The Jeopardy of Tampico

One of the Strategic Centres of the World War—A Region
Which Contains a Supply of Petroleum Equal to Two
Thirds of the World's Actual Production, Controlled
by a Mexican Bandit—The Interrelation of
German, Carranzista, British, and
American Interests in the
Mexican Oil Fields


By George Marvin

[The World's Work, August 1917]

Tampico is just oil. The Panuco River runs oily down to the bar and the open Gulf six miles away; the banks of the river are slimy and black with oil and so are the miles of wharves where the tankers lie drinking their fill of petroleum from the pipe lines which snake away: leagues back into the oily hot jungle to their inexhaustible wells. Oil on the sky, oil in the air, oil over the landscape. Ugly beyond words is Tampico, but it runs the British Navy and helps run the Mexican Government. It is a necessary ally of the United States against Germany, and it is controlled by one oily Mexican cabecillo to whom the producing companies pay a tribute like unto Caesar.

The oil fields which lie west of Tampico and south eighty miles to Tuxpam close to the Gulf coast produced, in the summer of 1917, in excess of 1,059,000 barrels a day. And in addition to this amount actually available, prospects for the drilling-in of additional wells leave no doubt that when these fields are developed up to their capacity they can supply an amount of petroleum greater than the world's total production to date.

At a time when the navies of the world are depending upon fuel oil, and when a large part of war mobility and transportation by sea and ashore and in the air, in addition to the manufacture of war supplies, depends upon petroleum and its by-products, these figures are emphatic enough. They become more impressive when we stop to think that outside of the United States and Mexico there are no large supplies of mineral oils available anywhere near the scale of this war's demands except in Galicia, Rumania, and the Russian Caucasus, and not one of these fields is available to the Entente Allies for the western theatre of war.

Potential production is one thing, actual output another. Due to a combination of restrictive causes—high taxes levied by the Mexican Government, lack of ocean tank steamers, the war risks and losses on all ocean-borne commerce, and strikes and shut-downs forced by revolutionary disorders—the total actual output of the Mexican fields is only 10 per cent, of the present potential production. Even at that low percentage more than 60,000 barrels a day went to the United States for fuel and refining in 1916, and one company alone has contracts for the delivery of 50,000 barrels a day during 1917.

Mexican oil is practically an Anglo-American monopoly. American and British enterprise discovered it and British and American capital have developed it. No oil is exported from Mexico except by American companies and by one British concern, the famous Aguila Company, owned by Lord Cowdray and incorporated in Mexico. The Lord Cowdray interests also own the oil fields at Minatitlan, just inland from Puerto Mexico, and the well built double-track Tehuantepec Railroad which runs across the Isthmus from Puerto Mexico to Salina Cruz on the Pacific side. Most of the oil which is piped out of the Cowdray wells to Tampico and Tuxpam has to be taken to Puerto Mexico and there mixed with the lighter Minatitlan oils—when the Minatitlan plant is not shut down by recurrent strikes—before it can meet the British Admiralty's specifications. Some oil comes from wells operated by Mexicans and a great part of it from lands owned by Mexican proprietors and leased to the foreign companies. Not one drop of it is exported by Mexicans.

And not one drop of it is exported by Germans. No German company owns or leases oil lands. No nationals of the Central Powers have oil interests of any kind in Mexico. Nevertheless, Germany must needs be very much interested in Mexican oil. Germany cannot interfere with its marketing except by intercepting shipments at sea, which would naturally be one of the chief objects of submarine activity in the Gulf and West Indian waters. German agents can interfere with its production in several ways: through the Mexican Government by confiscatory duties and restrictions; by subsidizing revolutionary or plain bandit disorders in the State of Vera Cruz; by inciting the thousands of employees in the plants to violent and destructive strikes; and by surreptitiously firing the wells themselves.

