The Good Neighbor Policy and the Nationalization of Mexican Oil: A Reinterpretation

Author(s): Clayton R. Koppes

Source: The Journal of American History , Jun., 1982, Vol. 69, No. 1 (Jun., 1982), pp.
62-81
Published by: Oxford University Press on behalf of Organization of American
Historians
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 The Good Neighbor Policy and the
Nationalization of Mexican Oil:
A Reinterpretation

Clayton R. Koppes

The Mexican government's nationalization of the foreign oil companies on

March 18, 1938, is a landmark in relations between the industrialized and the
developing countries. A turning point in Mexican economic development, the
nationalization became a model of economic self-determination for other
developing countries of whatever political systems. But the nationalization
posed a seminal challenge to the preferential economic and political position
of the United States and Great Britain in Latin America. For the first time a
country from the bloc that would become known as the Third World had
seized control of a basic sector of its economy held by the capitalist center.'
The policy adopted by the United States, which took the lead in the crisis,
has usually been viewed as the chief test of the Good Neighbor policy. A schol-
arly consensus has emerged which argues that, after three years of fruitless
support for the expropriated oil companies, the State Department broke with
those interests in 1941 and concluded an agreement with Mexico that settled
the issue on terms prejudicial to the firms. The immediate reason adduced for
the settlement was the United States's desire to improve relations with Mex-
ico in view of the Nazi threat to the hemisphere. But some historians have

Clayton R. Koppes is assistant professor of history at Oberlin College. He wishes to acknowl-

edge the financial support of Oberlin's Research and Development Committee and the Harry S.
Truman Library Institute.
I For the continuing vitality of the Mexican oil nationalization as a turning point for the Third
World, see Lorenzo Meyer, Mexico and the United States in the Oil Controversy, 1917-1942,
trans. Muriel Vasconcellos (Austin, Tex., 1977), 233; Pablo Gonzalez Casanova, "The Economic
Development of Mexico," Scientific American, 243 (Sept. 1980), 192; Paul E. Sigmund, Multina-
tionals in Latin America: The Politics of Nationalization (Madison, Wis., 1980), 48; Richard B.
Mancke, Mexican Oil and Natural Gas: Political, Strategic, and Economic Implications (New
York, 1979), 5; and Peter R. Odell, "Oil and State in Latin America," International Affairs, 40
(Oct. 1964), 659-73. The Mexican example probably played an important role in the creation of
the Brazilian anomaly-the formation of a state petroleum monopoly before oil had been
discovered. The Brazilian government of Getdlio Vargas, all too aware of the problems in imposing
regulation on prosperous private companies, set up the National Petroleum Council to control the
oil industry on April 29, 1938, six weeks after the Mexican nationalization. See Peter Seaborn
Smith, Oil and Politics in Modern Brazil (Toronto, 1976), 35.

62 The Journal of American History Vol. 69 No. 1 June 1982

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 Good Neighbor Policy and Mexican Oil 63

argued that the rapprochement signifies a more fundamental shift away from
support for United States capital in Latin America. As Bryce Wood puts it: the
United States "curbed its finance capital"; support for private investment
abroad no longer ranked as a matter of "high national policy." The Mexican
oilcase thus represents the apogee of the Good Neighbor policy. 2
This consensus is open to question. Historians have stopped too soon. They
have assumed that the Cooke-Zevada commission agreement of 1942 marked a
settlement of the oil controversy, which had bedeviled relations between the
United States and Mexico since 1917. In this article I argue, however, that the
1942 agreement was but a tactical interruption in an essentially consistent
policy of support for United States oil firms in Mexico from 1901 through
1950. Despite some intragovernmental jockeying, Washington policy was
devoted to reversal of the nationalization. A reinterpretation of the oil dispute
therefore modifies the meaning of that masterpiece of protean political phrase-
making, the Good Neighbor.
The nationalization directly challenged the hoary United States petroleum
policy-the Open Door for oil. Secretary of the Interior Harold L. Ickes struck
close to the mark when he noted tartly that Washington had "no international
oil policy . .. except to protect the interests of our nationals. " Since the turn of
the century the State Department had applied the principles of reciprocity and
2 Bryce Wood, The Making of the Good Neighbor Policy (New York, 1961), 344, 360. This stan-
dard work on the Good Neighbor policy, as well as the most recent book-length study, Irwin F.
Gellman, Good Neighbor Diplomacy: United States Policies in Latin America, 1933-1945
(Baltimore, 1979), are generally laudatory, although Irwin F. Gellman is more critical of the State
Department's actions in the Mexican nationalization crisis than is Bryce Wood. See ibid., 55-58.
Although both studies devote much attention to economic issues, they treat them primarily in the
context of particular United States property interests, not an overall economic system. See
Frederick C. Adams, Economic Diplomacy: The Export-Import Bank and American Foreign
Policy, 1934-1939 (Columbia, Mo., 1976), 224-25. Gellman and Wood write from a "security"
stance; they emphasize the nonintervention pledge of the Good Neighbor policy and hemispheric
solidarity during World War II. Writing from an "economic" stance may be more productive,
however, for understanding not only the Good Neighbor policy, but United States Latin American
policy in general. A study that does this, with a more critical stance towards Washington policy, is
David Green, The Containment of Latin America: A History of the Myths and Realities of the
Good Neighbor Policy (Chicago, 1971). His rather brief treatment of the Mexican oil nationaliza-
tion is somewhat surprising in view of the. subject's importance for hemispheric economic rela-
tions. Ibid., 36-39. Much useful light is shed on the Good Neighbor policy in E. David Cronon,
Josephus Daniels in Mexico (Madison, Wis., 1960). There are two major historical works devoted
to petroleum's role in United States-Mexican relations. Lorenzo Meyer is especially useful for his
Mexican perspective and emphasizes that country's ability to capitalize on United States preoccu-
pation with other considerations in two world wars to advance control of its oil resources. Meyer,
Mexico and the United States, 232-33. By essentially ending his study in 1942, Meyer overlooks
the subsequent United States efforts to reverse the nationalization. Indispensable for under-
standing the origins of the controversy is Robert Freeman Smith, The United States and Revolu-
tionary Nationalism in Mexico, 1916-1932 (Chicago, 1972). See also Robert Freeman Smith's
review of Meyer, Mexico and the United States, "Who's Afraid of SONJ? Energy and Nationalism
in International Relations," Reviews in American History, 6 (Sept. 1978), 394-99. Paul E. Sig-
mund's summary of the nationalization controversy is especially good on internal Mexican devel-
opments and the oil case's relationship to the larger issues of hemispheric economic policy. In the
end, however, he adopts the national security interpretation. Sigmund, Multinationals in Latin
America, 82-83. Of general works on foreign policy in the 1930s and 1940s, perhaps the most use-
ful for understanding United States relations with Latin America is Lloyd C. Gardner, Economic
Aspects of New Deal Diplomacy (Madison, Wis., 1964), 109-32, 194-216.

