CHAPTER VIII

THE ROMANCE OF MEXICAN OIL

When you cross the Mexican border at Laredo, oil enters your

consciousness--and your clothes. It is everywhere, the thick, odorous

_chapapote_ which furnishes the fuel for Mexico’s locomotives, the

energy for every Mexican industry which has no water power, the

pavements for her streets, and, I am still convinced, the heavy

lubricant with which the sandal-clad brakeman of our train eased an

incidental hot-box. In Tampico, whence comes all the oil of Mexico, the

heavy, black “crude” is even more ubiquitous. It “tars” your shoes when

you walk abroad; it decorates your clothes when you ride in anybody’s

motor car or motor boat; it oozes between your toes and sticks in your

hair when you bathe at the beach.

But the physical presence of oil is as a whiff from the dead well at

Dos Bocas compared to its spiritual domination in all Mexican affairs.

Oil is the greatest--I had almost said the only--wealth of Mexico

to-day, its possession the issue of one of the mighty diplomatic

battles of recent times, while the taxes and graft of it have fed the

wellsprings of ten years of devastating revolutions.

Far and away and by many fold, oil is the largest single item of

export of Mexico, and the varied needs of the oil industry and of the

beneficiaries of that industry dominate the imports as well. To Tampico

go shiploads of steel, machinery and supplies, and trainloads of soap

and shoes; the factors which build civilization go chiefly and all but

alone, in Mexico, to the oil fields.

Oil dominates the political life of the country not because oil

companies or oil millionaires seek to control the Mexican government

but because the vast unbelievable wealth which is pouring into the

coffers of that government in taxes and in tribute makes revolution a

game the stakes of which eclipse any sum or any potentiality of wealth

or power which has ever been known in Mexico.

Oil is the inspiration for the “nationalization” policies which,

forged by foreign radicals and given edge by Mexican cupidity, the

Carrancistas wrote into their Constitution of 1917. This policy of

nationalization, the decrees, the laws, the taxation and the graft

which have come in its train, have brought into the field of diplomatic

controversy the whole problem of the right of a government to enforce

radical, socialistic or, if you will, bolshevik policies against

foreign interests which may have entered a country and developed it

under older, more conservative ideals and systems of government.

For the oil industry of Mexico is overwhelmingly a foreign enterprise.

American and British and Dutch are the flags which should fly from the

oil derricks, for neither Mexico nor Mexicans have had a hand worth

the naming in the opening of the nation’s richest treasure-house. The

search for oil in Mexico has taken on the nature of a race, a battle,

between British and American oil interests, a battle not without its

tremendous significance in the world oil situation. But behind this

struggle, which is still and, we may hope, will remain a friendly one,

loom controversies which are vaster than Mexico or England or America,

problems on whose solution the very future of our civilization depends.

For the real battle in Mexico is not between the two great Anglo-Saxon

powers, but between the powers of light and the powers of darkness. In

Mexico’s oil fields to-day is being settled the question of whether

enterprise shall have the right to bring the riches of the earth

to the aid of humanity, of whether industrial power belongs to the

backward people who by accident find that power in their inept hands,

or to those who can develop and raise it up to the service of mankind.

Upon the issue in Mexico depends not only the usefulness of all the

petroleum resources of that country, but the future development of

oil in Colombia, Venezuela, all South America, all Asia, all Africa.

And the future of oil development in those lands is the future of the

world’s oil supply, for there, alone, remain stores sufficient to meet

the multiplying needs of the world.

The solution of this question is vastly complicated. Within the

oil situation itself are many problems such as those just noted.

Bearing upon it is the tangle of cross-purposes, indirections and

varying psychologies. That solution is made all but impossible by the

conditions of Mexico to-day, by the flabby weakness of the rulers of

the Mexican people, by their blindness and selfishness. It has been

jammed, time and again, by the failure of the oil companies and their

representatives to assert their rights with a skill equal to that of

the Mexicans in casting up mountains of controversy out of mole hills

of technicality.

But the story of Mexican oil is not all ugly calling of names, not all

mere hopeless tangle. The history of its discovery and development is

rich with color. The romance of an oil field, like the romance of a

gold camp, is always a thrilling tale. But the story of Tampico has

this other element, for it is indeed the great romance of our race,

the tale of the white man round the world, the building of gigantic

enterprises, the harnessing of unknown forces, neglected for centuries

by apathetic natives, unlocked by the vision and the enterprise of the

Anglo-Saxon.

Oil began with Tampico, but the story of Tampico antedates oil. It

goes back to the late 80’s, when one of the great railway builders of

America’s youth left Kansas for Mexico. A. A. Robinson, who surveyed

and built the Santa Fe Railroad from the Kansas prairies to the Pacific

Ocean, who swung the track of the Denver and Rio Grande Railroad above

the rapids of the Royal Gorge, was also one of the great builders of

modern Mexico. Leaving the Santa Fe in 1889, he became president of

the Mexican Central and built almost the whole of this first standard

gauge line in the country, its branches and tributaries toward the

rich granary of Mexico about Guadalajara in the west, to the mines of

Pachuca in the mountains and to Tampico on the Gulf of Mexico.

Tampico, a wretched, fever-ridden village beside a beautiful river,

was no port in those days. The railroad which brought Mr. Robinson to

Tampico brought also the engineers who built the great jetties which

cleared the bar and opened Tampico to the world, carried the ores of

Pachuca to their markets and began the conscious development of what is

now the busiest seaport of Mexico. The railroad company built and paid

for the jetties, and under Mr. Robinson a short-line to Mexico City

was surveyed and construction was begun, to be halted, in 1908, by the

government merger of the lines.

All this seems to lead far away from oil, but it was in 1900, two years

before the jetties were completed, that Mr. Robinson invited Edward L.

Doheny and his partner, the late Charles A. Canfield, to Tampico to

develop oil wells. Doheny, who had made himself famous and unpopular by

discovering petroleum in the middle of Los Angeles, came to examine the

seepages of which Robinson had told him in the hope that he might find

an oil to help the Mexican Central solve its fuel problems, for the

coal of Mexico is scarce and poor, and all the fuel for the railways

had to be imported.

