Hawk1981
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- Apr 1, 2020
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Mexican President Lázaro Cárdenas signed an order that expropriated the assets of nearly all of the foreign oil companies operating in Mexico on March 18, 1938. The expropriation followed Cárdenas' efforts to negotiate for a greater return from Mexican Eagle Petroleum Corporation, a subsidiary of the Royal Dutch/Shell Company and from Standard Oil Companies of California and New Jersey, that had not been successful.
Prior to expropriation in 1938, the oil industry in Mexico had been dominated by Mexican Eagle which accounted for over 60% of Mexican oil production, and by American-owned oil firms including Standard Oil of New Jersey and Standard Oil of California which accounted for approximately 30% of total production. The Mexican Government asserted ownership of the “subsoil,” including any natural resources discovered below ground according to Article 27 of the Constitution of 1917.
In his March, 18, 1938 Speech to the Nation, Cárdenas explained his position, "In each and every one of the various attempts of the Executive to arrive at a final solution of the conflict within conciliatory limits, . . . the intransigence of the companies was clearly demonstrated. Their attitude was therefore remediated and their position deliberately taken, so that the Government, in defense of its own dignity, had to resort to application of the Expropriation Act, as there were no means less drastic or decision less severe that might bring about a solution of the problem."
President Lázaro Cárdenas
In Mexico, the foreign-owned oil companies were the object of much popular resentment. Since Mexico was an agrarian nation with only a tiny domestic market, these companies exported most of the oil they produced during the 1920s and very little of their profits remained Mexico. The situation was exacerbated during the 1930s, when the Mexican Government’s share of oil revenues declined and domestic oil production dropped due to the Great Depression and a glut in the global oil supply. These developments, combined with the fact that the large oil companies often paid their Mexican workers only half as much as other employees working in the same capacity, ultimately led to massive labor unrest.
Three months after enacting the Expropriation Act, the Mexican government created Petróleos Mexicanos (PEMEX), a state-owned firm that held a monopoly over the Mexican oil industry, and barred all foreign oil companies from operating in Mexico. The foreign-owned oil companies retaliated by instituting an embargo against Mexican oil. Mexican oil exports decreased by 50% and the Mexican Government’s primary customer for oil became National Socialist Germany.
Cárdenas' action angered the international business community and Western governments, especially the United Kingdom which severed diplomatic relations with the Mexican government, and boycotted Mexican oil and other goods. An international court ruled that Mexico had the authority for nationalization.
The US Government responded with a policy that backed efforts by American companies to obtain payment for their expropriated properties but supported Mexico’s right to expropriate foreign assets as long as prompt and effective compensation was provided. President Franklin Roosevelt wanted to maintain good relations with the United States’ immediate neighbor and was worried that a hostile US response to expropriation would drive Mexico to align itself with the Axis Powers.
Prior to expropriation in 1938, the oil industry in Mexico had been dominated by Mexican Eagle which accounted for over 60% of Mexican oil production, and by American-owned oil firms including Standard Oil of New Jersey and Standard Oil of California which accounted for approximately 30% of total production. The Mexican Government asserted ownership of the “subsoil,” including any natural resources discovered below ground according to Article 27 of the Constitution of 1917.
In his March, 18, 1938 Speech to the Nation, Cárdenas explained his position, "In each and every one of the various attempts of the Executive to arrive at a final solution of the conflict within conciliatory limits, . . . the intransigence of the companies was clearly demonstrated. Their attitude was therefore remediated and their position deliberately taken, so that the Government, in defense of its own dignity, had to resort to application of the Expropriation Act, as there were no means less drastic or decision less severe that might bring about a solution of the problem."
President Lázaro Cárdenas
In Mexico, the foreign-owned oil companies were the object of much popular resentment. Since Mexico was an agrarian nation with only a tiny domestic market, these companies exported most of the oil they produced during the 1920s and very little of their profits remained Mexico. The situation was exacerbated during the 1930s, when the Mexican Government’s share of oil revenues declined and domestic oil production dropped due to the Great Depression and a glut in the global oil supply. These developments, combined with the fact that the large oil companies often paid their Mexican workers only half as much as other employees working in the same capacity, ultimately led to massive labor unrest.
Three months after enacting the Expropriation Act, the Mexican government created Petróleos Mexicanos (PEMEX), a state-owned firm that held a monopoly over the Mexican oil industry, and barred all foreign oil companies from operating in Mexico. The foreign-owned oil companies retaliated by instituting an embargo against Mexican oil. Mexican oil exports decreased by 50% and the Mexican Government’s primary customer for oil became National Socialist Germany.
Cárdenas' action angered the international business community and Western governments, especially the United Kingdom which severed diplomatic relations with the Mexican government, and boycotted Mexican oil and other goods. An international court ruled that Mexico had the authority for nationalization.
The US Government responded with a policy that backed efforts by American companies to obtain payment for their expropriated properties but supported Mexico’s right to expropriate foreign assets as long as prompt and effective compensation was provided. President Franklin Roosevelt wanted to maintain good relations with the United States’ immediate neighbor and was worried that a hostile US response to expropriation would drive Mexico to align itself with the Axis Powers.