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 64 The Journal of American History

the Open Door. American oil companies should be able to explore for and ex-
tract oil on a basis of equality with the firms of any nation. Materially aided by
this policy, United States firms from the 1920s into the 1950s staked out im-
portant interests in Latin America, the Netherlands East Indies, and especially
the Middle East. "It was," said Robert Stobaugh and Daniel Yergin, "one of
the most stunning examples of economic expansion in history.' '3
Penetration of Mexico led the way. The republic became, in the words of
Josephus Daniels, United States ambassador to Mexico from 1933 to 1941,
"the victim of exploitation by its own recreant officials and foreigners. Much
of its natural resources-the patrimony of its people-found their way into the
hands of foreigners, some by honest methods and some in ways that could not
stand the light. "4
Ameican and British companies began pumping in 1901. A pattern quickly
developed in which their short-term interests overrode Mexico's long-range
benefits. They pushed production to 193 million barrels annually by 1921, sec-
ond only to that of the United States. As production costs rose and the quantity
and quality of the resource declined in the 1930s, the companies shifted their
capital to the more profitable and politically congenial environment of Vene-
zuela. By 1937 Mexican production had sunk to sixth place internationally at
47 million barrels per year. Exploration by American firms had virtually
ceased, and surface installations were deteriorating markedly. In the classic
pattern of capitalist penetration of the Third World, the companies' operations
were integrated with those at home. From 80 to 90 percent of the petroleum
was exported during the boom years, and 60 to 70 percent during the 1930s; the
firms' lush profits were mostly repatriated; and the key positions in the com-
panies were staffed almost entirely by American and British nationals. By con-
trast Mexican workers were paid half the wages of, and received poorer hous-
ing than, the foreigners, even when they performed identical work. Interested
primarily in export, the companies made little attempt to meet Mexican
needs; the internal market in the late 1930s remained about the size of that of
Des Moines, Iowa. As Mexico's natural resources were drained away to the
developed world, little corresponding internal economic development took
place. 5
Resentment of foreign investment had helped fuel the Mexican revolution of
1910-1920, the first of the great twentieth-century social revolutions. At-
tempting to reassert control over the national patrimony, the constitutional
3Harold L. Ickes to Franklin D. Roosevelt, Dec. 8, 1941, "Oil 1941" folder, official file 56,
Franklin D. Roosevelt Papers (Franklin D. Roosevelt Library, Hyde Park, N.Y.); Robert Stobaugh
and Daniel Yergin, eds., Energy Future: Report of the Energy Project at the Harvard Business
School (New York, 1979), 20. For an overview of United States international oil policy before
1941, see Michael B. Stoff, Oil, War, and American Security: The Search for a National Policy on
Foreign Oil, 1941-1947 (New Haven, 1980), 1-6.
4Josephus Daniels to Cordell Hull, Sept. 3, 1938, "Daniels" folder, President's Secretary's file,
Roosevelt Papers.
I Meyer, Mexico and the United States, 3-19; J. Richard Powell, The Mexicai2 Petroleum In-
dustry, 1938-1950 (Berkeley, Calif., 1956), 201-04; George W. Grayson, The Politics of Mexican
Oil (Pittsburgh, 1980), 14; Harold Young to Henry A. Wallace, Nov. 19, 1940, Henry A. Wallace
Papers (University of Iowa Library, Iowa City).

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 Good Neighbor Policy and Mexican Oil 65

convention of 1917 adopted the famous Article 27, which reserved subsoil
rights to the state. Although incompatible with Anglo-Saxon legal concepts,
Article 27 drew on Mexico's twin heritage-Spanish law with its reservation of
mineral rights to the crown and the Indian tradition of communal property
ownership. Implementation of Article 27 was, however, another matter entire-
ly. The Mexican government found that any attempt to tighten controls met
with determined opposition from the oil companies. They received strong sup-
port from the State Department, even to the point of serious consideration be-
ing given to armed intervention on two occasions. The situation eased with an
agreement reached between President Plutarco Elias Calles and United States
Ambassador Dwight Morrow in 1928. But Mexico paid a high price. The aims
of the revolution were set aside as the firms retained virtually complete con-
trol of the resource. 6
But when Laizaro Cardenas became president in 1934, Mexico and the
United States started on a collision course over oil. The republic's most radical
president, Cardenas intended to fulfill the revolution through a quasi-socialist
program. He emphasized programs to improve the lot of the lower classes, es-
pecially the Indians, through education, redistribution of land, collective
farms (ejidos), curbs on foreign capital, and a larger role for state-run enter-
prise. He expropriated some land held by United States citizens and was
bogged down in a long controversy over compensation. In 1937 he completed
the nationalization of most of the railroads. (Since these decrepit lines had
teetered on the verge of bankruptcy for years, their owners greeted the expro-
priation with indifference or even the hope that they might finally be bailed
out.)7
But none of these actions had the explosiveness of the petroleum issue.
Cardenas reopened that question in 1935 by attempting to impose higher
taxes, insure more production, and attain higher wages and better conditions
for Mexican workers. Contending that the very principle of their continued
operation was at stake, the companies bitterly fought each aspect of
Cardenas's program. The climactic struggle occurred when the companies
defied an order handed down by an arbitration board in the wage dispute. In an
electrifying golpe, Cardenas nationalized the oil industry on the night of
March 18, 1938. For him, and for millions of jubilant Mexicans who celebrated
with a six-hour parade through Mexico City, the nationalization represented a
blow for economic self-determination that was just as vital as political inde-
pendence.8
6 Meyer, Mexico and the United States, 54-74, 133-37; Harlow S. Person, Mexican Oil: Symbol
of Recent Trends in International Relations (New York, 1942), 70-71; Smith, The United States
and Revolutionary Nationalism in Mexico, 256-59.
7 Meyer, Mexico and the United States, 170-7 1; Cronon, Josephus Daniels in Mexico, 122-29.
8 Meyer, Mexico and the United States, 149-72. Although the Mexican petroleum company El
Aguila, a part of the Royal Dutch Shell group, was the largest single interest expropriated, United
States firms took the lead in the crisis because of Washington's hemispheric dominance. Of these
firms Standard Oil of New Jersey (now Exxon) had the largest holdings-they accounted for more
than three-fourths of the eventual compensation agreement in 1942-and had the major voice in
the firms' negotiations. The Standard Oil of California group received about 15 percent of the total
compensation. The Consolidated Oil, Sabalo, and Seaboard groups divided the remainder. The

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 66 The Journal of American History

Significantly, the actions of the State Department before the nationalization

demonstrated that, despite the rhetoric of the Good Neighbor policy, defense
of private property interests abroad remained paramount. Access to Latin
American oil by United States firms was a given for the State Department.
Some things had changed, to be sure. Military intervention was remote. The
department had given up the brittle legalisms of the pre-Hoover period, and did
not involve itself in the negotiations between the firms and the Mexican
government, as it might have earlier. The diplomats tried nonetheless to
bolster the companies by establishing the boundaries of permissible discus-
sion. Secretary of State Cordell Hull disclaimed an intention to interfere in
Mexico's internal affairs, but he nevertheless insisted on measuring the rul-
ings of Mexican courts and administrative agencies with his yardstick of inter-
national law. (It was hard to imagine Hull impinging on the sovereignty of a
developed country in this way or a Western European country trying to block a
ruling by the National Labor Relations Board on such grounds.) Hull warned
the Mexicans against interfering with the Morrow-Calles agreement-which
was, of course, highly advantageous to the companies. During Mexico's finan-
cial crisis of 1937, the department tried to extract a settlement helpful to the
companies by imposing stiff terms on United States assistance; the Mexican
government protested the pressure tactics. In 1938 the firms appear to have
taken their defiant stance, rejecting a compromise offer their British counter-
parts wished to make, because they were confident of strong backing from
Washington. Indeed, the State Department appears to have contributed heav-
ily to the very outcome it wished to avoid-nationalization.9
The companies were not mistaken. They received strong governmental
backing, as they had before the nationalization. The leading interpreters of the
Good Neighbor policy-Hull and Sumner Welles-feared the consequences of
nationalization for United States capital abroad and tried to reverse Mexico's
action to the end of their terms. Since this interpretation runs counter to tradi-
tional accounts, a more detailed explanation is in order.
Understanding the oil controversy necessitates a conceptual shift. The issue
was not simply one of expropriation, as it is usually treated, but of nationaliza-
tion. This basic distinction made the petroleum issue different in kind from
the agricultural and railroad expropriations. First, the government took con-
trol of an entire sector of the economy; private capital was denied access to a
basic industry not normally considered a public utility. This separated it from
the agricultural expropriations, which affected only a portion of foreign-owned
land, a minuscule part of the national total, which the government intended to
redistribute to nongovernmental organizations. Second, the resource in ques-
Sinclair interests, the second largest group, reached a separate settlement in 1940. El Aguila
pumped about 60 percent of total production in Mexico at the time of expropriation, primarily
because it had brought in the rich Poza Rica field a few years ealier. El Aguila did not reach a com-
pensation settlement until 1948. Gulf Oil, which had good labor relations and small production in
Mexico, was not expropriated.
9 Foreign Relations of the United States, 1937 (5 vols., Washington, 1954), V, 657-58; Cronon,
Josephus Daniels in Mexico, 170-84.