THE DEGREE OF GERMAN DANGER

This last danger may be minimized to the vanishing point. Ever since 1914 the companies operating wells in the Huasteca district have policed Germans and Austrians out of their territory. Every well is worth millions of dollars and is guarded like a Kohinoor diamond. The Cowdray company was, of course, exceedingly active in this work. The Potrero well owned by them has at times during the last three years furnished 60 per cent of all the fuel oil consumed by the British Navy, and one destructive act successfully perpetrated against that one well would have partially hamstrung the British fleet. Even German sympathizers or suspects are unceremoniously run out of the district or are quietly interred there.

After the United States became an active belligerent in April, rumors of possible German attempts against the Mexican oil fields increased, but every one of the tangible rumors was run to earth and either proved to be hot air or was smashed on suspicion. The vast majority were hot air. The oil companies are and have been very much alive to this danger and are well able to look after their own interests as far as any direct German attempts on their properties are concerned. They, together with the British Legation and our own recently reestablished Embassy, maintain an excellent secret service organization in and out of the Tampico region and have every Central Power national ticketed. The same authorities, with the international assistance open to them, have combed the Gulf and its shores with the finest-toothed investigation and gum-shoed the hinterlands bordering upon them. As far as this system can penetrate there were not in July any possible German submarine bases or wireless plants in or about the Gulf of Mexico. The submarine menace is therefore reduced to operations from a far distant base or, more probably, to raids on the delivery end of the oil traffic.

It is not from direct German acts that the danger comes; it is from the indirect methods which I have summarized above. In order to understand just how German influence may be brought to bear, it is necessary first to know something about the powers that be in the State of Vera Cruz and their interrelation.

CANDIDO AGUILAR, SELF-MADE MAN

People who read about Mexico know by name that bright star of Mexican politics, General Candido Aguilar. I was in Puerto Mexico on election day when Aguilar was running for Governor of Vera Cruz against General Gavira. You would have thought he had at least a good running start by being the Primero Jefe's (Carranza's) candidate and engaged to his daughter, but Candido never takes any chances. He had two freight trains of decanted Constitutionalist soldiers, armed beyond the teeth, in that town bivouacked around the polls and the telegraph and cable offices. You had to cross yourself and step over sleeping arsenals to send a telegram. The simple job of that soldiery was to insure a constitutional and orderly election by keeping the Gaviristas from exercising a suffrage called by the new Constitution universal. I don't know first-hand just how matters stood in the other towns of the State of Vera Cruz, but on reaching Mexico City several days later I read in the capital papers that General Aguilar had been elected Governor by substantial majorities after a very "orderly" election.

Aguilar it was who, as Secretary of Foreign Affairs, signed the very able notes, written by Acuna and Amador, in the long-drawn-out war of words fought out with the patiently and watchfully waiting U. S. Department of State about the border troubles. Before he had attained Constitutional importance enough to get this job from Carranza he had been de facto boss of Vera Cruz and had thrown his influence, his patronage, and his financial backing on the side of the First Chief during a critical period in the latter's political fortunes.

Now Aguilar is a fine example of your high-speed self-made man in Mexico in a time when every public character is self-made plus the help that goes to compadres or relatives of the appointing powers. Oil helped make Aguilar. In the summer of 1914 he financed himself into national prominence by occupying the Tampico-Tuxpam fields with his ragged army and holding up the principal producing companies in that region for $10,000 apiece on the threat of stopping their pumps. The only company that had nerve enough, or was foolish enough, to refuse was Lord Cowdray's company, and the consequent stoppage of its pumps caused leaks around the bonanza Potrero well, the loss in oil, and in a surface fire which lasted four months, mounting far beyond Aguilar's price.

