The expropriation of foreign oil assets in Mexico in 1938 stands as a pivotal moment in Mexican History, dramatically reshaping the nation’s economic and political landscape. This event, orchestrated by President Lázaro Cárdenas, involved the seizure of assets from foreign oil companies and the subsequent establishment of Petróleos Mexicanos (PEMEX), a state-owned oil company. This action reverberated internationally, impacting relations with the United States and other world powers, and continues to shape Mexico’s energy sector today.
altMexican President Lazaro Cardenas
The Roots of Conflict: Foreign Dominance and National Sovereignty
Before 1938, foreign entities, primarily the Mexican Eagle Company (a subsidiary of Royal Dutch/Shell) and American companies like Jersey Standard and Standard Oil of California (SOCAL, now Chevron), dominated Mexico’s oil industry. These companies controlled a significant portion of Mexico’s oil production, exporting most of it and generating resentment among the Mexican populace due to the perceived lack of benefits for the nation. This foreign dominance clashed with Article 27 of the 1917 Mexican Constitution, which asserted state ownership of all subsoil resources, including oil. The Calles-Morrow agreement of 1928 temporarily eased tensions by reaffirming existing oil company rights, but the underlying conflict remained.
The Catalyst for Change: Labor Unrest and Economic Hardship
Despite being a major oil producer in the 1920s, Mexico saw little economic benefit from its oil wealth. The Great Depression further exacerbated the situation, leading to a decline in oil production and revenue for the Mexican government. The disparity in wages between Mexican and foreign oil workers fueled widespread labor unrest, culminating in a major strike in 1937. President Cárdenas attempted to mediate, but the foreign companies resisted government intervention, leading to the fateful decision to expropriate.
altSecretary of State Cordell Hull
International Repercussions: Embargoes and Diplomatic Tensions
The expropriation triggered immediate international backlash. Foreign oil companies retaliated with an oil embargo, significantly reducing Mexican oil exports. The situation forced Mexico to seek alternative markets, including Nazi Germany. The expropriation also strained diplomatic relations, particularly with Great Britain.
The United States’ Response: A Balancing Act
The U.S. response was complex. While acknowledging Mexico’s right to expropriate, the U.S. government also insisted on fair compensation for the affected American companies. President Franklin D. Roosevelt sought to maintain positive relations with Mexico, wary of pushing the country towards alliances with Axis powers. However, some U.S. officials advocated for a stronger response, recognizing the strategic importance of securing access to Western Hemisphere oil resources. Initial attempts by Secretary of State Cordell Hull to pressure Mexico were ultimately unsuccessful due to internal opposition and diplomatic considerations.
The Path to Resolution: Compensation and the End of Foreign Dominance
The ensuing years were marked by protracted negotiations over compensation. American oil companies initially demanded exorbitant sums, leading to a stalemate. With the outbreak of World War II, the U.S. government pressured the companies to reach a settlement. The Cooke-Zevada agreement of 1942 resulted in Mexico agreeing to pay approximately $29 million to American firms. While efforts were made to allow foreign oil companies back into Mexico, the insistence on Mexican ownership of subsoil resources and PEMEX’s monopoly proved insurmountable. By 1950, the U.S. abandoned its efforts, and American oil companies shifted their focus to other regions like the Middle East and Venezuela. The 1938 oil expropriation remains a defining event in Mexican history, marking a decisive assertion of national sovereignty and control over its natural resources.
