-Caveat Lector-
an excerpt from:
Mellon's Millions
Harvey O'Conner©1933
Blue Ribbon Books
New York, N.Y.
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11
Petroleum Diplomacy
0IL is an indifferent lubricant for international relations. The dynamite
that wrecked competitors' derricks and opened gaping wounds in pipe lines,
the money that bought tractable legislators and officials of independent
companies, the intangible but none the less real rewards that swayed Senators
and judges-all the tried and tested technique of domestic industrial warfare
was duplicated when the Empire of Oil broke through United States boundaries
to establish its dominion in the Gulf and Caribbean regions. The story was
one of bandit armies retained by American and British oil lords, of
revolutions and counter-revolutions financed at so much per revolution, of
itching palms of Latin American generals and politicos, crossed with American
gold, of the State Department called in to aid the designs of Standard, Gulf,
Sinclair, Doheny.
Old Judge Mellon, contemptuous of Washington, scornful of Government
interference in private business, would have been amazed to know that the
State Department did not consider it undignified to throw the prestige and
armed force of the American Government behind his sons' investments in
Indo-Latin countries. Not that the Patriarch of East Liberty would have
failed to adjust himself to this new extension of the State's power. After
all there was little difference, in principle, between the Sheriff of
Allegheny County using governmental power to execute judgment against a
Pittsburgh debtor of Thomas Mellon, and the President of the United States
using the threat of armed force against Mexicans forgetful of sacred
contracts signed with subordinates of Andrew Mellon.
At the turn of the century, when the Mellons. were busy rocking the cradles
of Union Steel, Crucible Steel, Pittsburgh Coal and a dozen other infant
combines, an international wildcatter was studying tell-tale pools of oil on
the surface of marshes near Tampico, Mexico. He was Edward L. Doheny, who was
to develop the technique of counter-revolution and brigandage-by-request, who
was to deal in an easy financial way with an American Cabinet officer, as if
he were merely a Mexican Cabinet officer. His Potrero del Llano broke the
record of the Mellons' Lucas gusher on Spindletop; his Cerro Azul shot
200,000 barrels a day at the sky.
The fabulous production of Mexican wells—excited United States operators
talked of a monster gusher that spewed forth a million barrels a day-caused
the welkin to ring in Washington with demands for a protective tariff. Among
the independents present was George S. Davison, Gulf, Oil executive and
"assistant to W. L. Mellon in whatever position he held." Davison however was
not noisily demonstrative at the conference called to appeal for protection
to the sponsors of the Payne-Aldrich tariff. For even then the Mellons were
debating invasion of Mexico.
Opportunists in their philosophy, the Mellons were no blind devotees to
protectivism. As born Pittsburghers. they were convinced of course that
America's industrial supremacy stemmed in part from the Republican tariff on
steel. Similarly they were convinced that an adequate duty was needed to
shield Aluminum and its workers from the menace of European pauper labor. But
once they were ensconced as important operators in Mexico's Golden Lane in
1912 any tariff on oil would become burdensome. So the independents continued
to clamor for legislative dikes to stem the inrush of Mexican oil, and in
vain.
The Mellons entered Mexico the year after Doheny and Standard agents had
financed the overthrow of Dictator Diaz, if testimony before the Senate
foreign relations committee in 1913 is to be credited. The struggle between
Standard and the British Mexican Eagle (Pearson) interests sounded for all
the world like a skirmish between Standard and an enemy on United States soil
in the eighties and nineties. Mexico of course gave scope to certain
Indo-Latin flourishes embellishing the colder Nordic ferocity of
Rockefeller's rise to power. Hired bands of brigandsnorth of the Rio Grande
they are called gangsters-destroyed
Pearson's pipe lines and set his wells on fire, but the Britisher held on
doggedly despite the strafing. The decisive stroke in Standard technique was
to finance Madero against the Pearsondominated Diaz when the North Mexican
iron and steel magnate showed promising strength of his own.
Mexican Gulf Oil played a minor role in the turbulent history of Mexico's
social revolution. More lucrative fields for Mellon money and talents were
found closer to home, what with aluminum, by-product gas plants, coal, gun
carriages, structural steel and oil distillates to be sold in the effort to
anchor democracy in stable world moorings. Patriotically Mexican Gulf refused
to pay taxes to the Government of the pro-British Huerta who murdered Madero,
and Doheny could testify in 1919 that "every American corporation doing
business in Mexico extended sympathy or aid, or both-and we extended both-to
Carranza."
Doctrines abhorrent to the Medici of Smithfield Street gained prevalence in
Mexico in those bloody years. An egalitarianism compounded of French and
Russian revolutionary ideas was imbedded in the Constitution of
1917Principally the American oil companies objected to its proclamation that
the sub-soil and its wealth belonged to the people of Mexico. The heresy was
too staggering to need refutation. A purification by blood, or at the very
least an independent Republic of North Mexico, based on sounder concepts of
individual initiative and its reward, would safeguard the lands of Hearst,
the copper of Guggenheim, the oil of Doheny, Standard and the Mellons.
At this juncture Harding succeeded Wilson and a new Cabinet grappled with the
Mexican problem. Among those who counseled were Charles Evans Hughes,
Secretary of State, who was to resign within a few years to represent
Standard Oil in his private capacity, Andrew W. Mellon, heavy investor in the
Tampico oil regions, and Albert B. Fall, who advised during his last term as
Senator that "a police force consisting of the naval and military forces of
our Government" be sent into Mexico.