Mr. Robinson agreed to buy the oil for fuel if Mr. Doheny developed

it, and it was this encouragement, this faith of two great believers

in Mexico, which brought about the discovery and the later development

of Mexican oil. The board of directors for the Mexican Central later

repudiated the Robinson contract, but the development of the Mexican

oil fields had been begun, and it has never stopped from that day to

this.

It was in 1905 that I first visited Tampico. I was the guest of Mr.

Robinson, and as we looked out, one day, over the marshes along the

river which runs past Tampico to the sea, six miles away, he told me of

his dreams for his port, of the day when not only the Tampico side of

the river, but the barren jungle on the other bank would be lined with

wharves and great steamers, greater than any of the coasters and tramps

that to the number of half a dozen a month were then carrying coal and

ore and, amusingly enough as we look back on it now, crude oil from

Pennsylvania for use in Tampico’s one industrial establishment, the

Waters-Pierce Refinery.

I visited Tampico twice again, the last time in 1908. And then this

year! It was as if the dream of the builder of the port had come true

since the setting of yesterday’s sun. To-day the river is lined, from

its mouth all the six miles to Tampico and above, with wharves and

warehouses and hundreds of great tanks of oil, and throughout all this

length are ships, tankers and cargo boats, while on the hills above are

refineries and modern towns, and at night the lights are like those

of great cities. The dream, indeed, of a builder of civilization, of

civilized Mexico, has apparently come true.

A. A. Robinson is gone, laid away with his honors and his vision

these four years. But still there is that other American, who twenty

years ago rode off into the jungles of the coastal plain, saw with

his own eyes the thick, slimy puddles of asphalt at Ebano, and there

drilled his first wells. Years later, after his railway contracts were

abrogated, seeking lighter, better oils, Mr. Doheny went, with the

frontiersman’s unquenchable optimism, nearly a hundred miles farther

into the jungle till he heard the unforgettable baby murmur and saw

the unforgettable bubbling spring of viscous black oil of the great

seepages of Cerro Azul, and there located what was to become the

greatest oil well in the history of the world, the Cerro Azul No. 4.

Oil is the most fascinating of all the treasures of earth. No geologist

has ever approached the solution of either its source or the contours

or formations within which it lies. An oil spring such as that

wonderful bubbling pool at Cerro Azul may mean the presence of a great

reservoir of oil directly beneath or it may mean that the oil has come

a dozen or fifty or a hundred miles along a crack in the mother-rock.

Experience, faith, intuition, these determine the location of a well.

It was these factors that Doheny brought with him to Mexico, for the

fields which he finally drilled and proved had been rejected by many

geologists before he came and after.

At Ebano, a way-station on the Mexican Central a few miles inland

from Tampico this pioneer of the Mexican oil fields found his oil and

developed it, and his success brought hundreds of other prospectors to

Ebano in 1900-1902. But Ebano oil is heavy with asphalt, and it was

dangerous to handle in the crude burners of the time because its fumes

ignite at low temperatures. Thus, although it is rich in lubricating

oils, it was not the petroleum which the world wanted in that day. With

his contract with the Mexican Central abrogated, virtually without a

market excepting for asphalt paving in Mexican cities, Doheny turned

southward in search of lighter oils.

His trips into the swamps and forests of the _huasteca_ or coastal

plain led him to the great seepages at Cerro Azul, sixty miles below

Ebano. It also took him to Juan Casiano where he located his first

wells and in 1908 opened the first of the great producing pools of the

Tuxpam district. Drilling and exploration went hand in hand and not

only Doheny but the British interests of Sir Weetman Pearson (now Lord

Cowdray) and other American companies began to make this field famous.

Since that time the story of the Tampico oil fields has been the

story of the Americans and other foreigners who followed them. No

Mexican name and no Mexican interest are connected with the vast

development which has come. Yet so vast is the busy zone of production,

so tremendous and so varied the forces and elements working there,

that one feels something false in this appearance of preponderance

of individuals and of foreigners in the epochal industry of Mexico.

When, however, one glimpses the long diplomatic struggle, the legal

tangle, the endless problems which make the Mexican oil question so

complicated, one finds that in every phase there are always only

these foreigners on the one side and the predatory, scheming Mexican

revolutionary leaders on the other. Never is there a Mexican on the

production side, never a foreigner on the side of the elements which

retard production.

It was Mr. Robinson who opened up Mexican oil, and it was Doheny and

other early foreigners who first dared drill, and the foreigners alone

who in the years past have dared to put millions into pipe lines,

storage tanks and wonderful fleets of oil-carrying ships. Only they

dared or would dare to go into the sleepy villages of the Vera Cruz

plains and pay fifty cents a day to peons who had lived for generations

on less than a quarter as much. Only the foreigners dared give their

labor a decent wage, dared teach their men to be worth more and more

until to-day they pay the commonest peon the equivalent of two American

dollars a day. Only these foreigners dared believe in Mexico, dared

insist on the good faith of all her faithless governments, dared to go

on with their work when all else in Mexico stagnates and cringes before

the continuing revolutions.

And on the other hand are the Mexicans who govern the land, making it

their chief business to bait and loudly curse these same foreigners.

The name of the foreign oil men is anathema in Mexico to-day, and the

busiest game of any Mexican official is the oratorical denouncing of

the sponsors of the industry. But, we cannot forget, these Mexicans

have not and do not turn a finger to the replacing of great foreign

activity by any constructive form of Mexican enterprise.

At basis the difficulties of the oil companies and the Mexican

governments are psychological--and an understanding of those

psychological bases is the rarest flower in the intellectual nosegay

of most of those who discuss either Mexico or oil. First of all is

the companies’ belligerent insistence on the principles of vested

rights as the first and only basis for the oil discussion--naturally

distasteful to those whose single idea is to upset those rights.

Another psychological element is that the foreigners’ very respect for

law and the continuity of government and their insistence that Mexico

live up to their own ideals is in the first place quite beyond the

conception of the Mexicans in power to-day and in the second place such

an attitude is inevitably maddening to the weaker brother whom it seeks

to benefit. Because the foreigners believe in Mexico, the Mexicans will

not believe in the foreigners.

