OIL EXPROPRIATION IN MEXICO: CAUSES AND CONSEQUENCES - CULTURE VOCABULARY - 2024

The oil expropriation in Mexico consisted of the nationalization of the oil industry based in the country. It took place in 1938, under the presidency of Lázaro Cárdenas. The legislation applied to this process was the Expropriation Law of 1936 and Article 27 of the Mexican Constitution.

Since the discovery of the first oil well in the country, the exploitation of this valuable resource had been in private hands. During the Porfiriato, the deposits passed to foreign companies, especially Americans.

Lázaro Cárdenas del Río - Source: Doralicia Carmona Dávila, http://www.memoriapoliticademexico.org/Biografias/CRL95.html under the Creative Commons Attribution 2.5 Generic license

The triumph of the Mexican Revolution was the beginning of the change in the country's oil policy. The 1917 Constitution included an article, 27, which declared that the Mexican subsoil and its wealth were national property. Despite this, no legal action was taken.

In the 1930s, poor working conditions for workers led to the creation of a union. His actions had the support of President Cárdenas. The lack of agreement and the claim that the State obtained the profits from this energy resource led the government to nationalize the industry through a decree.

Background

The first shallow oil well was drilled in 1862 in the state of Tabasco. Mexico was governed by Emperor Maximilian, who issued a decree allowing the exploitation of this resource, as long as the government gave permission. With this legislation, 38 oil concessions were granted to individuals.

The Porfiriato

Starting in 1886, under the presidency of Porfirio Díaz, the first American companies began to arrive in Mexico to take over the deposits. That year, the first refineries were opened in Veracruz: El Águila and that of the Water Pierce Oil Company, both with capital from the United States.

In 1890, the California Mexican Oil Company was created in San Luis Potosí, and in 1896 the Sinclair Group settled near the city of Tampico. In a short time, the farms multiplied.

The competition to obtain concessions was very tough and it was El Águila who came out the winner. In 1910, that company handled 50% of the market. Eight years later, most of its shares passed into the hands of the Royal Dutch Shell.

Fiscal policy during the Porfiriato

The Porfiriato's economic policy tried to attract foreign investors to the country. Thus, it favored their control of the mines and oil fields, something that was repudiated by the leaders of the Mexican Revolution.

Among the measures taken by the Porfirio Díaz government was the Petroleum Law, promulgated in 1910. This regulation established a series of privileges for foreign oil companies, such as not having to pay export taxes for the equipment necessary to exploit the fields.

Likewise, the invested capital was free from any tax burden for the next ten years. Finally, a free pass was given to the purchase of national lands at vacant prices.

This law also stated that companies could explore and exploit the oil found in exchange for paying the central government 7% of the profits, as well as another 3% to the government of the state in which the wells were located.

Mexican Revolution

The Mexican Revolution of 1910 meant a change in oil policies. Francisco Madero, the first president after the first phase of the revolution, began a process to regulate the activity. His overthrow by the coup d'état of Victoriano Huerta, did not allow him to consolidate his policy.

During Huerta's brief government, the Americans intervened to prevent their oil companies from paying the taxes Madero had announced.

The second phase of the Revolution ended the Huerta regime, who was replaced by Venustiano Carranza. He recovered Madero's regulatory policy and already in his Plan of Guadalupe established the need to enact nationalist legislation on oil.

In 1915, the Petroleum Technical Commission began to function, whose task was to organize the industry in the country. The first step was to reestablish relations with the companies that were in Mexican territory.

A year later, in April 1916, the Commission published a report in which it affirmed the need for subsoil wealth to be established as the domain of the country. Thus, the new Constitution, promulgated in 1917, established the national property right over the soil and subsoil related to oil.

First clashes

Despite being included in the Constitution, the law that was to put the article into practice took years to draft. The Carranza, de la Huerta and Obregón governments had to face resistance from the oil companies and pressure from the United States.

In 1923, the government of Álvaro Obregón and the American representatives signed the Bucareli Agreements. These were focused on the retroactive application of the law on mining and oil, as well as on the taxes applied to US companies, Obregón was forced to reduce the tax burden and delay the nationalist law.