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 Good Neighbor Policy and Mexican Oil 67

tion was an exportable commodity that was much in demand by developed

countries. This set it apart from the railroads, which had only internal
significance and which could be regarded as public utilities. Third, the state
petroleum monopoly, Petroleos Mexicanos (PEMEX), would operate funda-
mentally as a socialized industry. While not oblivious of its balance sheet,
PEMEX would place social objectives before market considerations. One of its
major tasks was to stimulate national economic development. Its social goals
included such aspects as very low prices on lower-grade gasoline used by
poorer Mexicans, below-cost operations in isolated parts of the country, sub-
sidization of imports where its own production fell short, subsidized fuel
prices for nationalized transportation facilities, and a level of employment that
took account of social and political needs in addition to efficient production
standards. In short, the nationalization entailed Mexican control over a
resource; if private capital were allowed to participate at all, Mexico would set
the terms. 10
At bottom the oil controversy was an issue, not of ownership or expropria-
tion, but of the right to participation in a sector of the Mexican economy-in
other words, of nationalization. Had ownership been the question, it would
have been a simple matter to determine how much oil remained in the com-
panies' possession and compensate them for it. In effect this is what the
Cooke-Zevada commission did. But its decision could be only a partial settle-
ment, for it did not deal with the companies' future interest in the fields. " l
The companies were not primarily interested in compensation for their re-
maining assets. Since petroleum is a nonrenewable resource, its production is
a process of liquidation. The companies needed to reverse the nationalization
so that they could continue to explore and exploit the fields. As W. S. Farish,
Jersey Standard's president, said: "the right to extract oil is the very essence of
the value of an oil property. " Control of the resource was the whole point, for
the companies and for Mexico. Nationalization, by moving beyond the owner-
ship questions in expropriation cases, foreclosed future access to the resource
for private foreign capital. They particularly feared the precedent Mexico's ac-
tion might set for other Latin American countries. The companies did not in-
sist on ownership. They were willing to enter into other arrangements, such as
long-term operating contracts, so long as they retained access to the oil. 12
The Mexican nationalization posed a sharp and instructive contrast with the
United States. North of the border nationalization was shunned in favor of the
10 In using the term "socialized" I am adopting a more general meaning than the formal one of
control of the means of production by the workers. On the social objectives of Petr6leos Mex-
icanos (PEMEX), see Antonio J. Bermuidez, The Mexican National Petroleum Industry: A Case
Study in Nationalization (Stanford, Calif., 1963), 129, and Edward J. Williams, The Rebirth of the
Mexican Petroleum Industry: Developmental Directions and Policy Implications (Lexington,
Mass., 1979), 151-56. Meyer notes that the expropriation should really be considered a na-
tionalization but does not draw the resulting conceptual distinctions. See Meyer, Mexico and the
United States, 169.
" On the oil remaining that was available to the firms, see Morris Cooke to Sumner Welles,
May 13, 1942, file 812.6363/7704, Records of the Department of State, RG 59 (National Ar-
chives).
12 W. S. Farish to Hull, Oct. 8, 1941, file 812.6363/7353, Records of the Department of State.

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 68 The Journal of American History

halfway house of the public-utility concept. Most monopolies and oligopolies

remained in private hands and were subject at most to government regulation,
which often served the industries' interests. Government operation was
limited mainly to "gas and water socialism" at the municipal and state level
and, chiefly since 1933, to federal generation and sometimes distribution of
electricity in a region. These "socialized" activities were usually established
through the construction of increased capacity, not through expropriation. To
take another example, the federal government relied on private enterprise for
development and exploitation of the public lands. Most of the continent, of
course, including mineral rights, had long since been conveyed into private
hands. When the federal government retained control of a resource, as in the
national forests or the public lands, it did not carry out production itself; in-
stead, for usually nominal fees, it allowed private enterprise to exploit the
resource for profit. Even in the case of the naval oil reserves at Elk Hills and
Teapot Dome, schemes for government production got nowhere. 13
If the issue is interpreted as one of control of the resource, it is clear that the
most influential foreign-policy makers supported the essentials of the oil com-
panies' position. United States officials could accept expropriation, though
with reluctance, but not nationalization. They conceived of expropriation as
analogous to eminent domain proceedings-a one-time condemnation of
private property for a narrowly defined public purpose. Franklin D. Roosevelt
drew the eminent domain and public utility strands together in 1939 when he
compared the Mexican action to "property taken by this Government for flood
control and power and navigation purposes during the past six years." These
actions, of course, did not entail state take-over of an entire area of economic
activity. 14
The mode of compensation was also critical. The State Department insisted
that payment had to be full and simultaneous with the taking; Roosevelt
softened that to "prompt."''5 The department also accepted uncritically the
firms' claim that their properties were worth $200 million-a figure Mexico
bitterly disputed. In any event, Mexico could not possibly raise that amount
instantly; it could finance the nationalization only through long-term opera-
tion of the industry. Had the United States been able to make these compensa-
tion demands stick, it would have effectively removed nationalization as an
instrument of Third World policy. By insisting on a narrow definition of
public purpose and on immediate compensation, Washington sought to limit
the nationalization to an expropriation.
From 1938 through October 1941 the State Department, which held the
reins of Mexican policy, supported the key points of the oil companies' posi-
13 On federal development of the public lands, see John Ise, The United States Oil Policy (New
Haven, 1926), 343-45; on the naval reserves issue, J. Leonard Bates, The Origins of Teapot Dome:
Progressives, Parties, and Petroleum, 1909-1921 (Urbana, Ill., 1963), 206-07, 221-22.
14 See draft of proposed letter in Welles to Roosevelt, Feb. 13, 1939, "Mexico" folder, official file
146, Roosevelt Papers; Roosevelt's changes in his own hand, in Roosevelt to Daniels, Feb. 15,
1939, ibid.; George Messersmith memoirs, part 17, Special Collections (University of Delaware
Library, Newark).
15 Welles to Roosevelt, Feb. 13, 1939, Roosevelt Papers; Roosevelt to Daniels, Feb. 15, 1939,
ibid.

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 Good Neighbor Policy and Mexican Oil 69

tion. During the first phase of the crisis, from March 1938 through year's end,
the department tried to nullify the expropriation. Secretary of State Hull, who
privately referred to the Cairdenistas as "those Communists," took a strict
legalist position. Law tends to reflect power relationships as much as abstract
principles of justice, and international law thus in large measure served the
desires of the advanced capitalist countries, to the disadvantage of the Third
World. Hull started from the premise that Mexico did not intend to make
"reasonable payment." Cardenas, however, had repeatedly pledged to com-
pensate the companies, although not immediately and not in the amount the
United States demanded. Undeterred, Hull went on to charge that Mexico
would "inevitably" seize all foreign-owned property. "In eight cases out of
ten," he continued, the country that confiscated property became "a decadent
nation soon thereafter and in its most vital processes of progress and civiliza-
tion ... steadily moved backward and downward. "' 16
These arguments, so reminiscent of turn-of-the-century imperial rhetoric,
were not just the limited images of a hill-country judge. They probably enjoyed
a congenial response among most Foreign Service officers, who were largely
Republican and opposed the New Deal and the Good Neighbor policy, to say
nothing of nationalization. The sophisticated under secretary of state, Welles,
echoed them. He underscored Hull's point that Mexico would not get the
private foreign capital it needed. Welles scolded the Mexican ambassador
sharply: the nationalization was "absolutely suicidal"; only someone in a
"lunatic asylum" would invest in Mexico. Since the country could not make
full and immediate compensation, they argued, the nationalization must be
revoked. 17
The department backed its protests with economic and diplomatic pressure.
Ambassador Daniels feared the department intended to create such financial
stress that Cardenas would be driven from power and his successor would
reinstate the firms. The most serious strain came from the department's co-
operation with the oil companies' boycott of PEMEX exports. In the first year
of nationalized operations, the amount of Mexican oil sold abroad dropped by
more than 50 percent; sales to the United States fell by 61 percent; to Latin
America, by 75 percent. In desperation Mexico signed sale and barter deals
with Germany, Italy, and Japan-an arrangement that neither reflected credit
on Mexico, which had been staunchly antifascist, nor served the interests of
the United States. (The German and Italian deals lapsed after the outbreak of
war. Mexico suspended the Japanese business in August 1940, almost a year
before the United States got around to its own embargo of oil to the empire.)
The State Department redlined Mexican loan applications until 1941; it dis-
couraged most private lenders, although a few, mostly armaments dealers,
received its blessing. The diplomats also attempted to curtail United States
purchases of Mexican silver. This tactic was thwarted, however, by Secretary
16 Foreign Relations of the United States: 1938 (5 vols., Washington, 1954-1956), V, 741-43;
Wood, Making of the Good Neighbor Policy, 217.
17 Foreign Relations of the United States, 1938, V, 731, 738. On the Foreign Service, see
Gellman, Good Neighbor Diplomacy, 71, 72, and Cronon, Josephus Daniels in Mexico, 64-65.

