Poza Rica

With a daily average output of 123,800 bbl. this year, Mexico ranks as the world's seventh largest oil-producing nation.* Oil is Mexico's fourth-largest industry but it is almost entirely controlled by foreign firms, which currently have a $450,000,000 investment in it. This has long rankled nationalistic Mexicans, who not only covet the foreign-held oil fields but see justification in Mexico's taking them, since a Mexican legal principle from the time when the country was a Spanish colony until 1857 held that the Government owned all subsoil rights. From 1884 until 1917, however, Mexican law gave the surface landowner the petroleum rights and it was during this period that the world's great oil companies got their wells drilled into Mexican soil.

When Mexico reverted to the old subsoil law in 1917 there was a gush of argument whether the law should be retroactive. But Ambassador Dwight Morrow in 1928 sewed up the rights of U. S. companies in an agreement with President Calles which has since been upheld by the Mexican Supreme Court. Mexico's Presidency is now occupied by New Dealing Lazaro Cardenas. Fortnight ago, after six months of labor trouble in the oil fields which has threatened the stability of the Mexican Government, President Cardenas disregarded the Calles-Morrow agreement, expropriated some 850,000 acres of undeveloped oil-land leased by foreigners (TIME, Nov. 15). Last week, while foreign oil companies threatened to leave Mexico, and relations between the Mexican and U. S. Governments were under greater strain than at any time for years, President Cardenas further confused the subject by promising to lease (but not leasing) to a British firm the rights to the undeveloped portions of the Poza Rica field, second in richness only to the Iraq field.

The present Mexican oil crisis began last May with a nation-wide strike by oilworkers for more pay and shorter hours. Since foreign oil companies pay 7% of Mexico's taxes, a prolonged strike threatened Government finances as well as those of the foreign oil companies. After two weeks, therefore, President Cardenas intervened, commissioned a group of Government experts to investigate. Two months later in a 3,250-page report the experts ordered 17 foreign companies to raise wages some $7,000,000 (TIME, Aug. 16). Contending that the report was "grossly unfair," the companies refused to pay the increase, offered to settle with an increase of $3,000,000. Since then the matter has been under consideration by the Mexican Board of Arbitration and Conciliation, which has also had to consider an unusually strong warning from U. S. Ambassador to Mexico Josephus Daniels, who threatened that "anything that would disturb the status quo and good relations would be regretted."

Last week foreign oil companies, already vastly excited over the expropriation, suddenly heard a rumor that the Board of Arbitration was about to decide in favor of the $7,000,000 wage increase previously ordered. Immediately the oilmen got together, announced that they would "suspend operations" and abandon the country rather than pay it. It was at that point that President Cardenas, who has plenty of resolute and resourceful Indian blood in his veins, called in representatives of Mexican Eagle Oil Co., affiliate of British Royal Dutch-Shell which already controls 60% of Mexican oil production. He handed them an agreement promising them full control of the Poza Rica field, 7,700 of whose 13,000 proven acres Eagle already holds. In return Eagle agreed to give Mexico 15% to 35% of the petroleum it produced, varying with type and amount. Britain and Germany both began bargaining to buy from Mexico whatever portion of this oil royalty Mexican industry does not consume.

From the British point of view the concession is like money from home. It gives Great Britain a huge oil reserve which can be reached without passing through the Mediterranean, where she no longer has undisputed control. From the U. S. point of view the move looked like an astute means of splitting the unified stand of the foreign oil companies on the wage question.

*After the U. S., 3,455,000 bbl.; Russia, 517,000 bbl.; Venezuela, 502,000 bbl.; Iran, 191,000 bbl.; Netherlands Indies, 148,000 bbl.; Rumania, 146,000 bbl.

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