THE STRUGGLE BETWEEN GREAT BRITAIN AND THE UNITED STATES IN MEXICO
There is no country in the world where the struggle for oil between
Britain and the United States has been so acute as in Mexico. That
this country has been for many years in a state of perpetual unrest is
because of the fight for oil concessions.
The _Standard Oil_ enjoyed practically a monopoly in Mexico up to the
time when the deposits at Tampico were discovered. It was the only firm
which sold oil there, so it did not scruple to abuse its position. It
imported crude oil, refined it on the spot, and re-sold it at a profit
of 600 per cent. Immediately the oil deposits were discovered, Porfirio
Diaz, to put an end to this monopoly, granted important concessions
to the British firm of Pearson, which shortly afterwards founded the
_Mexican Eagle_. These concessions were the signal for the newspaper
campaign which was let loose against Porfirio Diaz in the United
States, and for the outbreak of the Maderist insurrection in Sonora
and Chihuahua. Rockefeller and Pearson made war on each other with
the help of Mexican _condottieri_. The United States supported Madero,
Great Britain Porfirio Diaz.
The _Standard Oil_ subsidized the Maderists. Lane Wilson, formerly
Ambassador of the United States to Mexico, actually stated in public,
on January 7, 1913, that the movement on behalf of Madero had been paid
for by the _Standard_, and that a document lying in the archives of the
State Department at Washington proved it! Manuel Liyo, an official in a
high position in the Mexican Ministry of the Interior, stated, before
the Committee of the United States Senate, that the brothers Madero had
concluded the following treaty with the _Standard_:--
I. If Madero is made President, he will grant to the _Standard_ all
available concessions.
II. He will withdraw all those granted to Pearson.
When Madero was made President, the market price of the _Standard_ rose
in Wall Street by 50 per cent. But this triumph did not last long. We
are often astonished at the continual changes of front of the United
States, which support the feeble Presidents in Mexico and oppose the
energetic ones. By 1913 the _Daily Graphic_ and the _Vossische Zeitung_
had discovered the key to this mystery. Ever since Pearson obtained a
footing in Mexico the _Standard_ has poured out gold in floods to drive
out the British. It wishes to be the sole mistress of those immense
oil-fields, which have turned out to be among the richest in the world.
Only 54 million acres are being exploited at present, and already
Mexico holds the second place in world production. Now the Mexican
Minister of Industry and Commerce estimates the area of the oil-fields
of that country at 150 million acres. Where will Mexico stand when all
this territory is exploited?
To arrest the progress of Pearson, the _Standard_ sent an emissary to
Mexico to demand a monopoly of oil exploitation. It offered, in return,
the immediate conclusion of a loan of 200 million Mexican dollars.
Rockefeller's envoy promised, moreover, that the revolution would die
down as though by magic, while, in case of refusal, it would continue
until General Huerta was replaced by a more tractable President who
would submit to American requirements.
Like his predecessor, Porfirio Diaz, General Huerta refused to make
Mexico the vassal of the great trust, and the insurrection redoubled in
violence.[16]
Tired of the continual struggles which ravaged their country for the
benefit of the two great Anglo-Saxon nations, the Mexicans resolved to
profit by the European War to win their freedom for ever. According to
the laws of the country (1884, 1892, 1910) the owner of the surface
was also the owner of the subsoil. All that a company had to do was to
buy the ground and it was at peace with God and man. The Constitution
of 1917 disturbed this peace. "The subsoil," it declared, "belongs
to the nation." To exploit petroleum deposits a Government permit
was required. This permit is only to be granted to Mexicans or to
foreigners who consent to submit to the laws of the country as natives,
and thus renounce their privileges as foreigners.
As soon as they received word of these new arrangements the British and
American newspapers thundered against the unhappy President Carranza,
whose fall from power was not long delayed. Taught by his example, his
successor attempted a policy of conciliation, but in vain. The present
President, General Obregon, is faced with the same difficulties, but
holds firm. The Mexican Government hopes to free itself for ever, by
means of the Constitution of 1917, from the diplomatic interference
which has poisoned its existence. But the Obregon Government, though
moderate, is not strong. It is supported by the middle-classes, but
has the army and the people against it. Now, for some time, unfortunate
tendencies have been shown by the Mexican people. It has just indulged
in a Communist Congress, with the object of "grouping all the forces of
the proletariat."
If President Wilson always maintained a policy of non-intervention
towards Mexico--a policy, moreover, which was severely criticized
within the United States--his successor at the White House meant
to make himself felt there as well as in other parts of the world.