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 70 The Journal of American History

of the Treasury Henry Morgenthau and his aide Harry Dexter White, who
believed that a sound Mexican economy benefited the United States. 18
Washington's actions have been contrasted with the cruder methods of
earlier administrations. Wood has termed the tactics "pacific protection. " To
be sure, the United States apparently did not seriously entertain military inter-
vention and did not use all the nonmilitary means at its disposal. Washington
policy makers felt constrained by the recognition that stronger action would
produce economic chaos and political instability in Mexico that would harm
United States interests at a critical time. But the most important point is that
the United States had not accepted Mexico's assertion that the oil nationaliza-
tion was an internal Mexican matter. If policy is measured not by its forms but
by its intended results, United States policy in the oil crisis involved substan-
tial interference in Mexico's internal affairs. '9
Indeed, the crisis was serious enough to carry the two countries to the brink
of diplomatic rupture in late March 1938. A severance of relations was averted
only by Daniels's extraordinary insubordination. The seventy-year-old Raleigh
newspaper publisher seemed an anachronistic choice when Roosevelt ap-
pointed him ambassador in 1933. Daniels had been secretary of the navy when
the marines landed at Veracruz in 1914; he spoke no Spanish; his Bryanesque
morality banned alcoholic beverages at the embassy. And yet this self-styled
"shirt-sleeve diplomat" mixed easily with all classes of Mexicans, displayed
an instinctive hill-country sympathy for the downtrodden masses, and came to
defend Cardenas's radical social program as a part of a transnational struggle
between "privilege" and "democracy. " Daniels was "universally loved," said
Vice-President Henry A. Wallace after a visit in 1941, and he advised Roosevelt
to be sure the next ambassador was equally simpadtico. Daniels sympathized
with the Mexicans' "super nationalism." They did not want "Uncle Sam,
John Bull, Hitler, Stalin, or anybody, good or bad," meddling in their internal
affairs. The United States should practice "Patience and the policy of Put-
Yourself-in-His-Place. "a20
With his empathy for the Mexicans, Daniels realized that Hull's sharp note
of March 26, 1938, which seemed to impugn Cardenas's promise of compensa-
tion, threatened to wreck diplomatic relations. The ambassador then took the
extraordinary liberty of suggesting to the Mexicans that the note might be con-
sidered as "not received," even though they already had it in their possession.
Daniels did not ask Hull's permission nor did he inform the secretary until
several months later. The ambassador dared take such a step only because of
his personal relationship with Roosevelt. The young Roosevelt had been his
assistant secretary of the navy, and in the 1930s Daniels still addressed him as
"Dear Franklin" while the president reciprocated with "Dear Chief." In 1938
18 Wood, Making of the Good Neighbor Policy, 224-33; Meyer, Mexico and the United States,
201-04, 207-13; Powell, Mexican Petroleum Industry, 112-15; Ruth Sheldon, "Marketing
Harasses Mexican Oil Industry Officials," Oil and Gas Journal, 38 (June 1, 1939), 18.
19 Wood, Making of the Good Neighbor Policy, 343-48.
20 Daniels to Hull, July 5, 1940, "Mexico" folder, official file 146, Roosevelt Papers; Wallace to
Roosevelt, Jan. 9, 1941, ibid. See also Cronon, Josephus Daniels in Mexico; and Josephus Daniels,
Shirt-Sleeve Diplomat (Chapel Hill, N.C., 1947).

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 Good Neighbor Policy and Mexican Oil 71

relations with Mexico hung by the thread of a unique presidential-ambassador-

ial connection which defied the canons of sound institutional practice. With-
out the Roosevelt-Daniels tie, diplomatic relations might well have been
severed, with incalculable consequences.21
The president kept his distance during the early phase of the oil crisis. He
ruled out military intervention over the nationalization. In his first public
statement on compensation he disputed the companies' argument that they
should be reimbursed for prospective profits. Roosevelt was engaged in a
ticklish balancing act. On the one hand, he wanted to insure United States ac-
cess to Mexican oil and to uphold the companies, if possible. On the other, he
sought to keep Mexico friendly. For the most part he waited to see what results
the State Department's hard line would produce. By the end of 1938 the pic-
ture was coming into focus. Despite the short-term economic dislocation
caused by the nationalization and the boycott, Mexico would not recede from
the expropriation.22
Faced with this stalemate, the firms and the government tried a new strat-
egem in the second phase of the crisis, from late 1938 through January 1940.
Roosevelt, Hull, and Welles enthusiastically backed the new proposal by the
companies' attorney, Donald Richberg, former Bull Mooser and early New Deal
official. Richberg suggested that Mexico allow the companies to return with a
fifty-year operating contract, a virtually free hand in managerial decisions, and
only a small cut of the profits for the Mexican government. The Richberg pro-
posal was very significant, for it indicated that the companies might surrender
formal ownership in return for a secure long-term operating contract, which
guaranteed continued access to the resource. But the idea stood no chance of
acceptance. Mexican opinion denounced the notion as a transparent device to
return control to the companies; Cardenas insisted on Mexican control. When
Richberg's negotiations collapsed, Washington proposed arbitration. Mexico
rejected that mechanism, however, on the grounds that the nationalization
was a domestic matter. In short, whatever the tactical differences between the
oilmen and the government officials, they stood shoulder to shoulder on the
fundamental issue of control.23
The resulting stalemate was not broken until the fall of 1941, when the
government's position temporarily diverged from that of the companies. Over
the firms' objections, the State Department reached an accord with Mexico on
November 18, 1941, to set up the Cooke-Zevada commission to evaluate the
properties and reach a compensation figure. Morris L. Cooke, a distinguished
liberal engineer who ran the Rural Electrification Administration from 1935 to
1937, headed the United States section and engineer Manuel J. Zevada the
Mexican contingent. In June 1942 they brought in a recommendation that
Mexico pay the companies $23,995,991 plus slightly more than $5 million in-
terest over four years. The compensation figure was adequate, even generous.
Cooke estimated that the companies had already recovered 90 percent of the
21 Cronon, Josephus Daniels in Mexico, 195-219.
22 Meyer, Mexico and the United States, 187; Cronon, Josephus Daniels in Mexico, 201.
- 23 Roosevelt to Daniels, Feb. 15, 1939, "Mexico" folder, official file 146, Roosevelt Papers;
Cronon, Josephus Daniels in Mexico, 238-46; Gellman, Good Neighbor Diplomacy, 53.