Another disturbing factor is the very success of the oil companies and

of the foreigners whom they employ. I have told, above, something of

the picture of the Tampico that was and of the Tampico that is. It

has changed in yet other ways, and most of all in the makeup of her

population.

In 1908 there were perhaps two score Americans and English in the

town, and the chief industry of the place was--tarpon fishing! To-day

there are 8,000 Americans and a thousand British and Dutch, and the

swaggering, free-money, noisy, busy atmosphere of the frontier, of

the oil fields, of the white man on his bully-ragging, destructive,

inconsequential “education” of the dark brother round the world,

permeates the place. Its influence is not academic, but somehow one

feels that Tampico is a monument to the genius and faith of the

Americans who made it great. The restless power is there, the restless

making over of the world that it may be a better place for the white

youth of the future to stamp about in, for the dark brothers to build

their new homes in.

Yet strangely enough, if you will, it is to my mind largely because

of this same energy, the achievement which this spirit indicates and

predicates, that the difficulties of the foreign oil companies in

Mexico have been the sort they are. Their persecution has sprung from

the realization of the Mexicans that these Americans, these English,

these Dutch, are doing in Mexico and for Mexico what Mexicans can

not, dare not, do. The Mexicans from generals to peons, are frantic,

baffled, rabid, at the wretched Gringoes who dare to pour their

millions out to drill wells, to build pipe lines and terminals and

ships, to take and to convert this black and liquid gold from the soil

of Mexico.

Of the hundreds of wells drilled in the Tampico-Tuxpam fields, some

of them the veriest “wildcats” on the flimsiest of chances, hundreds

of them as sure as opening a bank vault, only a half dozen, and none

a “wildcat,” have been drilled by Mexicans as individuals or in

corporations, and not a single ship, not a single storage tank, not

a mile of pipe line, is Mexican. Were the Mexican government to take

over the administration of the oil fields to-day, drilling would cease

utterly, to-morrow development would stop and when, a year hence,

it became vital to open more wells, the event would be marked by

government ceremonies and stifling graft.

Every one who knows Mexico knows that this is the truth. The Mexicans

themselves know it, and from the Tampico policeman who howls in

outraged anger when an American motorist refuses to be disturbed by

official anathemas, up to the presidential secretaries who devise

complicated and childish schemes to force the oil companies into

recognizing the dignity of Mexican sovereignty, the whole attitude

toward the oil business has been fraught with effort to maintain that

hazy halo of the weakling, delicate “sensitiveness,” national pride,

_amour propre_.

When I left New York to study Mexican problems for the present writing,

I was convinced that the full facts of the case, on both sides, were to

be found in the United States; Washington was indeed the battle ground

of lawyers and diplomats. Not until I reached Tampico, however, not

until I went out to the oil fields, did I realize that the real problem

is not the question of diplomatic controversy or commercial adjustment.

There, on the long roads, where but one _peon_ of all the thousands

whom we passed, took off his hat to the white _patrones_, as every

one would have done twelve years ago, I found the touchstone. I knew

then why reason will not prevail, why justice is non-existent, why no

white man has yet been able to feel firm ground beneath his feet in the

discussion of the oil problems. These problems have had their rights

and wrongs, as we shall see, but I think that the great difficulty we

at home have had in believing that our own people could be right has

been our inability to conceive how, being right, the Mexicans could be

so hostile to them.

This, I think, is the point of departure in our misunderstanding of the

Mexican situation, especially as it applies to oil. Mexican jealousy

and Mexican realization of the weakness of the national psychology

in great enterprise have set Mexico frantic with the success, the

triumph, the apparent imperturbability of the great foreign oil

companies. This alone has made their hostility to the American

drillers, linemen and engineers who night and day, month after month

through the years of the war, kept the lines open, the oil flowing.

Unarmed, and slaughtered by the score from ambush, grim, unkempt,

often happily drunk in town, these frontiersmen added their bit to

the fire, to be sure. But note this--it was not the white man’s rough

assertion of superiority or the companies’ “tactless insistence,” but

the Mexican’s conception of his own inferiority, personal, commercial,

political, which lit the flame and kept it burning.

The world has entered upon a new industrial era, the age of petroleum.

The commercial struggle is to-day not the war for markets, but the race

for oil lands. And of all the petroleum fields known to exist, those in

Mexico are the greatest in actual production, the greatest in potential

extent, and the most favorably situated for distribution--all vivified

by the greatest individual oil wells in the records of the world.

The story of the development of that oil field is linked with the

history of Mexico, inexorably, inevitably a part of it, influencing it,

all but dominating it.

The first oil well in Mexico was brought in in 1900; production

began on a commercial scale in 1903; about 1904 a British company

secured its first “concession” for oil drilling; in 1905 the status of

petroleum as belonging to the owner of the surface land was definitely

settled, and development began on a large scale; in 1912 the Madero

government established, over the mild protests of the producing

companies, the principle of special taxation on the oil business; in

1914 President Huerta extracted 200,000 Mexican pesos from an American

oil representative in Mexico City, and the oil company, under advice

of the Department of State, repudiated his draft and paid the money to

Carranza; in 1914 the principle of “shaking down” the oil companies

was originated by Candido Aguilar (later son-in-law of Carranza), who

made a mild $10,000 collection; in 1915 Manuel Pelaez made his first

call for tribute, some $1,500, under the exchange conditions of the

day, which the companies paid with the advice of the American State

Department and the American Ambassador, a precedent which later netted

Pelaez a regular $30,000 a month; in 1915 Carranza began to devote the

brains of his finance minister, Luis Cabrera, to devising oil taxes,

with the result that to-day the foreign oil companies pay a total of

nearly $4,000,000 a month, derived from export taxes on the product,

stamp taxes on their business, occupation taxes on their offices,

harbor taxes on their ships, customs duties on their supplies,

etc.; in 1916 Carranza issued the decree requiring foreigners who

did business in Mexico to renounce their rights of recourse to their

home government; in 1917 came the new Mexican constitution declaring

all petroleum in the subsoil the property of the nation; in 1919 the

drilling of new wells was stopped unless the companies agreed to accept

this principle of nationalization; in 1919 the second of the big oil

pools went to salt water and the need of new drilling to keep up the

supply of oil (and the Mexican taxes) became imperative; in January,

1920, temporary drilling permits were issued by Carranza; in May, 1920,

Carranza was overthrown and murdered in the revolution of Obregon, said

to have been financed by certain oil interests; in 1921 Obregon doubled

the oil taxes, bringing about a shutdown, temporary but salutary; in

1921 drilling is going on, however, and the shipment of oil continues.