Mexican Gulf Oil and other American companies furnished fuel for the
controversy which broke out between Secretary Hughes and General Obregon.
They refused to abide by Mexican governmental decrees, refused to pay taxes,
fought the new Mexican labor unions. At Tampico the Yankee petroleros shut
down their works in protest against the Mexican export tax and thousands of
employees were turned out into the streets; the press associations wired
alarmist reports of "impending disorder and rioting."
At home controversy raged in press and forum on the advisability of using
force to bring the Mexicans into conformity with international law in their
treatment of concessions and leases. The New York World dubbed Hughes
"Secretary of Oil." Secretary Fall eventually left the Cabinet because of his
association with Doheny, who had grown careless in his relations with
office-holders from too long familiarity with the generals and politicos of
Tampico. A sector of public opinion which was beginning to regard Secretary
Mellon as too involved in business and finance to exercise that cool
impartiality expected of a public officer, asserted that he dominated the
Cabinet's Mexican policy.
Stirred by the La Follette-Walsh discoveries concerning the ethics of
American oil men and Cabinet officers in the Teapot Dome inquiry, the Senate
asked Secretary Kellogg at the height of the Mexican-American tension whether
he had any information on the holdings of Messrs. Sinclair, Doheny, and
Mellon in Mexican oil and their attitude toward the Mexican oil laws.
Secretary Kellogg, who was well informed about "bolshevist hegemony" plots
emanating from Mexico City and threatening the Panama Canal, informed
President Coolidge that he knew nothing of his fellow Cabinet officer's
interests in Mexico, or of Doheny's and Sinclair's.
Despite recognition by Washington, the Obregon-Calles regime clung stubbornly
to its doctrine of nationalization of oil resources. Luis N. Morones,
Secretary of Labor, Industry and Commerce in 1925, canceled 29 Mexican Gulf
Oil permits to drill, on the ground that they had not been acquired in the
manner prescribed by law. Gulf retorted that it bad bought its permits in
good faith in the accepted manner, and would not seek their confirmation or
rejection under a law which the American State Department did not recognize.
President Davison of Mexican Gulf engaged in an angry debate with Secretary
Morones. His company had acquired the oil land in question under titles
antedating May 1, 1917, the date of Mexico's troublesome Constitution. The
Mexican Government's oil agency proceeded to drill wells on the railroad
right of way next to the Mellon property with the evident purpose,
Davison said, of tapping oil rightfully belonging to Mexican Gulf. Thereupon
he ordered wells sunk on the Gulf property to safeguard its oil. Morones
fined the Mellon company 40,000 pesos, the limit under the law.
The unending quarrel wore on the nerves of American leaders of opinion: they
now urged acceptance of President Calles' offer to submit the whole question
to arbitration. Ambassador Sheffield, militant defender of the petroleros,
abandoned the Embassy building in Mexico City which stood, curiously enough,
on land donated by E. L. Doheny. Dwight Morrow succeeded him and a branch of
the National City Bank was opened in Mexico's capital.
History did not wait for a neat solution of the Mexican land question by
experts in international law weighing the rights and wrongs involved. It
swept the center of gravity in the oil world to the south by the opening of
immense new fields around Lake Maracaibo in Venezuela. Dutch-Shell, Standard
and Mellon rushed to the Caribbean.
President Calles was acutely aware of the shift, observing his dwindling
revenues from oil taxes. Standard, Sinclair, and Gulf could take or leave
Mexican oil. He extended the olive branch.
Just as he and Ambassador Morrow were reaching -an amicable settlement of the
Mexican oil controversy, Venezuela, in 1928, topped Mexican oil production.
Unquestionably the deadlock down in Mexico's Golden Lane, the narrow arc of
her petroleum riches, led American entrepreneurs to rejoice in the
possibilities of Maracaibo. In 1917 Royal Dutch-Shell took out 120,000
barrels. Standard of Indiana, through Pan-American Petroleum, was negotiating
with Dictator Gomez in 1922 for more favorable oil legislation. The law drawn
up by Deterding and Stewart executives was approved by Gomez almost without
change, and Mellon executives immediately became interested in the affairs of
such an admirably managed country.
Under the Gomez scheme, no Bolshevist ideas tear at the vested rights of
private property, no Queretaro constitutions upend established titles, no
Borahs, La Follettes or Walshes interrupt the even progress of government by
executive order. The dictator had achieved continuity in office since 1908 by
an astonishing resourcefulness that paled the efforts of Diaz in Mexico and
Machado in Cuba.
Gomez' methods shocked those of tender sensibilities. The hideous cruelties
of his regime, documented by the International Committee for Political
Prisoners, are reminiscent of the Middle Ages. Within recent years, 5,000
political prisoners-many of them high school students-have crowded Venezuelan
jails. In Rotunda prison those who challenge the dictator's authority lie
shackled with iron bars riveted to their ankles. Five hundred students of the
University of Caracas were condemned to chain gangs on Gomez' justly
celebrated highways. The crimes of these offenders range from holding public
meetings opposing the dictatorship, to attempts at armed overthrow.
"Venezuela," states Harry Elmer Barnes, the historian, "unquestionably
presents the worst case of forced labor in America today.... Political
prisoners are tortured in ways to make the medieval inquisition seem a picnic
by comparison. . . . Overzealous apostles of freedom are hung up with meat
hooks through their jaws."