Obregón's successor, Plutarco Elías Calles, decided not to endure further pressure. Thus, it accelerated the promulgation of the regulatory law of article 27 of the Constitution. Congress approved it in November 1925.

Under this law, oil companies were obliged to renew and confirm their concessions, to pay more taxes, and to comply with Mexican legal regulations. The companies sued the government, a situation that continued until the arrival of Lázaro Cárdenas to the presidency.

Causes

The main causes of the expropriation of the oil industry were, fundamentally, the desire on the part of Mexico to take advantage of its own natural resources and, on the other hand, the poor working conditions of the workers in the fields.

Union lawsuits

The workers' demands had already begun in the mid-1920s. The oil companies managed to prevent unions from forming for ten years, but on September 27, 1935, the first appeared: the Sindicato de Trabajadores Petroleros de la República Mexicana (STPRM).).

This union would soon become one of the dominant members of the Confederación de Trabajadores de México, thus recognizing the right of its members, among other things, to strike.

At that time, Mexican workers earned considerably less than foreigners. This situation fueled many labor disputes. Strikes soon began to be called, interrupting production every so often.

Own resources that did not benefit the country

It was not only labor lawsuits that were causing discomfort in Mexico towards foreign oil companies. In the country, for several decades, there was the conviction that the profits obtained from its resources had no effect at all on its own well-being.

The foreign oil companies had been making huge profits with Mexican oil, without this having an effect on an improvement in the living conditions of the population.

Cárdenas began a series of meetings with company representatives to try to find a negotiated solution. However, the meetings ended without any kind of agreement.

Reform of article 27 of the Constitution

Although, possibly, Cárdenas could have found some way to carry out the exploitation, there is no doubt that article 27 of the Constitution of 1917 opened the possibility to do it more easily.

Already in 1914, Luis Cabrera had proposed that the State have more benefits from the exploitation of oil. From that moment on, the government began to put into practice measures that would claim state ownership of the subsoil wealth.

When the Constituent Congress met, there was already a clear consensus to legally distinguish between land ownership and subsoil ownership. The result was Article 27, which stated that while the first could be privately owned, the second, along with its wealth, belonged to the nation.

History

The tension inside the oil fields began before the 1930s. In 1924, the workers had already organized some strikes, but they were violently repressed by the state security forces.

However, that same year, a strike was called in Tampico against the El Aguila refinery that forced the company to recognize the union and sign a collective bargaining agreement.

A decade later, in 1935, the Union of Petroleum Workers of the Mexican Republic was founded. One of his first measures was to draft a project in which he claimed the 40-hour workday, in addition to the payment of full salary in case of illness.

In 1937, the workers began to pressure the companies to sign this project. The refusal of these caused the union to sue them before the General Board of Conciliation and Arbitration. In addition, on May 31, a strike began that would last until June 9.

Expert Commission

The excuse of the oil companies for not meeting the demands of the workers was that they did not have sufficient resources to do so. However, a study carried out by a commission of experts denied this claim, declaring that its benefits were much higher than declared.

The companies welcomed that report. On December 18, they had to appear before the Conciliation Board, which ordered them to pay 26 million pesos for withholding in wages for the May strike.

Constitutional right to expropriate

In 1936, the government had promulgated a law that regulated the expropriations of companies and properties for reasons of public utility.

Its first use was in June 1937, when the State expropriated the National Railways of Mexico. With this, he solved the workers' strike in that sector. This antecedent was fundamental for what happened with the oil industry.

Latest reconciliation attempts

March 18, 1938 was the key day in the history of the oil expropriation. In the morning, the decision of the Central Board of Conciliation and Arbitration that rescinded the collective agreement between the companies and the oil union was known.

Representatives of the companies rushed to meet with Cárdenas. Faced with the ruling against them, they promised to raise workers' wages, but the President warned them that it was too late.

According to historians, the decision had been made practically a week before. The companies threatened the state with withdrawing all investments and leaving the country, under the protection of their respective governments.