While drilling is going on in small sections in spite of obstacles,

the full development of the petroleum fields of Mexico waits on the

final decision of the confiscatory provisions of Carranza, whose dead

hand still guides the policies of his successors along the road of

anti-foreignism. In 1921, then, the oil companies are still uncertain

of their status, still the objects of astonishing taxation, still

subject to government annoyance and graft, still buying, in taxes and

annoyances, the “privilege” of working their properties.

The plants of the foreign companies are probably the greatest

installation in any single oil field in the world. The investment in

pipe lines, pumping stations, storage tanks, refineries, terminals and

ships represents close on $750,000,000; the length of the 161 pipe

lines (practically all of them eight or ten inches in diameter) totals

nearly 1,000 miles, while nearly 1,500 steel tanks, with a capacity of

60,000,000 barrels, furnish enough storage to fill a thousand ships.

Through the pipe lines can pass, under high pressure, 750,000 barrels

a day, although the average production for 1920 was about half of this

amount.

In the Mexican fields in April, 1920, the latest date for which figures

are available, there were 304 wells in production, 148 located and 123

drilling. The total of commercially unproductive wells to that date

was 464, including only 35 which showed oil in too small quantities.

Three-fifths of all the wells drilled in Mexico have been dry holes,

and to-day of 1,113 wells drilled and projected, only 75 which have

actually flowed oil have run out of production. These last, however,

include some of the greatest in the history of the petroleum industry.

The vast investment and plant in the Tampico-Tuxpam fields produced

in 1920 over 140,000,000 barrels of oil, one-fourth of all that

was produced in the entire world, equaling some 40 per cent of the

production of all the fields in the United States. The 1920 production

was nearly five times that of 1913, when less than 26,000,000 barrels

were extracted from the Mexican wells, and when Mexico’s total oil

output was only one-ninth that of the United States and contributed

less than one-twelfth to the production of the world. The growth has

been steady and by tremendous strides, for when the pressure of war was

on, the men who were taking out Mexican oil built up a production which

between 1916 and 1917 brought an increase of 40 per cent and began a

development that despite superhuman difficulties gained such momentum

that between 1919 and 1920 the increase was 60 per cent.

On your map you will easily find, on the eastern shore of Mexico, the

city of Tampico, located in the center of the palm of the hand with

which Mexico grasps the great Gulf. A little to the south you will

find, with difficulty, the town of Tuxpam, midway between Tampico and

Vera Cruz. From Tampico directly south to a few miles west of Tuxpam

runs the “line” along which lies virtually all the oil yet developed

in commercial quantities in Mexico. The “line” is thirty-five miles

long; the great producing territory never extended over twenty miles;

momentarily the section which is giving the oil of the Tuxpam district

is along ten miles in the middle of the “line”--and the territory is

hardly a half mile broad at its greatest width. This section produced

in the past ten years 500,000,000 barrels of oil. In 1920 it produced

about 140,000,000 barrels, close to one-quarter of all the oil taken

from all the wells in the world.

Now trace the “line” north to Texas and Oklahoma--it is an extension

of the great mid-continent field of the United States. Now go south,

through the old Furbero field, swing a little in toward the Gulf,

and south of Vera Cruz, on the Isthmus of Tehuantepec, you will find

Minatitlan, the site of early drillings, and of the refinery of the

Mexican Eagle Oil Company. Still south, on the “line,” and you will

find, if your map is large enough, the village of Macuspana, in the

state of Tabasco. Here oil of a grade so fine that the natives burn

the crude seepage in their lamps has been oozing through the soil for

centuries, and here, long ago, the British drilled many test holes. The

“line” runs true, skirting the Gulf of Mexico.

Still more. There are oil seepages on the West Coast, an extension,

perhaps, of our California fields. Other indications have been found,

even far inland, and indeed on the Gulf side, the “line” does not by

any means cover the seepages, even of the coastal plain. All this

section, off into the interior toward the states of Puebla and

Hidalgo, has been leased for oil. But production sticks to the “line.”

The Tuxpam field, the heart of the “line,” will ultimately go to salt

water. Of this there is no question. Every pool of oil that has been

drained--now three in number--has given its 100,000,000 barrels, and

the steaming, brackish water, still under terrific pressure, has wiped

out the property, often between sunset and sunrise--a few hours between

50,000 barrels a day and nothing. Dos Bocas at the northernmost end

of the “line,” came in on July 4, 1906, hailed as the greatest well

of history, blew out her casing, caught fire and burned for months,

a torch of gas and flame 850 feet high, till (if it was oil and not

gas she burned) she had easily spent her 100,000,000 barrels. Another

great British well, Portrero del Llano No. 4, flowed eight years,

giving nearly her 100,000,000 to industry, and went to salt water over

night. The Casiano field, of the Doheny interests, paid a similar toll.

Cerro Azul No. 4 of the same company came in at a full rate of 162,000

barrels a day. She has never been allowed to flow full, for the whole

field is owned by the company, and the pool is considered safe from

drainage. Further south, the Doheny companies have, in 1921, opened

another vast field, the Chapapote Nuñez--but that, still, is “on the

line.”

During the past year the Naranjos field has been showing salt water;

the Chinampa, with a hundred wells located on a relatively few acres,

is being drained at top speed, and salt water has been cutting closer

in at its edges. To-day the Zacamixtle camp, the last of the “line,”

which was drilled like mad by scores of crews putting down wells that

cost in Mexico $100,000 each, has been narrowed to a strip of an oil

river only a few hundred yards wide.