President Harding had among his ministers Mr. Fall[17] of New Mexico,
who has always interested himself in this question, and who at one time
made energetic protests. He demanded that American citizens should not
be expelled from Mexico on the simple order of the President of the
Republic, and that a Commission should assess, at the earliest moment,
the damages suffered by Americans during the Revolution-requirements
contrary to the Constitution.
Thus I was not particularly surprised to hear that the Committee of
the United States Senate had undertaken to recognize the new Mexican
Government only on the condition that the article of the Constitution
of 1917 which forbids foreigners to hold mineral rights _was not
applied to United States citizens_.
The _Mexican Eagle_, however, is undisturbed. Pearson was clever
enough, at its formation, to place it under Mexican law. His borings
have continued uninterruptedly, while American companies were obliged
to suspend operations and wait for Government authority.
Pearson and the Mexican Eagle
The struggle between Pearson and the _Standard Oil_ became at one time
so acute that the United States Government acquiesced in the payment
by American oil companies operating in Mexico of royalties to bandits
and insurgents as though to the established Government.[18] The general
insecurity was such that certain American companies paid 1,500 dollars
_a month_ to a bandit in the Tampico district on the understanding that
he would guarantee not to cut their pipe-lines.
Such a state of affairs could not go on for ever. After many years
of conflict the two companies came to a sort of understanding by
which they shared the exploitation of oil deposits, and when faced
by the hostility of General Carranza's Government they sent a common
delegation to the Peace Conference to defend their interests against
expropriation by the Mexican Government.
In order to centralize its interests, each of the two groups founded,
after a time, a company for the exploitation of the concessions granted
to it. It was in this way that the _Mexican Eagle_ was created in 1908,
to take up a part of the Pearson[19] interests. Its capital, which was
originally 30 million Mexican dollars, was increased to 50 millions
in 1911, on the acquisition of the Pearson oil properties in the
Tehuantepec region. In 1920 it was 86,277,000 Mexican dollars.
"An institution is the elongated shadow of a man," said Emerson.
This definition applies very well to the _Eagle_, in the success of
which the personality of Pearson has been the dominating factor. From
the earliest days the difficulties it had to struggle against were
considerable. They would have discouraged a man of weaker character
and less tenacity. His entire production was destroyed in the disaster
at the Dos Bocal well--an enormous gusher which took fire. A fierce
price-war was going on at the moment, conducted by Americans with great
persistence for many months. Then came the time of unrest and fighting,
and of the civil war to drive the British from Mexico.
However, the _Eagle_ remains, triumphant, possessing an immense domain
of a million hectares in the richest regions, extending along the
borders of the Gulf, in the State of Vera Cruz and the isthmus of
Tehuantepec.
Although it holds in reserve the greater part of this domain, its
output exceeds 100,000 barrels a day. One of its wells alone produces
in six days as much as the Pechelbronn deposits in Alsace yield to
France in a year (60,000 tons), and, according to the estimates
of British experts, its oil-field at Naranjos is alone capable of
producing before its exhaustion a sum of money equal to the whole of
the British national debt.
Pearson's war against the _Standard Oil_ was worth while.
1919
The Royal Dutch-Shell Lays Hands upon the Mexican Eagle
Towards 1919 the weak spot about the _Mexican Eagle_ was its isolation
among organisms so powerful as the two dominating groups of the world,
the _Standard Oil_ and the _Royal Dutch-Shell_. Isolated producers
sometimes lack markets, especially if by their geographical position
they are far from great centres of consumption. This was the case
with the _Mexican Eagle_, which, though it remained independent, was
nevertheless obliged to submit to the very burdensome competition of
the _Standard_ in the sale of its products.
Lord Cowdray held so large a number of shares in the _Mexican Eagle_
that to obtain them was practically to obtain control of the concern.
In 1911 the _Standard_ wished to buy them from him; he refused. In 1913
the _Royal Dutch_ suffered the same rebuff. It had only offered him
£2 15s. a share when he wanted £3. These shares, which were issued at
par--10 Mexican gold dollars, that is, 25.90 francs, or scarcely more
than £1--have risen at a phenomenal rate. Their _lowest_ prices were:--
1912 36 francs
1918 83 francs
1919 126 francs
1920 398 francs
And they rose to 712 francs in 1919 and 738 francs in 1920! Since then
they have depreciated considerably, as have all oil securities. Skilful
manoeuvres on a large scale provoked a panic among holders of Mexican
shares, which made it possible to buy them at a low price, and led to
important operations on the Stock Exchanges, beginning in December 1921
in New York.