Candido Aguilar made a distinct financial success out of his Vera Cruz suzerainty but he made an equally distinct political mistake. Not content with Levying on the rich foreign companies, he confiscated a lot of small, oil-bearing properties from native Mexican owners in the, jungle. None of these owners could produce satisfactory Guarantias—credentials of acknowledged title carrying exemption or protection—and so Aguilar and his officers waded in and took pretty much what they liked, accusing the owners of being Huertistas or having Huertista sympathies. They made a thoroughly-good job of it; looted the houses of the Huasteca farmers seized and violated their women, and killed all active resistance. You can see mute memorials of this forced liberty loan in the ruin of once picturesque Indian villages blistering on the hills far back from the pestilential oil fields. As a matter of fact there were no political lines drawn then in the jungle, no Constitutionalistas or Huertistas or any other kind of the "istas" then current. Aguilar brought politics with him.

THE REVOLT UNDER MANUEL PELAEZ

Many of these independent land owners, whose properties were confiscated, were either in negotiation for the sale or lease of their oil rights or counting upon realizing on them later. In July, 1914, under a cabecillo named Manuel Pelaez, they rose in revolt against Aguilar and all he represented. Pelaez has controlled the entire Huasteca-Veracruzana oil district ever since. Carranza and his faction control the two ports of Tampico and Tuxpam but all the hinterland is in the hands of Baron Pelaez. His outposts come right up into the suburbs of the two towns. It is indicative of the actual control which the de jure Government exercises over Mexico that here in this richest maritime region Carranzista authority is limited to two spheres of nominal influence in the ports.

The oil is piped out of Pelaez's territory, where it pays tribute, into the Carranzista spheres of influence, where the central Government levies on it by production taxes and bar dues before it flows into British and American tank steamers.

Up to January, 1917, Pelaez could have taken Tampico whenever he wanted it, until in that month the then de facto Government sent the de facto gunboat Bravo up the river and tied her up to the fiscal wharf where her guns could sweep the town. Tuxpam, also, the semi-righteous bandits could take whenever they liked if they were foolish enough thus to bring down a serious expedition against themselves.

Several desultory expeditions have been sent against Pelaez but they have lost themselves in the oily jungle and been beaten off without much trouble. And after every such occasion Robin Hood Pelaez and his merry dispossessed land owners armed themselves from the prisoners and cadavers. They began with about eighty men, every one of whom had suffered from direct acts of confiscation by the Aguilar regime. In the spring their numbers had grown to 3,500. They had captured nearly 3,000 rifles, and in Mexico it is easy to find a man for every rifle.

The new Constitution went into effect on February 5th, and since then the baron of the oil fields has been joined by many first-class volunteers. The Mexican mining laws from 1884 up to February 5th had specifically recognized the ownership by the small Mexican landlords of subsoil petroleum in the Huasteca fields. Many of these owners held title back to the Spanish grants. The new Constitution confiscates, this subsoil petroleum, vesting the ownership of all underground oil in the nation, which by the new instrument has the sole right to issue concessions to third parties for the extraction of petroleum. The owners who had escaped Aguilar, now despoiled by the new Constitution, have joined the Pelaez endemic revolution and greatly strengthened it. The agent of one of the largest American companies had forty-eight rentals to pay to small owners in April. Twenty-six of them could not be found. They had joined Pelaez.

The business head of the Pelaez administration is an ex-druggist of Tuxpam, a Dr. Enriquez, who like his chief has an interest in lands from which the Aguila company is producing. Each of them receives a handsome royalty on the production. The third member of the junta is a first-class fighting man named Leopoldo Rabate who, in addition to a property grievance like the others, brings into the business an unconquerable personal animus due to outrages against his family.

PROTECTION FOR TRIBUTE

Between Pelaez and Company and the producing oil companies the relations are curious. Here, you would think, is a perfect stage, setting for German plot and intrigue.. The reverse is the case. To begin with, most of the revolutionists are themselves oil-land owners—subject to the new Constitution and its exceedingly difficult enforcement—and as such, have the same interest as the foreign companies in the protection of the fields. To clinch that interest, the companies pay Pelaez more than $100,000 a month, which, with his royalties, compares very favorably with the incomes of our own captains of industry. This transaction is very much as though you were to pay an insurance company a very fat premium, incidentally for protection against fire or accident, but primarily for protection against, the insurance company itself. At first sight it seems out of proportion to service rendered. But from that income Pelaez has to feed and supply an army of probably five or six thousand people. Every one of his soldiers has a woman—his soldadera—and generally some children as part of his equipment, and, like the fighting men of every other Mexican "army," he carries his whole domestic menage around with him. And P. and Co. grubstake them all.