Thousands of Venezuelans have fled their native land. With surprising
unanimity, they give the same reason for the dictator's quarter century
reign. British and American oil interests, they say, are upholding and
financing the dictatorship in exchange for favorable oil legislation and
stability. Certain it is that the American State Department, despite
expostulations in Congress, has never protested the violation of human rights
in Venezuela as it has property rights in Mexico.
Another story is told in trade periodicals representing the major oil
interests in the United States. They find no words vigorous enough to praise
the constructive leader of the Venezuelan nation whose balanced budget and
efficient army, whose experimental farms and thousand miles of paved highways
are civilizing a backward country. The modest levies he imposes upon foreign
petroleum companies-about $15,000,000 a year-rouse no complaint They
represent about a third of the government's revenues.
Little of the $15,000,000 is spent on education. The ruling classes and the
Church, states the Encyclopedia Britannica, have taken little interest in the
education of the Indians and the mestizos, who comprise the underlying
population. Expenditures on education for 1924-25 were less than $1,000,000,
mostly for the upper white stratum, and $2,150,000 by 1930. The chief drain
on governmental revenues is maintenance of two-year compulsory military
service, although the country is protected by natural barriers of mountains
on the Colombian border, and jungles separate it from Brazil and the Guianas.
Even so, the foreign petroleros take no chances on the eighty-year-old
dictator, whose death might dissolve the dictatorship and whose overthrow is
not, in the light of Indo-Latin history, beyond the bounds of possibility.
Their ace in the hole is President Vincenzio Perez Soto of the Federal State
of Zulia, which comprises most of the valuable concessions of the Lake
Maracaibo area. The basin is protected from the rest of Venezuela by mountain
ranges, with access from Caracas, the capital, only by water. The oil
interests feel confident that when the inevitable happens, Perez Soto will
not object to assuming the responsibility of ruling an autonomous Maracaiban
state, until the rest of Venezuela returns to stability. In the meantime they
trust not too much either to Gomez or Perez Soto, but keep their costly
refineries on the near-by Dutch islands of Aruba and Curacao, or send the
crude oil directly to Port Arthur.
After the passage of the favorable laws of 1922, the Mellons paid more than
$800,000 in cash, plus one-third of their production, to Maracaibo Oil, the
concessionaire in charge of the Maracaibo basin, in return for rights to
drill in the "marine zone," a strip 3,300 feet wide extending under the water
around the entire shore of the lake. Standard Oil of Indiana controls the
lake bed proper and Dutch-Shell and Standard of New Jersey the dry shore.
Mellon wells in Lake Maracaibo would astonish the parched wildcatter of the
Gulf Southwest. Derricks are built out over the lake and pipe line docks
often reach Out 3,000 feet to permit shallow-draft tankers to take on oil.
Camps are guarded by bloodhounds and wolfhounds against the Motilone Indians,
who swoop down for hatchets, machetes, knives and nails.
Production of Venezuelan Gulf Oil rose steadily to 30,000,000 barrels in
1929, nearly a fourth of Gulf's total. It was valued at upward Of
$20,000,000. Shallow lake tankers carry their burden to the Peninsula of
Paraguana, where the oil is pumped into deep sea tankers for transport to
Gulf refineries at Port Arthur, Marcus Hook and Staten Island.
The flood that poured into the United States from the Rockefeller and Mellon
wells in Venezuela threatened to drown the small American producers, who
cried for an embargo on Venezuelan oil. They could not hope to compete, their
statisticians told Congressional committees, against oil produced by labor
paid 20 cents a day in a country whose Government was not obliged to levy
taxes for the support of general education and other social services for
which the independents were taxed in Texas, Oklahoma and elsewhere.
The panic of 1929 deepened their woes, as markets shrank in the spreading
paralysis of industry and commerce. Oil prices broke. From well above $1 a
barrel, they sank to 75 cents, 50 cents, and in some areas oil was sold for
less than it cost to transport the water needed to make steam and cool pumps.
The Little Fellows, lacking heavy reserves, were unequal to the strain.
Bitterly cursing the Rockefellers' and Mellons' Venezuelan oil, many went
under.
Their appeals for help to the framers of the Smoot-Hawley Tariff in 1930 fell
across considerations of America's imperial destiny whose force could hardly
be appreciated by inland dwellers. "Oil is as necessary as blood in the
battles of tomorrow," said Premier Clemenceau, appealing for American
petroleum in 1917. If the Mellon family, by paternal injunction, was
reluctant to offer its blood, it was more than willing to develop immense
reservoirs of off, whether in Texas, Oklahoma, Mexico or Venezuela. The
helpfulness of the State Department in assisting American oil interests
abroad was explained by considerations of a larger patriotism.
It was the earlier contention of geologists that the petroleum resources of
the United States were sharply limited; estimates by the U. S. Geological
Survey in 1908, 1915 and 1921, all that predicted early exhaustion. It was
imperative, they argued, at the American Empire refresh its oil supplies, to
assure its independence in industry and in world conflict. Lake Maracaibo,
from that point of view, was as much a part of the United States as the East
Texas oil fields.
Early in 1931, the Little Fellows' tariff plea unanswered, they were in
Washington demanding an embargo. Cut off Standard and Gulf's Venezuelan
imports, they demanded, and the market would right itself. There was no
over-production of oil in this country. Actually, United States fields, from
1918 to 1929, had produced 600,000,000 barrels less than demand.
