Friday, August 22, 2014

The "bad smell of oil" from Colombia and Venezuela—1930

Chapter 11 (pages 185-206) of Mellon's Millions by Harvey O'Conner (New York, N.Y.: Blue Ribbon Books ©1933)


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 [Pennsylvania] 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 brigands—north 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 Pearson-dominated 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 1917. Principally 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 [Texas].

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 oil, 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 Mid-Continent 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 jungle-bounded 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. I. 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 Mellon-Morgan 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 intervention." 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 nomination, 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:
1.    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 communications with  isolated regions.
5.    The industrial development and colonization of the uninhabited frontier regions will assure Colombian sovereignty.
6.    The psychological factor attending the bill's passage will restore 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 [Texaco] 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. Seventy-five per cent of the 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 nearby 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 had 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 hard-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 had 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 Winston, 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.

No comments:

Post a Comment