With Chinampa and Zacamixtle gone, only the Cerro Azul, the sixty

square miles of the Chapapote field, and the adjacent Toteco pool will

remain on the “line” with no reserves save to the south, in a territory

recently proved by the “Toteco” and “Chapapote” districts, or to the

north, in the Tampico or Panuco field proper. This last is a heavy oil

section, and here, too, the largest portion of the territory is owned

by the Doheny companies.

Why, with this dwindling field, this steady reduction in reserves,

has there not been more development in Mexico? You know the basic

answer--revolution. But through revolution and graft and theft and

murder the American operators in the oil fields, working for British

and American companies, have kept on the job. Revolution is not the

only answer.

Carranza, when he became president of Mexico, cast envious eyes toward

the oil fields, and sought to make them his own, for loot and for

graft, and not for conservation, be it noted here. He “nationalized”

petroleum, by his new constitution, and tried to force the companies

to give up their properties. They did not surrender, in fact or in

principle, and for five years have fought for their rights, and for

what they believe is the hope of oil development in all the backward

lands of the globe.

In 1919 Carranza stopped the drilling of new wells, in an effort to

force the companies to submit to his decrees, and not until Tepetate

and Juan Casiano went to salt water and the tax returns of nearly

$30,000,000 a year (at that time) were direly threatened, did he give

temporary permits for drilling. He might fight for the nationalization

of the oil, but he was routed by the danger to the vast sum upon

which he ran his government and upon which his generals and favorites

fattened and grew rich.

Thus in the oil fields drilling has been resumed. But off the “line”

there is virtually no drilling, none of the “wild-catting” which is the

life of the oil industry. Until the new government, if it ever does of

its own free will, loosens the death-grip of Carranza, the oil industry

will remain paralyzed and confined to its narrow, shrinking bed between

Tampico and Tuxpam.

But why does Mexico go on? Why does she see so little of the way before

her? The situation is complicated by many factors, two of which stand

out in relief. These are the support given the Carranza ideas first by

the British companies and second by some new American companies. The

British needs in Mexico have from time to time been identical with the

American, and then the two have worked together, but the British occupy

a peculiar position, going back to the Madero revolution of 1910-11. At

that time the Mexican Eagle company (which is a Mexican corporation)

was caught with a number of the old Diaz “reactionaries” as its company

officials, and it was also the holder of the hated Diaz “concessions.”

As a result it had to walk the chalk line very carefully under both

Madero and Carranza, a condition which has always made its position

weaker than the American. The large local business of the Eagle

Company, in refined gasoline and oils, as well as in fuel oil, has also

complicated the matter. It was due to these and similar factors that

the Eagle Company placed itself under the “protection” of the Carranza

decrees when they were first issued, although with protests, both

legal and diplomatic. With a single American exception, the English

interests were the only ones which gave any comfort to those early

Carranza plans. Upon their support the former president built many of

his subsequent activities, including the ruling on drilling permits.

He gave these permits to the Eagle Company without conditions, at the

very time withholding them from the “unfriendly” Americans under a

demand for a written waiver of all protest against future petroleum

legislation.

The second form of support which the Mexican governments obtained is

more recent, and more complicated. Under the Carranza decrees oil lands

were open to “denouncement” (or filing of claims) and the taking out

of a “denouncement” even to protect one’s own property was taken as an

unqualified recognition of the right of Mexico in confiscating the oil

rights of that property. The American and British companies united in

an agreement not to denounce their own lands and not to buy or lease

denouncements upon any other lands.

In 1919, some new American interests, which had had other experience

in oil, entered the Mexican field. They spent some $500,000 in looking

up titles to the properties and leases held by the old companies. They

found many defects, for the inheritance laws, the poor records and the

negligible value of the properties as farm lands make questionable

titles the commonplace of the oil game in Mexico. Where there was an

apparently defective title, these interests acquired the outstanding

lien, and so laid claim to some of the finest producing lots.

So far the plan was a not unexpected move toward getting a hand in

the oil game, a chance to sit in with big stakes alongside the big

companies. The new elements, however, next “denounced” their new claims

before the Carranza government, thus placing themselves quite outside

the old-crowd oil camp. This “denouncing” of their properties brought

them many favors from Carranza officials, but it made negotiation with

the old companies difficult.

The Mexican oil problem, in its simplest, is three-fold. It has to

do, first, with the nationalization of the petroleum in the subsoil,

which threatens to wipe out vested property; second, with the question

of taxation, which may at any time, and indeed actually threatens to

become confiscatory; third, with the problem of concessions which are

to-day the most obvious form of political graft and to-morrow may

precipitate a Mexican war over petroleum rights.

First, the nationalization of petroleum. The Constitution of 1917,

adopted by Carranza, and continued by de la Huerta and Obregon,

definitely declares petroleum the property of the nation. In the grants

of land made by the Spanish crown (the basis of all land titles in

Mexico to-day), gold, silver and other metals were especially reserved

as the property of the king, and in colonial times and since have been

worked only by special permission or grant under “denouncement,” quite

independently of the owner of the land. Neither coal nor oil was known

to commerce in Spanish times, but in 1884, when the mining laws were

revised, the Mexican government as inheritor of the rights of the Crown

of Spain and retaining, as it did and does, the royal control over gold

and silver, specifically stated that coal and oil belonged to the owner

of the surface. This was confirmed later in the mining laws of 1892.

In 1905, after oil was discovered and certain concessions for drilling

had been issued to Sir Weetman Pearson (now Lord Cowdray), head of the

Mexican Eagle Oil Company, an effort was made to have oil declared

the property of the nation, like gold and silver, and thus subject

to concession and denouncement. This was opposed by the American

interests, which held no concessions. The issue was decided virtually

unanimously by the Academy of Jurisprudence, and in the mining laws of

1909 the title to oil was definitely and unequivocably vested in the

title to the surface soil.

Until 1917, the vast development of Mexican oil fields went on apace,

based on the old property rights and apparently safe from molestation.