Secretary Mellon, as usual, was involved in the controversy.
The Mid-Continent Royalty Owners Association asserted from Tulsa that he had
used his influence as a Cabinet member against enactment of a tariff.
In the meantime the Federal Tariff Commission had completed a study of
comparative costs of Venezuelan, Mid-Continent, and Gulf field oil, as
directed by Congress. Maracaibo oil could be produced and shipped to Atlantic
seaboard ports, the Commission found, for less than the mere cost of
transporting MidContinent oil from Gulf ports to the Atlantic seaboard.
The independents and small producers gasped for life. Oil state governors
tried "pro-rating" production. "Alfalfa Bill" Murray called out the troops.
Independents protested vehemently that these measures cut down their
production while Venezuelan oil continued to pour into the country. In a
report to Governor Woodring of Kansas, J. Edward Jones, oil expert, expressed
their views.
"There is nothing abstract," he wrote, "about the existence of monopoly in
'oil' and its control of the industry is so powerful, albeit so subtly
expressed as to enable it ruthlessly to regulate the industry to the unfair,
merciless and illegal elimination of its competitors and to its own selfish
advantages. Furthermore, through its propaganda machinery, it molds public
opinion in a manner creating a complete misunderstanding of the petroleum
situation and influences the judgment and acts of unknowing and unwise public
officials to a point where they fall a tool to the interests of monopoly as
against the welfare of the people whom they are supposed to serve."
To eliminate the independent refiners and marketers, Jones reported, the
monopoly, i.e., Standard, Gulf, Texas, had cut off their crude oil supply and
undersold them. "To cut off the supply, the majors sponsored a system of
artificial curtailment and proration under the guise of conservation. . . .
The help of the Federal Oil Conservation Board was solicited on the false
plea that 'over-production' constituted 'waste.' This plea, nevertheless,
alarmed the Federal Oil Conservation Board and, backed by the major refiners
and marketers and the American Petroleum Institute, the. Board immediately
sponsored a 'conservation movement.'" By curtailment the majors blocked the
independent refiners from access to sufficient oil, and then lowered the
price of crude to a point where there was no profit in refining except to
those with access to the very cheapest oil-Venezuelan. "Thus the major
companies through curtailment and pro-ration, while gradually eliminating the
independent refiner and marketer, have been forcing the independent producer
into bankruptcy and ruin. . . . This has been done under the false idealistic
theory of so-called 'conservation' to a point where the oil monopoly is more
influential than that existing in any other industry." President Wirt
Franklin of the Independent Petroleum Association, sustained Jones'
conclusions.
In the Congressional confusion attending the difficult feat of balancing the
budget in 1932, the independents forced a 21-cents a barrel "excise" on
imported crude oil. The excise won by a narrow vote of 43 to 37 in the
Senate, due to trading support from coal, copper and lumber state Senators.
That the new levies would do little to dam the flood of incoming oil was
indicated by the Treasury's estimate of $6,000,000 revenue from all four
imposts.
The Little Fellows could not realize that Venezuelan oil, as viewed from the
towers of Wall Street, was no more "foreign" than theirs. While they were
wailing, Gulf Oil Corporation was preparing to spend millions in Colombia so
that the torrent of "foreign" oil tumbling into the United States market
might be doubled.
When a grateful nation conferred on General Virgilio de Barco 1,500,000
unsurveyed acres in the Colombian mountains for his victory over a rebel
army, its Congress would have been astonished to know that twenty-five years
later this gift would furnish a classic example of "dollar diplomacy."
Pittsburgh oil magnates, wandering British colonels, international banking
houses, American ministers at Bogota, the American Secretary of State and
sundry Senators were to play their parts in a strange drama of finance and
diplomacy which cleft Colombia in twain and elevated to its Presidency a
person whose exalted Hispanic phraseology was sprinkled with the aphorisms
dear to Coolidge, Mellon and Hoover.
The prize sought for and won was valued by an Assistant Secretary of State at
$300,000,000 to $2,000,000,000, but to General de Barco in 1905 it was merely
a dreary waste of precipitous mountains and narrow valleys in the northern
part of the Department of Norte de Santander. Inquisitive American oil
prospectors guessed otherwise. It lay along the Venezuelan border, not far
from the oil lands of the Maracaibo basin. In 1917 General de Barco sold out
to the Carib Syndicate in which Henry L. Doherty of Cities Service held 75
per cent interest and J. P. Morgan & Company 25 per cent.
Colombia has been described as the greatest reservoir of oil south of the Rio
Grande, not even excepting Maracaibo. Standard Oil of New Jersey has backed
that estimate by investing $30,000,000 in the Carare district near the
Magdalena River. Two obstacles however prevented the Doherty company from
exploiting its Santander concession. Tens of millions must be spent on
development and pipe lines before a barrel of petroleum could be pumped into
a tanker. And Colombia, swayed by social revolutionary ideas prevalent in
Mexico and Russia, was inhospitable to concession-hunters. Scornful American
business journalists declared Colombia stood in danger of "Mexicanization."
The immediate issue, as in Mexico, was the validity of titles. Colombia has
"the most involved titles of any oil country in the world." That was due
partly to the unsurveyed wilderness in a land cut in two by the Andean range
and by a marsh and junglebounded river. Merchandise which ascended the
Magdalena to Bogota, the capital, was transshipped eight times from the
Caribbean wharf to the merchant's warehouse.