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 72 The Journal of American History

oil available to them. In the areas where development had been pursued, the
fields were all but depleted. Under standard accounting practices, only 10 per-
cent, or $20 million, of the alleged investment of $200 million remained to be
written off. With allowance for intangible factors also included, the commis-
sion actually went beyond what would have been acceptable in a strict ac-
counting. In that sense the companies did not suffer any actual property loss.24
What the firms feared losing most, however, were their prospective profits
from long-term access to Mexican oil. They therefore remained adamant and
did not accept the settlement until October 1, 1943. To a large extent the com-
panies were hoist by their own petard. By failing to develop their concessions,
they forfeited a tangible present claim. The firms and the State Department
thus parted company not over present property interests but over the best way
to protect future access.
Historians have attempted to explain the divergence between the oilmen
and the diplomats-the chief interpretative problem for the Good Neighbor
policy and Mexican oil-as a result of the changing security situation. This
analysis has problems even on its own terms, however. Policy makers, par-
ticularly Welles, have been praised for realizing that "narrow property in-
terests" should yield to high national policy. It should be noted, however, that
their conversion came rather late in the day-the German army straddled
Europe from Brittany to Stalingrad, and a crisis loomed in the Pacific. They
also faced substantial pressure from within the national security establish-
ment. Hemispheric solidarity was a cornerstone of Roosevelt's global strategy.
The military, supported by the president, was seeking air and naval bases in
Mexico, but little progress could occur until the oil logjam was broken. Eager
for Mexican friendship, Roosevelt dispatched Vice-President-elect Wallace to
Mexico City for the inauguration of the new president, Avila Camacho, in late
1940. During this unprecedented visit Wallace, at Roosevelt's suggestion, laid
a wreath on the monument to the young cadets who died defending Mexico
City against United States troops in 1847. Wallace reported that settlement of
all the outstanding issues between the two countries was possible with
24 Cronon, Josephus Daniels in Mexico, 268-70. Harlow Person, who was one of C
assistants, explained the work of the commission as follows. The experts apparently agreed that
Mexican law governed subsoil rights and that "indemnification cannot be claimed for loss of ex-
clusive opportunity to capture them at some future time." Person, Mexican Oil, 73. However,
token payments were made to "reflect some of the imponderables involved. " The settlement thus
consisted of: (1) conventional valuation of depreciated surface properties; (2) value of oil in tanks
and pipe lines at the time of expropriation; (3) value of oil "in process of capture, i.e., oil within
immediate reach of a live well or within an area delimited by a group of live wells," the oil being
"partially captured by the positive act of construction of the wells"; (4) a component for "good
will" or "going concern value," or, oil present in certain localities where drilling was underway;
(5) "an additional token item" for oil in areas only partially proved; and (6) a segment for capital
outlays in areas that were not yet exploited. Cooke made the significant observation that at least
90 percent of the oil "originally available to the American companies" had already been recovered
by March 18, 1938. "Following the universal practice of well-managed oil companies, by 1938 that
investment [the firms' alleged $200 millioni, should have been written off in proportion to the
depletion of the oil reserves for which the investments were originally made." Therefore, except
for highly speculative, unproved wildcat areas, the firms' values "could neither logically or fairly
be in excess of 10% of the maximum claimed investment or $20,000,000." Cooke to Welles, May
13, 1942, file 812.6363/7704, Records of the Department of State.

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 Good Neighbor Policy and Mexican Oil 73

Camacho, a more conservative figure than Cardenas. Faced with the

deteriorating security situation and these cues from the president, it would
have been irresponsible for the State Department to persist in backing private
interests in contravention of larger foreign policy. What appears remarkable is
not that Welles and his colleagues modified their support of the companies,
but that they stalled until the fall of 1941.25
But the oil controversy itself and the nature of the agreement reached in
1941-1942 provided the most important evidence. Historians have interpreted
the split between the department and the oilmen as an example of the govern-
ment curbing finance capital, accepting the nationalization, and winning a
happy resolution of the petroleum controversy. This may be doubted. Histori-
ans have magnified the divisions between the parties, and in so doing miscon-
strued the nature of the Cooke-Zevada settlement.
In the first place, the department had grown uneasy about the firms' claims.
Their united front had been breached in 1940 when the Sinclair Oil Company,
realizing that Mexico would not return the properties, concluded a separate
deal. Represented by Patrick Hurley, Herbert Hoover's secretary of war,
Sinclair accepted compensation of $14 million in cash and oil-one third the
$42 million it had claimed. The Sinclair deal demonstrated both that Mexico
was sincere about compensation and that the firms' valuation was probably
grossly inflated. Then a report done by the Geological Survey at the State
Department's request placed the value of the assets of the remaining firms at
about $10 million-not far from the Mexican estimate. State Department of-
ficials were shocked. Although the survey's report had its flaws, it turned out
to be much closer to the eventual settlement reached by the Cooke-Zevada
commission than the astronomical claims the diplomats had accepted on
faith. Everett DeGolyer, who was perhaps the most eminent petroleum geol-
ogist in the world, reinforced skepticism concerning the companies when he
told the State Department that Jersey Standard's holdings were worth at most
$20 million and possibly much less.26
More importantly, the department's willingness to settle the valuation, or
expropriation, question did not signify an acceptance of the nationalization.
Welles and his colleagues had not given up their goal of reinstatement of the
companies. But after three years of frustration and bitterness, it appeared that
nothing short of military intervention, which was unthinkable, would ac-
complish their aim. They then began to hope that the compensation and na-
tionalization issues might be separable. They could not be certain that agree-
ment on compensation would induce Mexico to allow United States firms
back in. But they knew that a return was impossible until the valuation ques-
tion was laid to rest. Accordingly, the Cooke-Zevada agreement was limited to
settlement of the expropriation question. Nothing was said about the con-
25 Wood, Making of the Good Neighbor Policy, 332, 344-45; Cronon, Josephus Daniels in M
ico, 257-58; Wallace to Roosevelt, Jan. 9, 1941, "Mexico" folder, official file 146, Roosevelt
Papers.
26 Russell D. Buhite, Patrick j. Hurley and American Foreign Policy (Ithaca, N.Y., 1973), 82-99;
Geological Survey report [n.d.i, file 812.6363/7301-1/2, Records of the Department of State;
Everett DeGolyer to Hull, Aug. 14, 1941, file 812.6363/7534-5/1 1, ibid.

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 74 The Journal of American History

tinuation of nationalized operations or of the companies' reentry. In other

words, not only for security reasons but because of the failure of tactics in the
petroleum negotiations, the State Department decided on a partial agreement
that left the basic issue for later resolution.27
An important clue to United States tactics surfaced during a discussion be-
tween Welles and the British ambassador, Viscount Halifax, in October 1942.
If the firms accepted the Cooke-Zevada agreement, the under secretary said, "I
believed that ways and means would be found whereby the companies might
continue activities in Mexico. " Welles elaborated on the relationship between
the compensation agreement and what he termed "the more basic question of
the terms and conditions under which United States interests would be per-
mitted to participate" in Mexico. Reentry had been "totally impossible" so
long as the expropriation issue remained open. However, "just as soon as I
thought there was the slightest hope of the Mexican Government's being will-
ing to discuss this thorny matter, Ambassador Messersmith [Daniels's suc-
cessor] was instructed to take it up with the Mexican Government.... I have
instructed Mr. Messersmith that above all other duties he should give first
place to endeavoring to work out a plan satisfactory to all under which United
States interests could again participate in the Mexican oil industry." Welles
cautioned against pressuring Mexico City before "it can control its own public
opinion," for that could result in the exclusion of United States firms "for
many years to come when such participation will be more than ever necessary
for our own national interest." In short, Welles and his colleagues, having
cleaned up the expropriation tangle, could now go on with the more essential
business: the reversal of the nationalization to insure private access to Mex-
ican petroleum in the presumed national interest of the United States.28
The instructions spelled out a plan to employ United States government
financial power to bring about the companies' access to Mexican oil for export
purposes. "The interests of this nation in petroleum supply are closely and in-
herently linked with those of Mexico," they said. Nothing except the war
should "interfere with the sound and orderly reestablishment of the oil in-
dustry in Mexico. " A major goal was to develop "the full export possibilities of
the industry," in other words, to insure United States access to Mexican oil.
The instructions disclaimed an intention to dictate Mexico's internal policies.
But they added pointedly: "When this Government is called upon to consider
questions involving financial or other substantial assistance . . . it must be in
[a] position to judge the long range consequences of its own actions." In other
words, if a loan would solidify the nationalization, to the detriment of United
States capitalists, the department probably would disapprove. Lest there be
any doubt about the meaning of this language, Max Thornburg, the depazt-
27 Meyer's contention that by mid-1941 the United States had accepted the idea that the com
panies would not return lacks substantiation at the time and in view of later developments.
Meyer, Mexico and the United States, 222.
28 Welles memorandum of conversation with Viscount Halifax, Oct. 2, 1942, file
812.6363/7767, Records of the Department of State; Welles to Roosevelt, Feb. 17, 1943, Confiden-
tial file 12, "Petroleum Coordinator" folder, President's Secretary's file, Roosevelt Papers. See also
Philip Bonsal to George Messersmith, Nov. 24, 1942, file 812.6363/7814, Records of the Depart-
ment of State.