Carranza switched the matter completely around by the simple expedient

of adding oil to the list of minerals which are national property and

placing the new ruling in that famous Article 27 which contains most of

the anti-foreign provisions of the new constitution.

The Mexican defenses of this action are two. The primary thesis is

that the subsoil has always belonged to the government, whether king

or republic, and that it was beyond the power of ministers or courts

or legislatures to alienate those rights. In other words, Mexico is

only “taking back her own.” The opposition to this is on the basis

of vested rights, on the long periods during which the owners of the

lands had actually enjoyed possession of the subsoil, paying taxes

on full valuations, and on the virtual obligation of contract of all

Mexican governments to support developments under the laws of their

predecessors.

The other contention, more general and yet with a stronger appeal to

modern radicals, was that such nationalization was in line with the

trend of the times, a trend later manifested in the Russian revolution.

Candido Aguilar, then Carranza’s foreign minister, gave voice to this

phase in his note of August 12, 1918, to the British Foreign Office,

where he stated that “the modern conception of property is that it is a

social function bound closely to the prosperity of the State.”

Both these contentions might in fact be worthy of consideration if

the government of Mexico were of a character to be trusted, if it were

indeed genuinely devoted to any sincere ideals of social reform, if it

were truly interested in the conservation of the nation’s resources for

the benefit of the people. But the Mexican governments have been none

of these things, truly believe none of these things. The radicalism

of Mexico, the socialism of Mexico, are means to an end, not ends in

themselves, means to power and position, for loot and for the pelf

which goes into private pockets and not even into national coffers.

Certainly if government could be depended on, the idea of paying

fixed royalties to a national treasury is financially preferable to

dickering with individuals, and obviously more businesslike. But since

oil has been known, the great organizations which handle the product

have been accustomed to dealing with private owners; it is a game they

know, a business they understand. In Mexico there is the other factor

which one can never lose sight of, and that is that government control

means graft, favoritism, chicanery, the meddling of foreigners and big

business in the very heart of the councils of government. And those

things, until now avoided, must never come into being.

In the final analysis, the proposed nationalization of petroleum has

never been a conservation measure, the only excuse (to radical or to

conservative) for its promulgation. The Mexican governments, from

Carranza to Obregon, accepted “denouncements” upon petroleum lands

already developed, granted vast concessions for drilling, on a royalty

arrangement with the government, in so-called navigable streams

and other “federal zones,” and in every way in their power carried

on a _redistribution_ of petroleum titles. This single fact of the

government acceptance of such denouncements and concessions indicates

that the intention is not to conserve, but to get a new deal with

somebody besides the Gringoes and the Indians who own the oil lands

sitting around the table.

The whole interpretation of the oil features of Article 27 seems at

variance with the ideas of genuine radicals as completely as it is at

variance with the ideas of dyed-in-the-wool conservatives who still

dare talk of “vested rights.” The effect of the enforcement of the

nationalization plan would be first to change royalty payments from

the land owners to the government and second to move the dealings for

oil leases from the open field and the negotiations of plain buying

and selling to the conferences of government officials where honor is

to-day a more commercial commodity than land, and where the proportions

of lease money to graft would be as one to ten. It would indeed, bring

on the era of concessions and favoritism with a vengeance, and the

dismal pictures of the foreigners’ corruption and exploitation of

Mexico would become a bitter reality.

At present, the chief hope of avoidance of such a condition lies in

Article 14 of the same Constitution of 1917, which declares that none

of the provisions of that instrument shall be construed as being

retroactive. The interpretation of non-retroactivity has been the

subject of much discussion. At one time Carranza’s foreign minister

told the oil companies that it should be understood to mean that the

government would not collect for the oil already extracted. At other

times it has been held that the expropriation of petroleum rights would

not affect the properties where wells were opened prior to May 1st,

1917; then not to land acquired for drilling purposes before that date.

It was this detail which was taken up by the Mexican Supreme Court in

August, 1921. But after years of fighting single incidents, and working

along the theory that American companies could demand only their own

rights, the issue has actually broadened to the whole question of

property rights of Mexicans as well as foreigners. There are millions

of acres of potential petroleum land in Mexico, not one per cent of

which is owned or leased by foreigners, and all this would be wiped

out, along with foreign properties, if the oil were declared definitely

confiscated to the nation, or even if merely the “oil” lands were

exempted.

Were non-retroactivity interpreted to nationalize only the oil and

coal in federal lands to which no title had ever been given to private

individuals, the vested rights of land owners would be protected

whether petroleum had been discovered on the property or not. Such

an idea of nationalization would approximate the control of oil in

national lands in the United States under the new leasing laws. It is

this interpretation which the oil companies and the Mexican land owners

are seeking, and which has not been touched by the Mexican Supreme

Court decisions noted above.

The second issue in the oil controversy is taxation. Until the

1921 temporary increase, export duties on oil were collected at a

theoretical rate of 15 per cent of its value. This valuation is

supposedly on the basis of sales of oil in Mexico. There are hundreds

of such sales, but their prices are not taken, and arbitrary estimates

ostensibly based on the prices for which oil is sold abroad, less

another arbitrary allowance for transportation, are the criteria. The

results of this system have been confusing to the exporters, to say the

least. Some of the lower grades of oil, for instance, were actually

paying, not 15 per cent of their value, but 40 or 50 per cent. The

valuations fluctuate also according to government caprice and the need

of tax money; the result is another difficulty in making close prices

to consumers, which in the end all must feel in the price of gasoline.

A peculiar tax difficulty of the oil companies was over an exact

doubling of the valuations and thus of the taxes, made by the Carranza

government a few days before it fell--an increased tax which the de

la Huerta and Obregon governments have sought to collect. Still more

recent is the virtual doubling of oil taxes which shut in many of the

wells during July, 1921.

The direct oil taxes are now about $2,000,000 a month, so that the

doubling is an item of no small moment. At present no immediate

solution of the tax difficulties is in sight, and the companies have

been split by favoritism into two camps. One is largely British,

which finds it profitable to accept the decrees. The other is largely

American and finds the enforcement of the new regulations oppressive.