To validate the Barco. concession and develop its riches would require
pertinacity, deep financial reserves, access to diplomatic pressure. Standard
Oil was busy with its own concession. Only one other American petroleum
corporation fulfilled the specifications.
The Mellons paid Doherty $1,500,000 on January 5, 1926, for a concession
which the Colombian Government was preparing to cancel. Colombia claimed that
the concessionaires had failed to carry on the development work which was
called for. On February 2 the concession was formally extinguished.
Undismayed, Gulf Oil made its third and final payment to Doherty, and Carib
Syndicate shares leaped from 4.25 on the New York Stock Exchange to 14.875.
The spectacle of a nation's gift to a military hero being hawked about by
North American petroleum lords offended many Colombians and formed the
decisive issue in the campaign which elected Dr, Miguel Abadia Mendez to the
Presidency in 1926. "Mexicantization" then reached its highest point. Back of
the anti-Yankee sentiment were fifty years of bitter experience. American
troops had frequently been landed on the Isthmus of Panama and in 1886
President Nunez warned that "our Panama Canal will be snatched away from us
by the Yankees. . . . This nation knows better than any other that the word
'right' has no significance if it is not backed by cannons, rapid-fire guns
and ironclads."
The method by which Panama proclaimed its right to self-determination seemed
to justify his suspicions. On November 3, 1903, nine U. S. war vessels lay in
Panama City and Colon harbors awaiting a revolution scheduled for that day by
Bunau-Vairilla, French canal promoter, the American State Department and a
handful of Panama politicos. At 3:40 P.m. the State Department cabled its
consuls at Colon and Panama: "Uprising on Isthmus reported. Keep Department
promptly and fully informed." At 8:15 came the reply from the consul at
Panama: "No uprising yet." The State Department's tension relaxed at 9:50
when it was reported that the tardy revolution had been consummated.
The French Canal Company and Bunau.-Varilla got $40,000,000; the Panama
politicians $10,000,000; the Colombian garrison at Panama $100,000. The
Bogota government was told by Secretary Hay not to land troops in their
revolting state for fear that it "would precipitate civil war and disturb for
an indefinite period the free transit we are pledged to protect."
Colombia shook with a rage that helplessness distilled into morbid hatred.
Martially, the country was beneath the Marines' contempt, but it was annoying
to have anti-Yankee propaganda spreading over Latin-America from Bogota at a
time when American financiers and entrepreneurs roamed the two continents for
bargains and investments. The British oil interests also capitalized
anti-Yankee sentiment in seeking oil concessions. Finally the American
Government paid $25,000,000 to Colombia amid charges of corruption between
Standard Oil and Colombian officials which caused the resignation of
President Fidel Suarez. But Standard got its concession.
'The Standard Oil scandal was comparable to the Teapot Dome affair in the
Republic to the north, but its effect was different.
A militant Congress was swept into power, the Cabinet which had agreed to
reconsider the cancellation of the Mellon lease was reprimanded, and new
legislation was passed. The emergency oil act required companies to present
documentary proof of title within six months and royalties ranged from 8 to
16 per cent, the highest in the world. Standard and Gulf termed
unconstitutional and confiscatory the new law and its regulatory decree,
which became effective January 28, 1928. Colombia retorted that she was
trying to bring order out of the chaos of concessions and that all companies
would be dealt with fairly.
The Rockefeller and Mellon firms acted promptly. Francis B. Loomis, former
State Department official who helped Roosevelt with the Panama affair in
1903, was retained to present their case to the State Department and
President Coolidge. On February 19, 1928, Loomis declared his clients were
fighting for American rights. He pointed to Colonel H. 1. F. Yates, agent of
the British Government's Anglo-Persian Oil Company, who was allegedly seeking
a concession near the Panama border.
Five days after Loomis' opening blast, Secretary of State Kellogg instructed
Minister Samuel H. Piles to ask Bogota to, suspend the new petroleum
legislation until the Colombian Supreme Court had passed on it. The Colombian
press was indignant. Colombia is not Nicaragua, it fumed. Allen W. Dulles,
former State Department official, now joined Loomis in behalf of the
MellonMorgan syndicate.
Carlos Uribe, Colombian minister of foreign affairs, asked Minister Piles if
the concession he spoke of belonged to the Compania Colombiana. de Petroleos,
the Colombian company organized by the Mellon and Morgan interests to hold
the Barco concession. If so, he declared, "the Secretary of State of the
United States has committed an error in initiating this intervention in
respect to an affair which, since it deals with the judicial relations
between the Government and a national entity, pertains exclusively to the
tribunals of the country." Minister Piles replied that 95 per cent of the
Compania Colombiana de Petroleos stock was owned by United States citizens.
On August 4, 1928, President Abadia Mendez reiterated his intention not to
withdraw the cancellation of the Barco concession. The concessionaires, he
claimed, had not developed their lands in accordance with terms of the grant,
or if they had done so, had failed to pay the Government its royalties, in
the period between 1923 and 1926. The previous ground for cancellation was
based on non-exploitation prior to 1918.
Washington, in a sharp note, expressed its "profound surprise" at the shifted
reasons for cancellation and asked thirty days for Gulf Oil to present its
objections.