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 Good Neighbor Policy and Mexican Oil 75

ment's petroleum advisor, explained in an internal memorandum: "What ... I

meant, was that until we know whether or not Mexico would permit Amer-
ican participation in some way, we were not ready to say how much help we
would be willing to give Mexico. "129
The negotiations were entrusted to the new ambassador to Mexico City,
George Messersmith. A carnation in the lapel of his elegantly tailored suit, the
punctilious Messersmith was virtually Daniels's opposite. An erstwhile high
school civics teacher and principal, Messersmith had married well and then
entered the consular and diplomatic service. He served as assistant secretary of
state for administration from 1937 to 1940, becoming a confidant of Hull, and
then went to Cuba as ambassador from 1940 to 1942. Where Daniels mixed
with a cross section of Mexicans, Messersmith socialized almost solely with
conservative members of the upper class. Messersmith believed the answer to
Mexico's economic woes lay in replication of a conservative version of north-
of-the-border capitalism. "We are still attached to private enterprise in the
United States," he said, "for without it we would be lost." The ambassador's
rambling dispatches-which won him the derisive nickname "Forty Page
George" among some State Department hands-preached the incompetence of
PEMEX to eager ears in Washington. Officials less sanguine about the oil com-
panies despaired when they dealt with Messersmith. Ickes described the am-
bassador as "slow and ponderous and repetitious and about as animated" as
the cigar-store wooden Indian. (Messersmith retaliated with equally disparag-
ing opinions about the "old curmudgeon's" psychological makeup in his un-
published memoirs.) In Messersmith the State Department enjoyed an am-
bassador who would eagerly carry out its policies.30
The ink was scarcely dry on the Cooke-Zevada agreement when the State
Department judged the time "singularly propitious" for Messersmith to begin
29 Foreign Relations of the United States, 1942 (7 vols., Washington, 1960-1963), VI, 528-33;
Max Thornburg to Laurence Duggan, Nov. 17, 1942, file 812.6363/7800, Records of the Depart-
ment of State. These were not the only ideas Thornburg had in mind. He thought the expropriated
companies should have preference over other United States companies if a return to Mexico took
place. He also concocted a plan by which the companies might return as "ostensibly Mexican"
firms in other than "popularly recognizable form." When Harold L. Ickes got hold of Thornburg's
plan, he forwarded it to Roosevelt with the suggestion that it be titled "An Indiscreet Memoran-
dum from the State Department." The president passed the document on to Welles with the note
that "I know you will recognize that there is much suspicion that he is representing the oil people
as well as the State Department!" Roosevelt added cheerfully: "I send this merely to keep you up-
to-date!" Thornburg's superiors eventually concluded that he had tangled allegiances between
Jersey Standard and the department, and they let him go. But he had already played a key role in
the formulation of the American drive for oil abroad. In the best tradition of the Open Door policy,
the problem Thornburg's actions posed for the State Department was not that he represented oil
companies but that he favored one firm over others. See Ickes to Roosevelt, April 20, 1943,
"Ickes" folder, box 75, President's'Secretary's file, Roosevelt Papers; Roosevelt to Welles, June 30,
1943, enclosing Thornburg to Welles, Feb. 8, 1943, "State Dept." folder, ibid. See also Stoff, Oil,
War, and American Security, 65; and Irvine H. Anderson, Aramco, the United States and Saudi
Arabia: A Study of the Dynamics of Foreign Oil Policy, 1933-1950 (Princeton, N.J., 1981), 44.
30 Messersmith to Hull, July 24, 1944, "Mexico" folder, box 18, Petroleum Divison, Records of
the Department of State; Ickes manuscript diary, Jan. 23, 1944, p. 8574, Harold L. Ickes Papers
(Manuscript Division, Library of Congress); Spruille Braden, Diplomats and Demagogues: The
Memoirs of Spruille Braden (New Rochelle, N.Y., 1971), 370; "Career Man's Mission," Time, 48
(Dec. 2, 1946), 22-24.

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 76 The Journal of American History

exploratory talks with the Mexican government about the return of foreign
petroleum private enterprise. The department plan suggested that PEMEX
should sign contracts with United States firms to carry out exploration and
development over a period of perhaps thirty years. During that time the com-
panies would recoup their expenses through the oil produced; thereafter the
companies and PEMEX would divide the oil according to an agreed-upon for-
mula. Messersmith believed that Camacho was about to accept the proposal in
mid-1943, only to pull back under pressure from CQrdenas. The Cairdenistas
were opposed, to be sure, but it seems unlikely that an agreement was immi-
nent. Washington's proposal severely compromised the nationalization, as it
was designed to do. Hindered by his ideological blinkers, Messersmith con-
sistently overestimated Mexican desire for foreign private capital. A proposal,
such as the State Department's, that so compromised the nationalization
would have called into question the very foundation of the Mexican revolu-
tionary tradition.3'
President Camacho did not rule out participation by private capital. He
made clear, however, that it would be subordinated to Mexican control. Nego-
tiations between the two countries would founder repeatedly on that issue,
which was crucial to nationalization. The Mexicans laid down two absolutes
which remained intact through 1950: the nation must retain ownership of the
subsoil rights; and PEMEX would continue its domestic monopoly. The State
Department accepted those boundaries. The actual ownership of the subsoil
made little difference if the companies could secure a long-term operating
agreement; seeking oil for export, they had little interest in Mexico's internal
market. But the new subordination of capital become clear in the Mexican pro-
posal. It stipulated that the country would provide the property and the com-
panies the financing, labor, and skill; the firms would share in the profits but
have no evidence of ownership or creditorship. The proposal entailed con-
siderable risk for private capital, with little real control and an uncertain
payoff; most important of all, the resource remained under Mexican jurisdic-
tion. Perhaps not surprisingly, the State Department and the companies,
which it carefully consulted, rejected the ideas. By mid-1944 the opponents of
nationalization appeared to have run into a cul-de-sac.32
Indeed, they nearly lost control of Mexican oil policy to a rival agency,
Ickes's Petroleum Administration for War (PAW), which took a more favora
view of the nationalization. Foreign oil policy had been running on two tracks
since 1941 and generated frequent struggles between PAW and the State De-
partment. PAW awakened to the possibility of a shortage of domestic
petroleum and the resulting threat to national security well before the State
Department did. Ickes's strategists reasoned that Europe could rely on the
Middle Eastern pools while the United States could draw on hemispheric
sources. Ralph K. Davies, deputy administrator of PAW and a former Standard
of California vice-president, suggested the embryo of the plan in October 1941,
31 Foreign Relations of the United States, 1942, VI, 529; Foreign Relations of the United States,
1943 (6vols., Washington, 1963-1965), VI, 474-75; Foreign Relations of the United States, 1944 (7
vols., Washington, 1965-1968), VII, 1340.
32 Foreign Relations of the United States, 1944, VII, 1341.