If, therefore, their wells are more precious than jewels to the producing companies, they are hardly less precious to the holding company of Manuel Pelaez and Brothers. For them they are food and pulque and the breath in their nostrils. Every one of the constituent foreign companies is a big, brutal organization, and the bandit holding company, by the same token, is hardly less brutal. I wouldn't give five cents for an out-and-out Central Power national caught inside the limits of the oil fields and not more than a dollar Mex, for a German suspect found there. The seventy-five luckless Germans who live in Tampico under a converging Carranzista, Pelaezista, Oil Companysta, United Statesista surveillance remind you of so many canary birds in a cage, except that they never sing.

Pelaez and his followers lately issued a proclamation in which they declared that Carranza was under the influence of a foreign Power, meaning Germany, and that they would protect the oil wells from him and anybody else who attacked them. The following paragraph from this rather heated document gives a pretty sound statement of the case:

"We do not admit the idiocy of the Queretaro Constitution, written and promulgated by the insane foolishness which represented the Carranzista faction; and as to our attitude with reference to the European War in which our neighbor of the North has just entered, we will sustain and defend the most complete neutrality; but we must make it clear that by declaring ourselves neutral we do not abandon the interests which the belligerents have in the region which we dominate, and that these interests will be defended by us whoever may be their owners, and that we will permit no one to attack them, not only because it is our duty as Mexicans to grant protection and give hospitality to all foreigners who, attracted by liberality of our institutions and the richness of our land, have come with their wealth, labor, capital, and civilization to take part in our life, but also because if the riches which we defend should be destroyed the country will lose one of its principal elements of reconstruction upon which it is entitled to rely on the day peace shall again be established throughout the entire Republic."

It is not hard, therefore, to understand why the companies are not worrying much about direct vandalism either by Germans or local Mexicans, although they may worry a little occasionally about what their immunity is costing them. Pelaez and Co. are convinced that if any well is fired their entire capital and income burn with it, and this is a healthy obsession. They help guard each well, give notice of leaks, take what they like in the way of horses, and board some of their men at the dining rooms of the companies.

THE HIGH COST OF IMMUNITY

An injustice which the companies complain of and which the Government ignores is that the insurance tribute to the bandit amounts to only about 10 per cent, of the taxes paid to a Government which is powerless to remove the bandit insurance. It is all a big and very vicious circle, each constituent part of which has an arguable grievance. As a matter of fact, however, the overlapping of jurisdictions works no hardship to either side. Pelaez is no menace to the present Government. He is quite content to stay put in Vera Cruz with his bonanza. He has no political ambitions. Neither is the constituted Government any menace to Pelaez. If it has been and is now unable to clean Zapata out of the suburbs of Mexico City it hasn't any chance at all of dislodging the boss of the oil fields from his jungles with the whole territory dedicated to his cause and more food available than in any other state of Mexico.

The interrelation of the two powers, Federal and local, is further complicated by their joint and several profits in the continuing production of oil from the district where the one holds nominal and the other actual control. For if the oil companies pay big insurance premiums to the Pelaez Security Company, they also contribute heavily to the income and sinking (literally) fund of the Mexican Government. In June the producing companies were paying a net tax on fuel oil of seventeen cents American currency a barrel and a tax of two cents per gallon on all distilled gasolene exported.