The Colombian Congress boiled over. The whole painful subject of North
American-Colombian relations for the last half century was reviewed and the
United States pictured as a devouring Giant from the North ready to
extinguish Colombia's sovereignty. Secretary Kellogg was charged with an
extravagant solicitude on behalf of his brother Cabinet member, Andrew W.
Mellon. Students paraded in approval of Bogota's "rejecting American
intertervention." At this juncture, on September 22, 1928, Secretary Kellogg
demanded a precise answer from Colombia to his note of August asking for
thirty days for, the Mellon company to file its objections. The explosive and
entirely non-diplomatic answer given by the Colombian Congress must have
provided subject matter for animated conversation when the American Cabinet
met at the White House. Unfortunately for the historian, the comments of
Secretaries Mellon, Kellogg and Hoover were not recorded. In any event on
September 29, 1928, the Finance and Investment Division of the Bureau of
Foreign and Domestic Commerce published Special Circular Number 305, which
warned bankers that further investments in Colombian bonds would probably not
be safe. In effect a financial embargo had been declared on Bogota: the broad
stream of American loans dwindled down to a mere trickle, then dried up.
Although Jefferson Caffery, new minister to Bogota, continued
representations, the issue died down. There were no more notes. Andrew Mellon
was prepared to wait. His Venezuelan fields were just coming into production
while new fields in Oklahoma and Texas were keeping his executives busy. In
the meantime Colombia could see how a financial embargo worked.
When he arrived in Washington, Dr. Enrique Olaya Herrera carried with him the
prejudices and suspicions concerning the Colossus of the North current in his
country. The bias of the new Colombian minister stumbled against what he
found to be agreeable evidence of North American energy, achievement,
progress.
There was much to be said for the Yankees, he found, and much to be learned
by the indolent whites of the Colombian plateau. Dr. Olaya was obliged to
admit to himself that Colombia would advance faster if she accepted the help
offered by friendly Wall Street bankers.
Back in his native land, discontent arose as prosperity receded and the
election of 1930 approached. The world-wide depression and the financial
embargo were being felt by Antioquia coffee Planters and Magdalena banana
growers; the paralyzing effect of the oil controversy had suspended the
employment of thousands of laborers in Santander and North Santander. It was
time for a change.
Dr. Olaya heard the call. He accepted the presidential nomina-tion, hurried
home, and stirred Colombia as it had never been stirred in a century of
electoral lethargy. Stumping the country by airplane in three weeks, he
brought to his candidacy all those props of the enterprising
Yankees-publicity men, radio speeches, newspaper handouts, pictures galore.
journalists camped on his trail, the New York papers admiringly recounted his
sensational drive. On February 9, 1930, he was elected by a plurality of
121,000, a thumping victory for a country which limits its voters to
substantial and literate property holders.
President-elect Olaya, business-like, surveyed the needs of his country and
found them financial. Business-like, he turned to Wall Street. Hardly were
the votes counted when the National City Bank received an appeal from the
Colombian finance minister to send down a representative. Vice President
Victor Schoepperle of the National City Company was dispatched in February,
1930.
The President-elect was off for New York and Washington a few months after
his election. In May, 1930, he asked Schoepperle to visit him in Washington
to discuss the Colombian financial situation. We need money, he reminded the
banker. Vice President Schoepperle shook his head sadly. Yours is a
magnificent country, he said, but it has not been favored with good
administration in recent years. "I do not think that the National City Bank
would be interested," he said, "in any participation in Colombian financial
affairs."
Olaya Herrera was visibly depressed. He implored the banker to suggest a
program of a constructive nature. A week later Schoepperle had relented
enough to inform the new President that perhaps a syndicate of bankers might
help Colombia if a "constructive financial and -political program" were
formulated.
The eager Colombian and the shy banker were on the point of contact. Plans
for a $20,000,000 credit shaped up, based largely on National City's
confidence that "Colombia was to have an administration under Doctor Olaya
such as it had not enjoyed for decades." Back of the credit was the promise
that the new Administration would float a $6,000,000 internal loan, would
balance the budget, fix a debt limit and turn the national railways over to
an autonomous corporation.
To aid Olaya, the State Department assigned H. Freeman Matthews, assistant
chief of the Latin-American division, and Jefferson Caffrey, American
minister to Colombia. They helped him engage Dr. Edwin W. Kemmerer of
Princeton to head a financial commission to reorganize the Colombia fiscal
system. George Rublee, petroleum lawyer who had been adviser to Ambassador
Morrow in straightening out the Mexican oil law tangle, was retained to
advise the Colombian Government on petroleum legislation.
By April, 1931, Rublee had prepared a new petroleum code for Colombia, which
President Olaya and his Cabinet presented to Congress with their approval.
Olaya's arguments were:
I. The bill will end the long litigation which has paralyzed the
development of Colombia's oil regions.
2. The delay has caused international repercussions and diplomatic
correspondence with adverse comment in the United States and European
financial papers. The new bill is evidence of Colombia's desire to settle her
difficulties with foreign capital and to repair her international reputation.
3. Passage of the bill will help the country's finances, for
"considering their financial power, the concessionaires might cooperate in
financing Colombia" as well as in developing her oil resources.
4. The proposed pipe line to the Caribbean would open com-munications
with isolated regions.
5. The industrial development and colonization of the unin-habited
frontier regions will assure Colombian sovereignty.
