Monday, May. 13, 1940
MEXICO: Oil Deal, Oil Note

Time magazine

On March 18, 1938, President Lázaro Cárdenas confiscated all foreign-owned oil properties in Mexico. Aside from the doctrine that Mexican resources should belong to Mexicans, he claimed that the foreign owners were not exploiting the fields properly, had been exporting only 60,000 barrels of Mexican oil per day. "We shall increase our export to 200,000 barrels daily," boasted El Presidente. Instead, under Government operation, Mexican oil exports have dropped to around 45,000 daily while monthly operation costs have risen from 4,273,000 pesos to 6,500,000.

This spring the President, who had also justified expropriation on the ground that foreign owners did not give Mexican labor a straight shake, had to announce an "Economy Program" which meant firing one oil worker out of six. One reason for all these headaches to Lazaro Cardenas has been the efforts of expropriated U. S. and British oilmen to maintain a "united front" and refuse to market for the Mexican Government oil they considered stolen from them. Last week Oilman Harry F. Sinclair blithely deserted the united front to make an inside deal with the Cardenas Government.

The Sinclair deal was the personal triumph of Jesus Silva Herzog, general manager of the Mexican Petroleum Distribution Agency, the Government monopoly. He got the Sinclair interests to surrender all claims arising from Mexico's seizure of their properties in exchange for $9,000,000 cash (payable over three years) plus 20,000,000 to 30,000,000 barrels of oil to be supplied by the Mexican Government over a six-year period at a price reputed to net Sinclair a $7,000,000 profit. Jesus Silva Herzog went on to claim that he had sold or was in course of selling $54,000,000 worth of petroleum "for cash" to various U. S. firms. He said Manhattan's Petroleum Heat & Power Co. was "negotiating" for $12,000,000 worth of fuel oil. This was promptly denied by Petroleum Heat & Power President W. C. McTarnahan, but Oilman Harry F. Sinclair beamed: "We have concluded an agreement with the Mexican Government."

To strengthen widespread impressions that the Herzog-Sinclair deal just about smashed the boycott, Mexican Foreign Minister Eduardo Hay claimed that Sinclair properties represented 40% of all those confiscated in 1938. In reply the boycotters, led by Standard Oil of New Jersey, cracked back that 10% was a more accurate figure for the Sinclair properties. The Mexican Government, complained Standard, is now apparently getting ready to supply Sinclair with oil partly taken from the expropriated properties of Standard and others.

Diplomacy. Feeling that the oil game was at last oozing his way, Foreign Minister Hay took occasion to reply to a note in which Secretary Hull recently suggested that perhaps Mexico would now be willing to arbitrate her seizures of U. S.-owned oil, mining and farm lands. What Señor Hay had to say was "No!" He notified Mr. Hull of the Sinclair deal, suggested that other U. S. oilmen are at liberty to make similar deals, flatly declared that the Government of Mexico "considers arbitration incompatible, since the matter in dispute is of a domestic nature and is near solution by the authorities of Mexico."