In June 1919 Deterding offered Lord Cowdray £6 a share; he accepted.
The _Shell Transport_ took one million, the _Royal Dutch_ a million
and a half.
If Pearson consented to get rid of the controlling interest which he
had in the vast undertaking founded by his genius and perseverance,
it was by reason of the enormous sums which had to be found before
the immense resources contained in the oil-bearing properties of the
_Mexican Eagle_ could be turned to account. It can only handle 111,000
barrels a day, whereas, since the discovery of the oil-fields of
Zacamixtle and Naranjos, its production could be increased, if it were
desired, to 700,000 barrels a day, that is, about 110 million litres
or 110,000 tons a day. In order that non-specialists may understand
the importance of such a yield, we may say that one gallon contains
4.546 litres, one barrel (36 gallons) contains 163.655 litres, and that
_six_ barrels represent one ton. The _Eagle's_ first well, which gave,
to begin with, 100,000 barrels a day, thus yielded a daily production
of 16,000,000 litres or 16,000 tons of oil. And it continued to yield
large quantities--diminishing progressively, be it understood--until
November 1919, when it was invaded by salt water.
_The_ Shell _intends to spend several millions within the next five
years in order to triple the output of the_ Eagle. Very shortly the
development of its installations will allow of its refining 140,000
barrels daily, and it is clear that, some time hence, the enormous
figure of 200,000 barrels daily will be reached, that is, 5 million
barrels a month against the present 2-1/2 million. The _Shell's_
engineers will not push its exploitation to the maximum possible, for
they wish to make the _Eagle_ last _half a century_.
In acquiring control of the _Compania Mexicana de Petroleo El Aguila_
(the true name of the _Eagle_) the _Shell_ had in view simply to ensure
a sufficiency of liquid fuel for the British Navy. For the _Mexican Eagle_
will soon hold one of the first positions among the world's producers.
Before long it will furnish, by itself alone, one-third of the Mexican
production. The capital of the _Shell_ was increased in 1919 simply
with the object of hastening the development of the oil-fields it
controls. In view of the considerable increase in Britain's need of
petroleum we may believe that patriotism was Lord Cowdray's motive
also. However it may be, the negotiations were concluded in June 1919,
and it was a master-stroke on the part of the _Royal Dutch-Shell_
group, for its position was greatly strengthened by this association,
which increased its production of oil by 50 per cent. Moreover, the
_Royal Dutch-Shell_ made a very successful deal, since the shares
bought at £6 each are now worth double on account of the increase of
capital at par in January 1920 and the new increase in January 1921
under the same conditions, that is, one new for two old shares at
par. Since the _Mexican Eagle_ came under the control of the great
Anglo-Dutch trust it has benefited by the incomparable selling power
of the _Shell_: the great shipping companies, the Pirrie and the
Furness-Withy groups, and the Argentine railways immediately concluded
with it important contracts for the supply of oil. And this alliance
brings the _Eagle_ practically unlimited financial resources.
Financial Results of the Mexican Eagle for Eleven Years
------+----------------+--------------+--------------+--------
Year. | Gross Profits. | Net Profits. | Sinking Fund | Dividend.
| | | and Reserves.|
------|----------------|--------------|--------------|--------
| $ | $ | $ |Per cent.
1911 | 1,974,000 | 874,000 | 194,000 | 8
1912 | 5,703,000 | 4,265,000 | 2,920,000 | 8
1913 | 10,488,000 | 8,166,000 | 3,551,000 | 8
1914 | 13,005,000 | 9,689,000 | 5,857,000 | 8
1915 | 14,676,000 | 11,215,000 | 6,562,000 | 8
1916 | 18,082,000 | 17,064,000 | 8,259,000 | 16
1917 | 20,521,000 | 12,948,000 | 6,922,000 | 20
1918 | 28,857,000 | 15,860,000 | 19,830,000 | 25
1919 | 36,868,000 | 29,508,000 | 11,050,000 | 45
1920 | 59,453,000 | 54,659,000 | 8,952,000 | 60
1921 | 81,982,000 | 69,083,000 | 34,879,000 | 30
------+----------------+--------------+--------------+-------
The balance-sheets of the _Mexican Eagle_ are expressed in Mexican gold
dollars. The Mexican dollar, which, on the gold basis, is worth about
half a dollar, was equivalent, at the rate of exchange of January 1,
1921, to:--
8.50 francs.