Some plans for relief have been discussed. One of the proposed oil

bills based on Article 27 interprets it not as nationalizing petroleum,

but as nationalizing the right of taxation, taking all tax privileges

from the states and vesting them in the federal power. The idea would

be to provide a single direct tax on petroleum extracted from the soil

instead of upon that exported. Apparently this tends toward a solution

of the tax question. But here again enters the difficulty of dealing

with Mexicans, for such a direct tax would be without recourse, until

its provisions became confiscatory, while at present the companies have

at least a chance of defense in protests against arbitrary valuations.

The outstanding fact in the tax situation, as in the nationalization

question, is the bad faith of Mexican government. The much discussed

reforms are non-existent, and government in Mexico is for the benefit,

not of the governed, but of those who rule, and taxes fill not the

treasury but the pockets of officials, and appropriations are not for

schools and civic welfare, but for the army and “public works,” where

graft is so colossal that it passes the conception of citizens of

simpler lands.

The third element of the Mexican oil problem has to do with

concessions. This is a phase of nationalization, but to-day it has

taken on an importance which recently obscured other issues. The

government had issued a number of what are called “federal zone

concessions,” giving to individuals and companies the right to explore

and extract oil from the rivers, lakes, etc. The federal zones are

narrow strips along the seashore and navigable rivers on which an

easement has been reserved for the public use. The American oil

companies contend that this mere easement cannot be converted into

absolute ownership, which is the effect when the government grants to

third parties the right to drill wells there and thus to tap the pools

of oil which the companies have discovered and developed and on which

they are paying rentals to land owners.

There were a few oil concessions under Diaz, practically all to English

companies. One of the great shibboleths of the Madero revolution was

the wiping out of the system of concessions, so no more were given

until toward the end of the Carranza régime. Beginning then, becoming

almost an orgy in the brief rule of de la Huerta, and continuing

into the days of Obregon, concessions have become common, some

going indirectly to a few American companies, many to the British

corporations and more to Mexican favorites of the ruling group. The

concessions issued cover practically every river and semi-arid gully

(regarded as a “navigable stream” for the purposes of the concession)

in the whole Tampico-Tuxpam field, a stretching of the “federal zone”

idea in order to make possible the penetration of the producing fields

by concessionaires.

Other concessions are of different sort. Under de la Huerta one was

issued giving the right to explore rivers, lakes and government lands

over the entire republic, with preferential drilling rights up to a

production of 400,000,000 barrels per year, the chief consideration

being a return to the Mexican government of 40 per cent of the gross

value of the oil found. Another, to a company, also American, gives

rights to explore Lower California and other West Coast states, with

the privilege of denouncing not only government lands, but private

properties as well--the return to the government in this case is 10 per

cent of the gross.

The concession feature of the oil question, like the others which I

have described, has its rights and its wrongs, but the fact of giving

concessions, and in such blanket form, to take oil from the lands of

private property holders, is in itself proof of but one thing--the

intention of the Mexican government, not to conserve its resources

of oil for the benefit of its people and the generations yet unborn,

but to get out of the oil business as much as possible as quickly as

possible--and solely for itself and its favorites.

The final phase of the oil problem in particular and of the entire

Mexican question in general is anti-foreignism. Article 27 of the

new constitution contains a number of anti-foreign provisions other

than petroleum nationalization. One is that only Mexican citizens may

develop oil (and other properties) in the republic. Another section of

the Constitution, as I have mentioned, gives this provision force by

requiring that foreigners who sought to work such properties should

appear before a government department and waive all rights of appeal

to their home government for protection. This and other anti-foreign

provisions are summed up in the so-called “Carranza Doctrine,” one of

the interesting developments of his picturesque reign. This has been

stated as follows:

“No individual should aspire to a better situation than that of the

citizens of the country to which he goes; legislation should be

general and abstain from distinctions on account of nationality.

Neither the power of nations nor their diplomacy should serve for

the protection of particular interests or to exert pressure upon the

governments of weak peoples with the end of obtaining modifications of

laws which are disagreeable to the subjects of a powerful country.”

The world outside largely persists in taking Mexican professions at

their face value, and in solemnly accepting the beautiful Mexican laws

and the beautiful Mexican arguments as literally true. On this point

I have quoted elsewhere the words of a great Mexican publicist, who

has written: “The carpet baggers of Mexico have traditions rooted as

far back as colonial times. They combine the shrewd and subtle wit

of the Indian with the grandiose words of modern civilization, with

which they have gained the sympathy of uninformed outsiders.” Our own

State Department has answered the “Carranza Doctrine” in no uncertain

terms and once wrote that “the Department is of the opinion that ...

an attempt is being made to coerce American companies ... to admit in

advance ... the correctness of the contention of the Mexican government

in the matter of ownership of oil deposits, against which the American

government has made solemn protest as threatening confiscation of

rights legally acquired by American citizens.”

In fact, there is no reason to doubt that virtually all of the oil

decrees of Carranza, all the rulings of his ministers, all the

regulations which have been enforced with such insistence on petty

details have been, first, appeals to sentimentalism abroad and, second,

childish expedients to force recognition by the foreigners of some

sort--any sort--of superiority in the Mexicans. In the last, so well

set forth in the State Department message quoted just above, lies the

basic cause of the failure of the companies to reach an agreement with

the Mexican government. Every willingness to discuss a point, every

slackening of their demands, has been accepted, not as an approach to

a solution, but as a weak concession to Mexican “national pride” and

personal dignity.

There are two remaining reasons why the oil question remains unsettled.

They are extremely practical,--loot and incompetence. Of the former,

George Agnew Chamberlain, the novelist, recently American Consul

General in Mexico City, has written in his book, “Is Mexico Worth

Saving?” that:

“Today it is taken as a matter of course that ninety per cent of all

Mexican officials in positions of trust are openly corrupt and will

inevitably continue so until controlled by some greater power than

any single faction of their peers.... The graft of Mexico is outright

loot; its effect is to open simultaneously all the arteries of the

body politic and to pour the entire life blood of the nation into the

gullets of the group in power.”