Knowing the war demands for petroleum, and the tendency of prices, it is at first sight difficult to work out any great hardship so far as the producing companies are concerned, although they keep on calling for help. Just as the war prices of sugar enable Cuban planters to pay the unheard-of day labor wage of $3.50 in their fields, so the huge profits in oil, you would think, ought to stand heavy punishment in taxes. The natural tendency is to withhold sympathy from big corporations. These Mexican oil producing companies now have very little of the consideration which would come from a proper understanding of their position. As a group, they have sunk hundreds of millions of dollars and pounds sterling in Mexico, and invested there sixteen years of unremitting work. A great many of them are now delivering oil on long-term contracts. That is the only way crude oil can be sold in bulk. Some of these contracts still have many months and years to run. Transport, since the contracts were made, has gone up, in some instances 400 per cent. One American company in July was delivering the crude oil in New York as per contract at one dollar per barrel in chartered tankers at a cost for transport alone of two dollars per barrel. In other words, they were getting nothing for their oil and presenting their buyers with one dollar per barrel.

Another misconception about the present gold mine value of the oil fields arose from a misunderstanding about what constitutes profit in oil production. Strictly speaking, there are very few if any actual profits from oil production in Mexico up to date. There never can be a profit from an oil well until that well produces enough oil, and enough of its production is sold, to repay the capital investment and operating expenses. If it continues to produce thereafter, the well owner may then be said to have made a profit. If his well ceases to produce meanwhile or is destroyed before his investment is recovered, he is sunk. And while nothing is so certain as that a well will cease to produce, nothing is so uncertain as the time when it will cease to produce.

Therefore, present income from oil wells cannot properly be called profit. It is called "recovery" until the well or field has paid out. Until that time it can only properly be considered return of capital. Of the 340 registered oil-producing companies in Mexico only three have ever paid dividends, and these dividends have in no case yet totaled 20 per cent of their companies' investment.

The appreciation of these attested facts will help to clear up the relationship between the Allied Governments, the Mexican Government, and the oil companies in their critical interrelationship.

GERMANY'S HIDDEN HAND

The real menace at Tampico is not directly from the Germans, not from the bandit overlord of the fields, not from existing taxation. The potential menace lies in the whimsicality or the obstinacy of the central Government, whether or not subject to German influence, and in the recurrence of strikes over which the Government either has no control or is indifferent about exercising control.

The new Mexican Constitution, promulgated February 5, 1917, provides for the "nationalization" of all petroleum occurring underground. It is now possible for the Government summarily to take over any American- or British-owned lands or wells and stop the supply. The American and British companies had acquired rights to this underground petroleum in accordance with the existing Constitution and law by purchase and lease from the owners. Two of the companies have contracts passed by the Mexican Congress in 1906 and 1908, respectively, exempting them from any tax on the export of their product. The new Constitution provides that "there shall be no exemption from taxation."

Under the new Constitution, therefore, the American and British producers of crude oil supplies needed by our allies are exposed to (1) the absolute confiscation of their lands and wells which would stop those supplies or (2) unlimited and semi-confiscatory taxation which would have to be paid by the United States and their allies. German influence is at work all the time in Mexico City to bring about one or both of these restrictive measures. As I have said before, no German or Austrian company, directly or indirectly, and no supply for the Central Powers, can be affected by this restrictive legislation. In fact, no imposts of any kind have been created or increased by the ''Constitutional" Government which affect German interests in Mexico. The working unopposed of the new Constitution does jeopardize our allies' oil supplies, and the needs and attitude of the Government toward these foreign-owned properties greatly increases its cost. At first sight it may seem highly improbable that the Mexican Government, just getting on its feet, would take the extreme step of confiscating British or American oil fields, particularly at the present time, even though it has the "constitutional" right to do so. But it has already established an excellent precedent for such action by seizing and operating the British-owned railroads across the Isthmus of Tehuantepec and from Vera Cruz to Mexico City. These are the two strategic railroads in Mexico, and persistent German influence settled the indecision of the Government about taking them over.

As to the strike threat, I had a good example of its character when I was in Mexico in May. The recurrence of such strikes threatens our allies' supply of oil; it also threatens to plunge the United States and Mexico into renewed difficulties or open rupture because of the continuing probability of having to use United States forces to protect American property and life which the constituted authorities seem powerless to protect.