Expropriation

The expropriation decree was presented on March 18, at ten o'clock at night. Through it, Lázaro Cárdenas, with the support of Congress, ordered the expropriation of all property and real estate of the 17 US and British oil companies that operated on Mexican soil. Previous concessions were canceled.

The next morning, the workers took possession of the affected companies. The government issued another decree to create a Petroleum Administration Council to coordinate the temporary administration of assets and activities.

Consequences

The reactions to the expropriation decree were immediate. The United Kingdom broke diplomatic relations and the United States and the Netherlands decreed a trade embargo, in addition to withdrawing all technical personnel.

On the other hand, the Americans stopped buying Mexican oil and silver, giving preference to Venezuelan black gold.

Popular support

In the interior of the country, on the other hand, popular support for the measure was spectacular. On March 23, a spontaneous demonstration of support broke out, attended by more than 100,000 people. On April 19, another march took place, this one led by women.

The population began to donate money to pay the compensation provided for the expropriation. The effort was remarkable, although they could only raise about 2 million pesos. The bond issue also could not cover the amount to be paid, although they did demonstrate the popularity of the measure.

Even sectors opposed to Cárdenas, such as the Catholic Church and conservative businessmen, showed their support for the government's decision.

Creation of PEMEX

When the foreign technicians and engineers left Mexico, the government had to take over the farms. The first body that took over was the General Administration of National Petroleum (AGPN).

A month later, the Distribuidora de Petróleos Mexicanos was created to control the commercialization of oil. On June 7, a decree was issued, which entered into force on July 20, through which the Compañía de Petróleos Mexicanos (PEMEX) was formed, in order to be in charge of the exploration, production and refining of oil.

Boycott against Mexico

Not only foreign governments reacted against Mexico. Standard Oil and Royal Dutch Shell launched a boycott campaign against the country, trying to prevent it from buying some essential chemicals for oil refining.

One such product was tetraethyl lead. Mexico solved the problem by reforming gasoline. Sometime later, chemistry students from the National Polytechnic Institute and the National Autonomous University were able to synthesize the product.

Over time, the boycott was losing steam and Mexico was able to buy machinery from Germany, Italy and other European countries

Compensation to oil companies

In late 1939, the government held talks with the Americans to negotiate the payment of compensation. The first figures that the companies put on the table were unaffordable for Mexico, since they were close to 32 million dollars.

During the following months, the talks continued. Little by little, the claims of the expropriated companies were reduced, remaining at 14 million dollars.

Finally, the agreement was closed on May 1, 1940. The Americans agreed to receive 8.5 million, which would be paid within 3 years. In addition, they would receive 20 million barrels at a price below the market price.

Second World War

There is considerable consensus among historians that, without the pressure of World War II, the United States would not have allowed the expropriation. With the war in sight, President Roosevelt preferred to maintain an alliance with Mexico.

For a time, the boycott caused the only buyers of the Mexican oil tanker to be Japan and Germany, something that lasted until 1937. However, the allies lifted the embargo in 1941, in part due to the good relationship between Cárdenas and Roosevelt.

Oil was also the reason for Mexico's entry into World War II. This occurred when two of its oil tankers were sunk by German submarines.

References

1. Serrano Álvarez, Pablo. To understand the oil expropriation. Obtained from relatosehistorias.mx
2. Navarro, Armando. The oil expropriation, what is the real legacy of Cardenismo ?. Obtained from noticieros.televisa.com
3. Mexican Institute of Industrial Property. 80 years of the Oil Expropriation in Mexico. Obtained from gob.mx
4. Office of the Historian, Bureau of Public Affairs. Mexican Expropriation of Foreign Oil, 1938. Retrieved from history.state.gov
5. Encyclopedia of Latin American History and Culture. Petroleum Expropriation Of 1938 (Mexico). Retrieved from encyclopedia.com
6. Scroggs, William O. Mexican Oil in World Politics. Retrieved from foreignaffairs.com
7. Henry Bamford Parkes, Marvin David Bernstein. Mexico. Retrieved from britannica.com