The oil companies are the ripest prey for loot in all Mexico. Their

individual employees pay graft of certain kinds--of that I have no

doubt, although there is vigorous and official denial. The companies

themselves, however, pay a tribute, through the channels of astonishing

taxation and contributions to public works, which is no less than the

buying of the privilege of doing business. Another phase appears in the

gossip which is general that one of the English companies materially

aided the Obregon revolution--certainly every moneyed interest in

Mexico had ample opportunity to do so. The American companies were,

after Obregon’s occupation of Mexico City, “shaken down” for about

$1,000,000 which was credited against taxes--and the taxes afterwards

proportionately increased!

As a whole, the companies have resisted the temptation to ease their

way along the broader paths of high government by the voluntary use of

money--they have generally confined their expenses to the ample totals

of taxes and assessments. It is for this reason that one of the most

serious phases of the Mexican congressional discussion of petroleum

legislation is that practically every member of the Mexican congress

expects “his,” and when it is not forthcoming, will see to it that

nothing favorable to the foreign companies finds its way to the statute

books.

Lastly, incompetence. Perhaps the most appalling factor of the whole

Mexican situation is the utter and profound ignorance of the men in

control of the national affairs, men to whom the culture, the very

procedure, of modern civilization are as a closed book. I believe that

the oil problem is made serious chiefly because the Mexicans who might

otherwise be willing to solve it are so uneducated, so limited in

viewpoint and understanding, that they cannot conceive of the vast sums

of money which must be invested in pipe lines, storage tanks, pumping

stations, wharves and ships and refineries before the oil taken from

their country’s soil becomes the fabulous treasure of which they hear

so much. They seem utterly incapable of grasping the fundamentals of

their national problems; the pity of the condition almost obscures the

significance of the fact. It has not been easy for me to explain the

oil problem in its simplest phases to Americans, yet in this chapter

you who have read it have learned more than the floor leaders of the

Mexican congress will ever know.

It is through this forest of ignorance, this slime of graft, that the

foreign oil companies are making their way. They have committed many

mistakes in their handling of the situation, selfish mistakes, mistakes

of ignorance, but the struggle has been against forces whose depravity

has been literally unbelievable. Personally, I am no fire-eater, but I

have seen much of Mexico and I have seen something of the psychology

of depravity, and I believe that the last lingering hope of Mexican

adaptability to world conditions lies in Mexican recognition of the

need of grasping truth rather than theory, of facing facts with manly

faith in Mexico and in Mexican ability to solve her problems as other

nations solve theirs, by honesty and patriotism and not by graft and

personalism. This attitude the oil companies have nurtured, and in this

their policy has been a policy of weakness. Seeking here an outlet

for the day, there a hope for the morrow, they have put a premium on

Mexican dishonesty, given a prize for Mexican argumentative skill. I

know some of the problems the companies have faced, I know the need for

oil during the war, I have written here something of the magnificence

of their achievement, but for all that, I hold that they have had much

to do with the vacillation, the inefficiency, the watery, grafting

policy of the Mexican governments from Carranza to Obregon. They have

had a large part in making such a policy successful by not refusing

unjust demands firmly and directly, by not challenging Carranza to

close the oil fields, by not taking a mighty loss to save the endless

leak of graft and taxes and cynical legislation which is their heritage

to-day. Even yet their policy is one of conciliation to Obregon, the

newest president; still they are offering compromise, still giving the

subtle Mexican mind to understand that perhaps they might agree to

Article 27, perhaps they might accept a little higher taxation, perhaps

they would like a few concessions, perhaps they might be counted on to

get the hopefully predicted Mexican loan.

All this is the last phase of the complicated problem. We have said,

in days gone by, that this is the problem of the oil companies, that

theirs is the gain and theirs should be the cost. But if I have

succeeded here I have conveyed an idea of the breadth of the oil

problem. It is no longer a question of whether the American State

Department is making the proper moves to support honest and industrious

American investors and workers abroad. It is no longer the academic

problem of whether the oil companies are handling their business in an

intelligent and efficient manner. The problem is ours, yours and mine,

of you in Kansas, of me in New York, of our cousins in England and

China. It is the problem of the chap who runs a Ford and of the man who

is cutting our freight bills by renting us a truck, of the steamship

company which is carrying our goods, of the captain of the battleship

which keeps us safe from near and distant enemies.

The problem is not merely whether the white peoples of the world are

to have the right to develop the riches of the backward nations for

the benefit of the world, but of _how_ they are to do it. So far,

even in forward-looking lands, it has been impossible to eliminate

private ownership and colossal private fortunes from the wheel of

oil production; in Mexico, to-day, it would be disaster beyond

understanding to turn the right of concession and oil privileges over

to corrupt and inept government. The battle of the oil companies in

Mexico is to save, first themselves from such a fate, and second to

save all the unopened oil resources in the world from the strangling

hold of such governments and such peoples everywhere. The oil industry

can no longer carry the burden of such conditions, for the prices of

your gasoline and your ship’s fuel oil are reflections not of a world

scarcity, but of the uncertainty, the colossal artificial difficulties

of oil production in the backward lands.

Commerce has fashioned the world into one brotherhood, and the Great

War, for all its appearances, has welded us all into a mightier machine

of civilization than history has ever known. Oil is the fuel of that

machine, and oil must come to its engine, though all the power of

politicians and bandits combine to keep it in the soil. The backward

countries are swept into the forefront of commercial importance when

oil begins to flow from their soil. The process is going on all over

the world. In Mexico it is at its zenith. The oil must come, and from

Mexico before all others, for Mexico lies in the heart of the world,

her shores touched by more waters in proportion to her area than any

other continental nation. And her stores of oil are the greatest man

has yet found or dreamed of.

To-day the world’s need of oil threatens the life of Mexico. It

is eating out her body by revolutions, by bandit governments, by

colossal graft which feeds on the ever growing river of gold from

the oil fields. The world’s need for Mexico’s oil threatens her with

intervention, not because of capitalistic machinations, but because of

the crass and wicked injustices which the wealth has tempted her to

wreak upon her foreign residents, because wealth has undermined her

government and given her over to demagogues.

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