6. The psychological factor attending the bill's passage will re-store
confidence in Colombia abroad.
Returned to the United States, Rublee, although not a diplomatic
representative, dropped in at the State Department April 10 to report that
the new Colombian petroleum bill was fair to the Colombian Government and to
the oil companies. Reports that Texas Oil and Sinclair regarded the new
legislation as partial to the Mellons and were considering retiring from
Colombia he declared must be an error.
Back in Colombia the national Legislature, which had little precise knowledge
of President Olaya Herrera's National City Bank conversations, was reluctant
to rush through the new oil bill. On April 28, 1931, President Olaya.
regretfully informed the Minister of Industries that the Gulf Oil measure was
of sufficient importance to justify the heavy expense of keeping Congress in
session until it was passed. On May 3, the Olaya majority forced the Senate
into permanent session, after a month of debate. On May 21, the House
petroleum committee submitted majority and minority reports. Opposition
Deputies accused Olaya of being the Colombian representative of Gulf Oil,
United Fruit and the National City Bank. On June 10 the President and-his
Cabinet visited the House to emphasize that continued litigation with foreign
firms must end.
On June 18 the Government bill was passed. Superseding the Barco concession,
it provided a fifty-year concession for the Mellon company. The debate
preceding the vote was described as having aroused more intense feeling than
any other subject in a generation, eclipsing in interest even the controversy
over the $25,000,000 treaty settling the Panama dispute. The victory was a
triumph for the former Colombian minister to Washington, for George Rublee,
for Herbert Stabler, former chief of the State Department's Latin-American
division, now South American adviser to the Gulf Oil Corporation.
The new concession provided that prospecting crews must be sent immediately
into the new 500,000-acre concession. Seventyfive per cent of 0 employees
must be Colombians. The pipe line estimated to Cost $25,000,000 was to be
built across Colombian soil to the Caribbean instead of to near-by Lake
Maracaibo. Colombia was to be paid $25,000 a year until the Government's oil
royalty of 10 per cent of gross production exceeded that figure.
On June 20, 1931, President Olaya signed the bill.
On June 30, the National City Company after several weeks' delay, granted
Colombia the last $4,000,000 on its $20,000,000, credit.
To Senator Johnson the evidence brought out before the Senate Finance
Committee, investigating the sale of foreign bonds or securities in the
United States, proved "how inextricably connected were the executive and
legislative action at Bogota, Colombia, concerning the Barco concession, and
the payment of the balance of the loan promised by the National City Bank."
The New Republic which claimed familiarity with the ordinary course of
"dollar diplomacy," was surprised that "an American Secretary of State bad
used his high office to persuade the National City Bank of New York to grant
an unsound bank credit to the government of Colombia as a means of obtaining
one of the world's largest oil concessions for a company controlled by the
interests of Mr. Mellon, our Secretary of the Treasury."
It was President Olaya himself who let the cat out of the bag. In an excess
of frankness, understandable in a bard-pressed politician anxious to show the
folks back home what a big figure he cut in New York and Washington, Dr.
Olaya told of a dinner in his honor in Washington. As the President-elect of
Colombia, he was feted by the Secretary of State and had occasion to meet the
Secretary of the Treasury, he informed the Bogota press. Mr. Mellon had told
him that if he would arrange his domestic Petroleum difficulties, Colombia
would find its credit situation much better.
A New York Times dispatch of the same date from Bogota summarized the
interview in these words: "The President reiterated his confidence in
eventual benefits of the Gulf Oil concession and recalled Secretary of the
Treasury Mellon's advice to him to settle the petroleum problem to hasten
Colombia's recovery."
Dr. Olaya's indiscretion with the Bogota press caused an international
affair. Both Olaya and Mellon rushed to the newspapers with explanations that
there was no connection between the ratification of the Mellon-Morgan
concession and the granting, ten days later, of the final $4,000,000 credit
by the National City Company. Their explanations only added to public
incredulity, for the two principals solemnly asserted that although they had
discussed both Colombian oil and finances, they had not touched on Mellon's
Gulf Oil Corporation nor the National City Company's financial advances.
President Olaya himself was over-sensitive. The New York Times,
editorializing on the incident, had occasion to refer to the "bad smell of
oil" in the U. S. Senate when the $25,000,000 Panama balm was voted to
Colombia. President Olaya cabled: "The editorial writer in the New York Times
is wholly without justification in using the term 'bad smell' in referring to
the banking credit of $20,000,000 which I negotiated with the bankers of New
York. There could have been no clearer or cleaner transaction than that into
which I entered with two of the most powerful and respectable banking
institutions in the United States." The Times commented drily: "It seemed to
us so obvious that no offense to Colombia whatever was intended that it is
hard to understand how any could have been taken."
Vice President Schoepperle of the National City Company, when queried by
Senator Johnson, revealed the single-mindedness of Wall Street bankers in
their Latin-American dealings. He didn't care a "damn" about Mellon's Gulf
Oil Concession. Despite his trip to Colombia in 1930, he knew nothing of the
Gulf Oil concession—the country's paramount political issue. Although George
Rublee, President Olaya's special adviser on petroleum legislation, visited
him several times after returning from Colombia, there bad been no mention of
the Gulf Oil concession. Rublee had talked only of Olaya's urgent request
that the National City advance the final $4,000,000 credit. The banker
protested that the text of the loan agreement between Olaya and National City
must be kept secret, at Olaya's insistent demand. H. Freeman Matthews, called
to the witness chair by Senator Johnson, said he had been made chief of the
Latin-American division of the State Department in November, 1930, following
three years of service in Bogota. On May 12, Matthews related, the American
legation cabled Washington that President Olaya was impatient at the failure
of National City to grant the final $4,000,000. The President, according to
the cable, emphasized that he had done everything the Americans wanted, and
still the money was not forthcoming. Secretary of State Stimson telephoned
the bankers' attorneys May 16, and Matthews later conferred with Schoepperle.