This strike at Tampico began with a notice to the managers, that if the strikers' demands were not met within twenty-four hours they would take radical measures to enforce them. The managers appealed through the British and American consuls to the Presidente Municipal for protection to their properties, but at the expiration of the twenty-four hours the strikers, unopposed, took possession of the two largest refining plants at Tampico, the Aguila and the Pierce works. They drove out with clubs all non-striking employees, both American and Mexican, and picketed both plants, refusing entry to managers and employees. Two of the managers who tried to enter were thoroughly beaten up and sent to the hospital. At this time the American merchant ship Mexicana was tied up to the Pierce Company's wharf and her captain was ashore on duty. When he attempted to go aboard his ship the strikers had the effrontery to stop him and tell him he would be shot if he tried again. The civilian authorities took no action except to send four policemen to the Pierce Refinery with orders "to see that no work whatever is performed in the plant," thus lining up Mexican local authority with the strikers.

Failing to get any help and only a cynical attention from the civil branch of the Government, both consuls tried the Jefe de Armas (commandant of the local garrison). He was drunk according to his daily custom and neither could nor would give any assistance. In this hopeless impasse our consul, Mr. Dawson, put the entire situation in the hands of Commander Powers Symington, captain of the U. S. cruiser Tacoma which, with two American gunboats, was lying at anchor in the Panuco River. Captain Symington demanded an interview and got it. The Jefe de Armas sobered up when he confronted six feet two of irritated naval officer in uniform and through his windows saw that the Wheeling and Castine had anchored just off the Pierce Company's docks. It took a show of force and some very simple language to do it, but the Jefe rather promptly conceded to an impending and efficient violence what he would not give to Mexican and international law and diplomatic courtesy. The plants were protected, the riot regained normal strike proportions, and was eventually settled by compromise without further disaster.

Just how much German influence, money, and leadership are involved in these Tampico, Tuxpam, and Puerto Mexico strikes I could not accurately find out. I did, however, find specific proof of German interference and incitation in the particular strike at Tampico which I have just described. Two or three weeks before that strike was declared the stevedores of Tampico were inciting the other guilds and unions, whose members were employed by American and British oil producers and refineries, to strike for a 25-per-cent raise and a seven-hour day. The German consul, Mr. Eversbusch, has long been the employer and patron of the Tampico stevedores. During the strike, money in small denominations was delivered to the strike leaders, who distributed it among the striking workmen. Presidente Municipal Morales and Jefe de Armas Guerra have continued to treat Consul Eversbusch and his commercial agency with a consideration exactly the reverse of that accorded our own consul, Mr. Dawson.

But it is only in this way of encouragement and maintenance of strikes, or, as I have already pointed out, in pressure exerted on the central Government, that German agents can seriously threaten the Mexican oil fields.

The real threat, the real danger, lies, then, not only in the oil fields but in the possibility of German intrigue working on Mexican prejudice to force a break with the United States either through a strike situation or as a result of further confiscatory proceedings by the Mexican Government. Such a break would be for Germany a much greater coup than the crippling of the oil wells, since it would draw off from our preparations for offensive and defensive war against Germany a large proportion of the material and personnel available during the next and most critical year. While the whole nation is focussing its attention and its united efforts on the European arena which we have now entered as an active belligerent, we must never forget that our relations with Mexico essentially and immediately affect, and are a part of, our participation in the great world struggle for liberty and justice.

And let it be distinctly understood in Mexico that the United States Government and the people of the United States cannot at this time view the arbitrary measures by the Mexican Government directed against the Tampico oil fields as other than a deliberate and unfriendly act. Whether or not such action be premised on the recent Constitution, the policy of the Mexican Government in carrying it out to the letter at this time must be construed, whether or not inspired or directed by German influence, as distinctly in favor of German interests and directly opposed to those of the governments of Europe with which the United States is now allied.

© J. Fred MacDonald, 2013



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