delanceyplace.com 9/12/11 - mexico nationalizes exxon and shell

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In today's excerpt - the president of Mexico nationalized the local operations of all foreign oil companies—including Exxon and Shell—in 1938. America retaliated with boycotts, forcing Mexico to look to Hitler and Germany to buy its oil. This echoed the overtures of Germany to Mexico twenty years earlier in World War I, and was another low point in the 200 year, up-and-down relationship between Mexico and the United States:

"[In 1938], foreign oil companies defied a ruling of the Mexican Supreme Court that they had promised to accept [regarding back-wages in a fiercely fought union dispute] and, as a result, had their holdings nationalized. When that happened, the United States and Britain boycotted Mexican oil and applied other punitive sanctions.

"The issue leading to the nationalization involved a payment of $7.2 million that a Mexican court declared was owed to oil workers by the foreign companies, mainly Standard Oil of New Jersey—now Exxon-Mobil—and Royal Dutch Shell. Between them, they controlled 60 percent of Mexico's oil production. The companies had agreed to abide by whatever decision the Supreme Court made. But when they reneged and refused to pay, they were declared in contempt of court and the government took them over. The companies said their holdings were worth $450 million, but the Mexican government placed the figure at just $10 million.

"Playing a key role in the nationalization was ... Miguel Aleman, then governor of the state of Veracruz, Mexico's main producer of oil. He rallied his fellow governors behind President Lazaro Cardenas, who carried out the nationalization. Cardenas's action was a hit with Mexicans, 200,000 of whom filled the Zocalo—the historic town plaza in front of the presidential palace in Mexico City—to voice their support. They formed lines to the palace, offering everything from family heirlooms to chickens to help pay the debt to the foreign oil companies. Besides boycotting Mexican oil, many American and British banks withdrew their deposits from Mexican banks. The United States also stopped buying Mexican silver.

"Faced with an economic crisis—it had oil but no markets or tankers—Mexico felt forced in 1938 to turn to the United States' future enemies for help: Germany, Italy and Japan. Mexican oil technicians were sent for training in Germany and Italy. Those countries provided oil tankers. German and Italian cars were soon replacing American models on Mexican highways; some of those highways were being built under contract to Japanese companies. Adolf Hitler dispatched to Mexico two representatives of the Reich Import Board of Petroleum who signed a barter agreement for power plants in the towns of Ixtapatango and Palmito in exchange for oil. 

"The German Navy also signed deals to purchase oil. 'The Hitler-led economic and ideological invasion of Mexico by the Berlin-Rome-Tokyo axis is another link being forged on the international ball-and-chain that binds Mexico,' wrote one Mexico-based American writer, J.H. Plenn. 'Mexico seeks economic lifebelts in a threatened shipwreck, provoked by pressure from the [U.S.] Democratic government acting on behalf of their investors.' Soon German and Italian intelligence agents were setting up shop in Mexico. Vicente Lombardo Toledano, leader of Mexico's labor movement, claimed Germany was bribing editors of some leading newspapers and magazines to publish favorable news stories and editorials.

"As it had during World War I, when it courted Mexico, Germany saw a strategic advantage in any strained relationship between the United States and its southern neighbor. It assigned the German High Command's intelligence chief, Admiral Wilhelm Franz Canaris, to exploit the situation. A man who spoke Spanish fluently enough to pass himself off as a Chilean-German, Canaris was at ease dealing with Latin American issues. He saw Mexico as a potential base from which his Abwehr agents could be infiltrated into the United States. The existence of such a privileged sanctuary depended upon the Mexican security forces maintaining a decidedly lax attitude toward German agents. Canaris counted on such benevolence because he was sure the Mexicans understood that jailing the agents of a good petroleum customer might have disastrous economic consequences. But by 1942, Mexico was a combatant on the Allied side in World War II."