On June 19, the day after the Colombian Chamber had passed the Gulf Oil bill,
Minister Caffrey cabled from Bogota that Olaya was specially insistent on
action on the National City loan, in view of the favorable action on the
Mellon-Morgan concession. Caffrey previously had written the State Department
that "if the President can secure the passage of a favorable off bill the
bankers will be in an excellent position."
Matthews' testimony revealed, incidentally, the easy transfer of
talent between Washington and Wall Street. Garrard Win-ston, former chief
aide to Secretary Mellon, now was counsel for National City. Allen Dulles,
former Under Secretary of State, was now representing Morgan's Carib
Development Syndicate, part owner of the Mellon concession. Herbert Stabler,
former chief of the State Department's Latin-American Division, was now on
the payroll of Gulf Oil as South American adviser.
Oil Attorney Rublee was disturbed by the conclusions drawn from the testimony
on the Gulf Concession and the National City loan before the Senate Finance
Committee. "I never heard the remotest suggestion of any connection between
the two transactions, and it never occurred to me that anyone could suppose
there was a connection until the innuendoes in the recent Senate
investigation were thrown out." He was deeply concerned by the fear that
Colombia, which "had grown more and more friendly to the United States,"
might suffer a revulsion of feeling now.
Lawrence Dennis, who had served as a Latin-American officer of the State
Department and as a representative of New York banking interests, replied to
Rublee: "The facts appear to be somewhat as follows: First, early in 1931 the
American State Department made a grave departure from its traditional policy
by acting as an intermediary for the transmission of messages between the oil
interests [Gulf] in the United States and their representative in Bogota, who
was negotiating for the concession. Many people still feel that the function
of diplomacy is to protect acquired rights against arbitrary denials of
justice and not to intervene in the negotiations of concession seekers.
Needless to say, the cables and mails between the United States and Colombia
were adequate in 1931 for the transmission of confidential messages between
Mr. Rublee, representing the concession seekers, and his principals in this
country.
"Second, on or about May 16, 1931, our Minister to Colombia cabled the State
Department that President Olaya was greatly disturbed because the National
City Company was withholding final payment of an advance on a bank credit,
the grounds being what the State Department officials called 'technicalities'
having to do with an alleged failure of the Colombian Government to balance
its budget as had been agreed. President Olaya could not understand why the
money was being held back, as his Government had complied with every
requirement of the bankers, as well as ratifying the Barco concession and
passing the desired oil legislation.
"On the receipt of this communication, Mr. Stimson instructed the assistant
Chief of the Latin-American division, Mr. Freeman Matthews, to proceed to New
York to 'lay before the bankers the point of view of the President of
Colombia.' Colombia, of course, has in Washington an Envoy Extraordinary and
Minister Plenipotentiary as well as a Consul General in New York—presumably
to handle Colombian business in this country.
"It seems evident, as Mr. Rublee states, that these were two unconnected
pieces of business; but it also seems evident that the Department of State
acted improperly in connection with both. It seems clear, also, that a quid
pro quo was asked by President Olaya. and given by Mr. Stimson. It is Mr.
Stimson's privilege to put his own interpretation on his acts. It is the
privilege of the American people, judging these acts, to take cognizance of
circumstances and to reason from cause to effect. The fact that Mr. Stimson
refused to reveal to the American people the telegram from President Olaya as
well as the correspondence with our Legation at Bogota does not lend support
to the Secretary of State's contention."
It was extraordinary. Every test of logic and plausibility pointed to certain
conclusions-and those conclusions were invariably wrong. There was no
connection between the Gulf Oil concession, Mellon's double position as its
chief owner and Secretary of the Treasury, J. P. Morgan & Company's quarter
interest in the concession, and the National City loan to Colombia. There was
no link between granting the enormously valuable Barco concession to the
Mellon-Morgan syndicate and the release of the final installment of the
National City loan. Messrs. Mellon and Olaya had discussed Colombian oil and
neither had mentioned the Barco concession, the real issue that interested
them both. The American State Department did not know officially of the
Mellons' stake in the Barco concession. A National City official, traveling
several thousand miles to acquaint himself with a strange country, had never
discussed its most troublesome political and economic issue—oil.
To those who had followed Andrew Mellon's career it did not seem so
fantastic. If in the course of a longish conversation with President Olaya
over oil and finance, he had not brought up the subject of the Gulf Oil
concession, that was typical of his aloofness from immediate problems. They
remembered when James B. Duke, G. G. Allen and Arthur V. Davis dropped down
from New York to chat with the Secretary all evening concerning the perpetual
motion of waterfalls. There had been no mention on that occasion of Duke's
Quebec Aluminum Company nor of activities calculated to undermine the
Mellons' aluminum monopoly, nor of the purchase by the Mellon company of
Duke's water power.
pps. 185-206
--[cont]--
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