will be referred to by its English name, 'Mexican Eagle*. 2 The expropriation decree excluded two small companies, Titania and Mercedes, which were subsidiaries of a company owned by Standard Oil of New Jersey and possessed extensive leases and concessions before the expropriation. 3 Cronon, E. David: Josephus Daniels in Mexico (Madison: University of Wisconsin Press, 1960), pp. 32-33. 8 trackage in Mexico. Cardenas' policies, which catered to the revolutionary ideals, won him and his successor Manuel Avila Camacho widespread domestic approval except among oil workers themselves who had been influenced by anarcho- syndicalist thought and wanted more control of the oil industry than the management of Pemex, the government oil company, allowed.4 The Mexican expropriation was not a novelty to the oil companies, Washington or London. In 1917 the Russian Bolsheviks seized the oil properties of Shell and Nobel Brothers Petroleum Producing Company, which later sold its interests to Standard Oil of New Jersey, and the companies never recovered their investment. In Persia in 1932, the shah cancelled the concession of Anglo-Persian, in which the British government was the majority shareholder, but the matter was settled within a few months by referring it to the League of Nations after which the concession was renegotiated. In March 1937, the Bolivian government seized the concession of a subsidiary of Standard Oil of New Jersey after the company had expressed interest in selling it, and by 1942 the Bolivian government agreed to compensate the company for the concession 4 Ashby, Joe C.: Organized Labour and the Mexican Revolution under Ldzaro Cardenas (Chapel Hill: University of North Carolina Press, 1967), chapter 11. 9 and its properties.5 what makes the Mexican expropriation doubly interesting for the international historian is the fact that it occurred five days after Hitler's Anschluss of Austria. The response of the British

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