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 Good Neighbor Policy and Mexican Oil 77

even before the creation of the Cooke-Zevada commission: "The United States
must have extra-territorial petroleum reserves to guard against the day when
our steadily increasing demand can no longer be met by our domestic supply.
. . . Looking ahead-and not so very far ahead-the petroleum resources of
Mexico, Colombia, Venezuela, and other Caribbean countries must be con-
sidered to be reserves for the United States. They are, in fact, more important
to the United States than to the countries that have them, because they are
more vital to the life of the consumer than the producer. "33
Ickes was more flexible in trying to attain his imperial goals than was the
State Department. He wanted the government to buy controlling interest in
the Middle Eastern holdings of California-Arabian Standard Oil Company.
When that failed, he proposed that the government build a pipeline from Saudi
Arabia to the Mediterranean. Both the State Department and the oil companies
vigorously opposed his adventures, for they feared this government encroach-
ment on their traditional domains. Ickes tried to assure them that he was not
putting the government in the oil business. But he was a Bull Moose Pro-
gressive who was deeply suspicious of monopolies and made extension of
federal control of natural resources one of the hallmarks of his secretaryship.
He had toyed with the idea of having the domestic oil industry declared a
public utility. And he confided to his intimates that he would like to na-
tionalize the oil industry. This may have been nothing more than a cry of
frustration in the face of opposition. But nevertheless it was clear that the
Ickes/PAW group, although just as thirsty for foreign oil as the State Depart-
ment and the companies, did not feel obliged to obtain the resource through
capitalist means.34
The dichotomy between public and private ventures brought PAW and the
State Department into conflict from the start. Ickes thought Mexico was well
rid of the oil companies. They had worked against the interests of the host
countries, "suborned" officials, and caused revolutions. Mexico should never
let them return. Ickes naively proposed that the United States government buy
the assets of the companies that Mexico had nationalized. Roosevelt gently
punctured this bizarre trial balloon with the observation that the Mexicans
would scarcely accept such an offer.35
Ickes's other ideas about Mexican oil were more realistic and showed a gen-
uine willingness to bolster the nationalization. In 1942 a PAW technical mis-
sion, headed by DeGolyer, conducted a study of PEMEX. The report, which
was a good deal more favorable to the state firm's operations than the State
Department, recommended that the United States extend financial and tech-
nical assistance to PEMEX. The State Department dragged its feet; it first
wanted a signal from Mexico that it would accept private capital again. But
33 Ralph K. Davies to Ickes, Oct. 15, 1941, in Ickes to Roosevelt, Oct. 18, 1941, "Petroleum
Coordinator" folder, confidential file 12, Roosevelt Papers.
34 Stoff, Oil, War, and American Security, 75-87; Davies notes on discussion with Ickes and
others about Anglo-American oil agreement, July 1944, Ralph K. Davies Papers (Harry S. Truman
Library, Independence, Mo.).
35 Messersmith to Hull, July 21, 1944, "Mexico" folder, box 18, Petroleum Division, Records o
the Department of State; Ickes to Roosevelt, Feb. 20, 1942, official file 56, Roosevelt Papers;
Roosevelt to Ickes, Feb. 28, 1942, ibid.

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 78 The Journal of American History

Ickes and PAW were eager to implement the recommendations, for both war-
related and long-term reasons. 36
The most pressing issue was a proposed government loan to build a 100-
octane aviation gasoline refinery near Mexico City. The notion had originated
with Edwin Pauley, a high-flying California oilman who hoped to profit from
the deal and who, as treasurer of the Democratic party, enjoyed direct access to
Ickes and Roosevelt. Both men liked the idea. The State Department disap-
proved, however, ostensibly because they thought Pauley would give other
North American oilmen a bad name in Mexico. (It apparently did not occur to
the diplomats that the reputation of United States oilmen could not have been
much lower.) But the basic issue was the precedent the government-to-govern-
ment loan for the refinery set by strengthening PEMEX.37
Although the president had approved the loan in principle, Hull and Welles
managed to delay its consummation for nearly a year. Ickes suspected that
Jersey Standard, which he believed was "influential with the State Depart-
ment," was lobbying against the plant. Perhaps not coincidentally, Thorn-
burg, the department's petroleum advisor, who had been a Jersey Standard
vice-president, was reported to have said he would support the refinery only if
Mexico let his employers and the other expropriated companies return. Ickes
and Welles insisted that Roosevelt decide the general issue of support for the
nationalization. But an irritated Roosevelt wrapped himself in the cloak of the
commander-in-chief and approved the deal as strictly a wartime necessity in
early 1943. The refinery was completed in 1945, too late to help the war effort.
In a crowning irony the Mexicans named the plant the " 18 de Marzo" to com-
memorate the day of nationalization.38
Although a partial victory for the pronationalization forces, Roosevelt's deci-
sion, in the best tradition of competitive administration, left the major issue
for further jockeying between his subordinates. The crucial test arrived in the
spring of 1944, when Mexico broached to Ickes the subject of a $100 to 150
million government loan for PEMEX. The corporation needed a heavy infusion
of cash in order to carry out exploration and development activities, which had
all but ceased. The Mexicans were willing to repay the loan with oil. The
delighted petroleum coordinator took the idea to Roosevelt at once. The presi-
dent had expressed his approval earlier of a small loan that PEMEX could use to
develop a hemispheric defense reserve that would be set aside for emergency
use. The big loan appealed to Roosevelt, who said, according to Ickes, that it
had been "his theory all along . . . that we would be willing to help Mexico
develop oil and take our payment in kind.." Roosevelt repeated these
assurances to the Mexican foreign minister, Ezequiel Padilla, in July 1944. The
36 "Report of the Mexican Technical Mission [Feb. 19431," file 812.6363/7801, ibid.
37 Ickes to Hull, Aug. 4, 1942, file 812.6363/7703, ibid; Messersmith to Thornburg, April 28,
1943, box 18, Petroleum Division, ibid; Messersmith to Thornburg, July 9, 1943, file
812.6363/6-943, ibid.; Ickes manuscript diary, Feb. 7, 15, 1943, pp. 6330, 6337, Ickes Papers.
38 Ickes manuscript diary, Feb. 15, 1942, p. 6337, Ickes Papers; Ickes to Roosevelt, Feb. 16, 1943,
"Ickes" folder, box 75, President's Secretary's file, Roosevelt papers; Welles to Roosevelt, Feb. 17,
1943, confidential file 12 "Petroleum Coordinator" folder, ibid.; Roosevelt to Welles, Feb. 19,
1943, file 812.6363/7842, Records of the Department of State.