2s. 9d.
0.495 dollar.
Present Position of the Petroleum Industry in Mexico
Almost the whole of the Mexican petroleum industry is in the hands of
the two great Anglo-Saxon nations.
Seventy per cent. of the capital invested there is American in origin,
27 per cent. Anglo-Dutch. Now Great Britain, in spite of the smallness
of the capital she has sunk, triumphs more and more. Only 3 per cent.
of the capital invested in this Mexican industry is Mexican.[20]
[Illustration: Increase of oil production in Mexico from 1900 to 1920.]
Production continues to grow at a prodigious rate.[21] It has risen
from 87 million barrels in 1919 to 195 million in 1921. Edward
Doheny declares that it will continue to increase for thirty years.
Considerable oil-fields are still unexploited along the coast of the
Pacific, and the Mexican Government officially announced the discovery
of oil in the islands of the Gulf of California in September 1921. The
_Mexican Petroleum_ has just bored a well, the Cerro Azul, producing
100,000 barrels a day. Two miles from this well there is another which
yields 260,000 barrels a day. All these deposits are found at an almost
uniform depth of 600 metres. It is estimated that Mexico can still
produce 4,500 million barrels of oil.
There were 367 wells in production in Mexico on January 1, 1921, of
which 61 belong to the _Eagle_ and 34 to the _American Petroleum_.
Other companies, with five exceptions, rarely hold more than a dozen
wells.
The _Eagle_ stands to-day at the head of all producing companies. Here
are the four companies which produce the most:--
_Mexican Eagle_ 32 million barrels
_Standard Oil of New Jersey_ 19 million barrels
_Texas Company_ 12-1/2 million barrels
_Mexican Petroleum_ 12-1/2 million barrels
Great Britain has played a very clever game. As Phelan, the American
Senator, wrote: "Her companies accommodate themselves to the political
views of the Mexican Government." Moreover, they have all, from the
_Mexican Eagle_ down to subsidiary companies of the _Royal Dutch_ like
the _Corona_, been placed under Mexican law, which shields them from
the effect of the Constitution of 1917. American companies, on the
other hand, whether constituted under the laws of New Jersey, Texas or
Delaware, remain foreign companies.
Since March 1922 they have been working out a plan for amalgamation, so
as to form a powerful American group which could resist the demands of
the Mexican Government.
The companies joining the group would be the _Standard Oil_, the
_Sinclair_, the _Texas Company of Mexico_, the _Atlantic Refining_ and
the _Mexican Petroleum_. The Supreme Court of Mexico has decided[22]
that properties acquired before the Constitution of 1917 was
promulgated would not be confiscated--a declaration which has reassured
the United States.
Mexico retains only 4 per cent. of her production. In 1920 alone she
exported 153 million barrels out of the 159 million produced, keeping
for home consumption only 6 million barrels. Seventy-eight per cent.
of her production went to the United States. Every year Great Britain
takes from Mexico more than 40 million gallons of illuminating oil,
benzine and fuel oil. Mexico literally saves the world. Without her
there would be a universal shortage of petroleum.[23]
FOOTNOTES:
[Footnote 16: "During the last nine years," wrote a New York editor
on the occasion of the last revolution, "there has not been a single
disturbance in Mexico in which Americans have not taken part by lending
their aid to the party opposed to the government.... Americans have
supported Madero against Diaz, Huerta against Madero, Carranza against
Huerta, Villa and Sapeta against Carranza."]
[Footnote 17: Secretary of State for the Interior, an ardent partisan
of intervention. Mr. Fall is a believer in the slogan "_Standard Oil_
must prevail."]
[Footnote 18: Evidence of Edward Doheny before Committee on Foreign
Affairs of the United States Senate.]
[Footnote 19: Since elevated to the peerage under the title of Lord
Cowdray.]
[Footnote 20: According to official statistics of July 2, 1920, the
Mexican petroleum industry represents a value of 300 million Mexican
dollars.
Million
dollars.
Wells bored and in production 100
Value of ground on which they are situated 50
Pipe-lines, railways and rolling-stock 50
Refineries, buildings and machinery 50
Various properties, chiefly British 50
]
[Footnote 21: Cp. chap. ii, _Oil: Its Origin, Discovery, and History_.]
[Footnote 22: July 1920.]
[Footnote 23: Each Mexican well produced as much, in 1920, as 537
American wells.]