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 Good Neighbor Policy and Mexican Oil 79

State Department was "old-fashioned" when it came to oil, Roosevelt said; go

see Ickes.39
A major rapprochement seemed in the making. Roosevelt was ready to side
with Ickes and make a straight government-to-government deal that would
materially strengthen the nationalization. For their part, the Mexicans were
ready to let the United States have oil, in return for further development of
their resources and support of PEMEX. They were still apprehensive about in-
fringements of their sovereignty, but Ickes was reassuring about their control
of oil. Mexico had been willing to use its petroleum in government-to-govern-
ment deals in the past, so long as the country retained managerial control.40
The budding rapprochement did not flower, however. Messersmith, sensing
that two years of delicate negotiations had vanished in one insouciant conver-
sation, could not sleep. He was surprised and embarrassed because, while the
overtures to Ickes were being made, he had been telling his superiors that the
Mexicans wished to keep their lines clear to the companies and therefore
would not seek a loan. A compensation agreement for the British properties
seemed to be in the wind, and he worried that the financially strapped Mexican
government would make payment in oil. The Anglo-American rivalry over
control of oil was not limited to the Middle East. Anxious State Department
officials hastened to get Roosevelt back in their corner. A few days later he
retreated and said the loan should be limited to the hemispheric-defense reser-
voir. But Hull continued to worry that even though Roosevelt had been
straightened out, he might "forget and revert to his idea. ' '41
A formal decision on the loan application remained in abeyance until
Messersmith conferred with the president on December 19, 1944. At that time
Roosevelt decided in favor of the private sector. He ruled out a loan for explora-
tion and development, except $3 to 4 million for the defense reserve. More-
over, he offered Messersmith some encouragement for his attempt to reinstate
the companies. The antinationalization forces had triumphed.42
Why Roosevelt switched from support for the big loan a few months earlier
is not entirely clear. It should be remembered, however, that he had swum
closer to the forces opposing nationalization than to its supporters throughout
the controversy. His attraction to the loan appears to have been an aberration,
probably induced by Ickes's advocacy. The State Department succeeded in
keeping the petroleum coordinator separated from Mexican oil after that. The
president may also have grown wary of the political hornets' nest that "Honest
Harold's" attempts to put the government in the foreign oil business stirred
up. Moreover, by late in the war Roosevelt was retreating on a variety of his
39 Ickes manuscript diary, July 16, 1944, p. 9085, Ickes Papers; Messersmith to Hull, May 22,
July 21, 1944, box 18, Petroleum Division, Records of the Department of State.
40 Ickes manuscript diary, July 16, 1944, p. 9085, Ickes Papers.
41 Messersmith to Thornburg, July 1, 1943, file 812.6363/6-143, Records of the Department of
State; Foreign Relations of the United States, 1944, VII, 1337-42.
42 Messersmith memorandum of conversation with Roosevelt, Dec. 19, 1944, box 18,
Petroleum Division, Records of the Department of State; Messersmith to Roosevelt, Jan. 8, 1945,
"Mexico 1944-45" folder, President's Secretary's file, Roosevelt Papers. These statements of
policy by Messersmith, which apparently were not reviewed by Roosevelt or his aides, appear to be
the only records of the determination of the president's position.

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 80 The Journal of American History

liberal promises, both domestically and internationally, as indicated by his

gradual shift on colonial questions.
Armed with a definitive decision from the president, the antinationalization
forces could vigorously press their position. When first confronted with the
Mexican oil issue, President Harry S. Truman reaffirmed his predecessor's de-
cision. He also approved a subtle, but important, shift on the reserve issue: the
ambassador might discuss it, but he should leave it up to the Mexicans to raise
it. Roosevelt had closed the door on the major loan, and Truman latched it.43
The war years appeared a time of lost opportunity. Although PEMEX needed
reorganization as well as more capital, a loan would have been a constructive
step with wide ramifications for Mexican economic development and United
States hemispheric relations generally.
During the war, however, Thornburg had devised a plan which the State De-
partment believed would satisfy the host countries while keeping private oil
investments secure. This was the path-breaking "50-50" Venezuelan agree-
ment of 1943, which was widely copied after the war. The companies turned
over half their profits (and eventually more) to the government in return for
long-term operating contracts. The Caracas deal had many of the earmarks of
the long-term operating contracts the State Department had dangled before
Mexico in 1939-1940, except that Venezuela got a larger share of the profits.
Though initially reluctant, the firms came to see the Venezuelan contract as a
model of diplomatic assistance in securing long-term access to foreign petro-
leum. (They were correct: their holdings escaped nationalization for more than
three decades; and when they were taken over the firms continued to enjoy
lucrative service contracts which gave them most of the benefits of operation
but with less risk.) After 1943 negotiations with Mexico were conducted with
one eye cocked for the possible effect on United States capital in Venezuela
and other countries, such as Colombia, which subscribed to the Open Door for
oil. Neither the State Department nor Defense Department would "risk ad-
verse repercussions on production in Venezuela" by supporting either a
government loan or contracts with private companies that were "substantially
less favorable" than those they enjoyed in Caracas.44
From 1945 through 1950 the United States repeatedly exerted diplomatic
and economic pressure on Mexico to allow private petroleum enterprise to
return. Each recurrence of Mexican economic problems encouraged the diplo-
mats to hope that the Mexicans would at last "learn the hard way," as Assis-
tant Secretary of State Spruille Braden said in 1946, that oil exploration and
development could be managed only by private enterprise. Mexico revived the
$150 million loan applications in 1947 and 1949-1950. The United States re-
jected them, unless private firms were allowed to reenter the republic. Amer-

43Memorandum for President, Oct. 11, 1945, file 812.6363/10-1345, Records of the Depart-
ment of State.
44 Wood, Making of the Good Neighbor Policy, 260-82; Foreign Relations of the United States,
1948 (9 vols., Washington, 1972-1975), IX, 615. See also State Department circular on "Mexican
Petroleum Loan Problem," Aug. 19, 1949, file 812.51/8-1949, Records of the Department of State;
and Robert H. S. Eakens to Winthrop G. Brown, Dec. 6, 1949, file 812.6363/12-649, ibid.

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 Good Neighbor Policy and Mexican Oil 81

ican policy makers believed that national security and petroleum private
enterprise were inseparable. As Admiral Burton B. Biggs, executive officer of
the Armed Forces Petroleum Board, put it in 1949: "The American oil man
stands in the advance guard of national security. "45
The Mexicans indignantly rejected Washington's conditions, which they
viewed as an affront to their sovereignty. By 1950 PEMEX, under its new direc-
tor general Antonio J. Bermudez, ironed out many of its production problems
and embarked on an expanded exploration program. By the 1970s PEMEX,
which had been merely a symbol of national pride, restored Mexico to the
ranks of a world oil power. The country's oil bonanza was, to be sure, partly
the result of providential location. But Mexico's riches would have availed it
little without policies to turn them into social benefits. Venezuela, which
United States policy makers held up to Mexicans as a model, found that its
capitalist mode of development bred increased international economic
dependence and worsened income disparities internally. Mexico, by contrast,
pursued a policy of conservation and partially socialized objectives that left it
in a happier oil posture than Venezuela or, indeed, the energy spendthrift to
the north. Rather than being suicidal, the nationalization proved crucial to
Mexico's economic emergence.46
The United States's postwar policy of trying to reverse the nationalization
represented continuity with the Good Neighbor policy. The 1942 compensa-
tion agreement dealt only with expropriation of immediate property interests,
not the more basic issue of acceptance of nationalization. The Good Neighbor
policy in the Mexican oil case thus appears to represent not a restraint of
capitalism but an attempt to use diplomatic and economic power to insure its
long-term viability.
If the oil policy is combined with Washington's support for client
authoritarian regimes in the Caribbean, a more comprehensive reassessment
of the Good Neighbor policy may be in order. The United States counted
among its friends Anastasio Somoza in Nicaragua, Maximiliano Martinez in El
Salvador, Rafael Leonidas Trujillo in the Dominican Republic, and Fulgencio
Batista in Cuba.47 This combination of military, economic, and diplomatic
levers suggests that the Good Neighbor entailed less the change in principles
that admiring historians have found than a shift to the tactics of indirection.
The Good Neighbor policy was United States hemispheric hegemony pursued
by other means.
45Spruille Braden to Burton B. Biggs, Oct. 24, 1946, file 812.6363/10-2146, Records of the
Department of State; "Mexican Political Situation: Ambassador Messersmith's Oil Negotia-
tions," file 812.00/3-2345, ibid.; Biggs to Secretary of Defense, May 2, 1949, CD 7-1-9, Records o
the Office of the Secretary of Defense, RG 330 (National Archives).
46 Grayson, Politics of Mexican Oil, 24-52.
47 For evidence of the Good Neighbor's support of repressive regimes, see Wood, Making of the
Good Neighbor Policy, 150-55; Gellman, Good Neighbor Diplomacy, 31, 35; and Irwin F.
Gellman, Roosevelt and Batista: Good Neighbor Diplomacy in Cuba, 1933-1945 (Albuquerque,
1973), 235-36.

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