Oil, debt and Mexico's national sovereignty

By Deirdre Griswold, in Workers World,
16 February, 1995

Why has Mexico sunk deeper into the sinkhole of debt to U.S. imperialist financial institutions, despite the intentions of all who have shaped its economic and political policies throughout this century?

The Mexican bourgeoisie has tried to retain control over its sovereignty, even if only to pursue the path of independent capitalist development. This, of course, doesn't negate the fact that it has also invoked sovereignty time and again for demagogic reasons. When push comes to shove, the Mexican bourgeoisie turns to the imperialists as allies against the masses at home.

But the Mexican ruling class has long felt that history has destined it to be more than a mere puppet of the Yankee imperialist colossus to the north. And a watershed in that history came in 1938, when President Lazaro Cardenas announced the nationalization of all foreign-owned oil properties in Mexico.

That event affected not only Mexico but all of Latin America. It forced U.S. imperialism to review and revise the way it conducted relations with the oil-producing countries.

But it did not fundamentally change the U.S. relationship to Mexico. To this day, that relationship remains one of an imperialist exploiter and oppressor to an exploited and oppressed country, albeit one that has in many ways become an industrial power.


For almost a century, petroleum has been the underpinning of the Mexican economy. All the Mexican ruling class's plans to develop a world-class industrialized country have been based on the continued ability to sell oil on the world market.

However, today its share of world production--about 3 percent--is nothing compared to 1921. Then Mexico produced 25 percent of the world's petroleum, second only to the U.S.

At that time, British and U.S. petroleum companies had investments in Mexico valued at $300 million. And they were taking out the oil as fast as they could.

Standard Oil, owned by the Rockefellers, and the British-owned Mexican Eagle firm had been vying for political control of Mexico for over a decade. They were deeply involved in making and breaking Mexican presidents, especially during the period of turmoil after the 1910 Mexican Revolution.

In his book America's 60 Families, Ferdinand Lundberg wrote that Standard Oil helped drive Porfirio Diaz out of office in 1911 and replaced him with Francisco Madero. He in turn "was ousted on Feb. 18, 1913, and was executed by Victoriano Huerta, pawn of British oil interests."

While Mexican peasants were dying trying to liberate the land, the oil companies were manipulating things at the top. Huerta was forced out on July 15, 1914.

Venustiano Carranza took office, says Lundberg, "on behalf of the National City Bank of New York," a Rockefeller institution.

Pancho Villa was a true revolutionary who organized the rebellious peasants into an army. Villa carried out raids on towns across the border in an effort to force the U.S. to intervene openly and to thereby expose the traitorous puppet Carranza.

The export of Mexico's black gold received a tremendous impetus with World War I. For the first time such gas guzzlers as tanks and airplanes were widely used.

But the wealth went to line the pockets of British and U.S. millionaires.

In 1917, the war in Europe finally came to a standstill amid mutiny and revolution. In Mexico, a new constitution contained a clause that worried the oil imperialists. On paper at least, Article 27 affirmed that anything in Mexico's "subsoil"--which includes minerals and petroleum--belonged to the nation.

U.S. oil companies viewed this with such alarm that some tried to whip up support for military intervention. But in his book "The Prize," Daniel Yergin argued: "Leading American bankers were keen to see Mexico make good on its debts, for which it needed oil revenues. And thus they took Mexico's side against the American oil companies and strongly opposed the companies' call for intervention and punitive sanctions."

As the oil millionaires further evolved into banking billionaires, such splits became less likely.


The Mexican government did not try to carry out the threat of nationalization at this time. But the popular sentiment for it was so great that the oil companies decided to hedge their bets.

They began exploration and development in Venezuela, at the same time cutting back on their Mexican production.

The tensions between Mexico and the U.S. were so intense in 1927 that it appeared diplomatic relations would be broken and the U.S. would intervene militarily. According to Yergin, President Plutarco Elias Calles actually ordered Gen. Lazaro Cardenas, military commander in the oil zone, to prepare to set the oil fields on fire in the event of a U.S. invasion.

The post-war capitalist economic boom of the 1920s led to a glut of many products on the world market. By 1928--with oil flooding the market from Venezuela, Romania and the Soviet Union as well as the U.S.--a price war loomed. Leaders of the informal world oil cartel met in secret at Achnacarry Castle in Scotland.

They tried to reach an agreement on limiting production to keep prices up. But even these lords of wealth couldn't control the capitalist market. Soon everything came tumbling down with the Great Depression.

It was the most catastrophic example of capitalist overproduction to date.

Oil production in Mexico fell dramatically. From a high of nearly 500,000 barrels a day in 1921, production a decade later had dropped to only 104,000 barrels a day. This put an end to development plans and intensified the misery of the masses.

All over the world, the disarray of capitalism spurred on revolutionary passion and organizing. Mexico was no exception. Working-class consciousness was rising, inspired by the rapid economic growth in the Soviet Union, the first workers' state and the only country seemingly unaffected by the worldwide economic crisis.

Lazaro Cardenas, the general who had been in charge of the oil fields, was elected president of Mexico in 1934. A very political general, he was proud of his humble origins and his self-education. He had read widely, especially on the history of the French Revolution and of Mexico.

Cardenas took office while the trade unions were growing in membership and militancy. He promised land reform, education and a program of vast public works.

Most foreign investors viewed him as a dangerous radical. But at least one imperialist had a more tempered opinion of him.

In 1938 a British minister wrote, "His leftist inclinations make him the bugbear of capitalism, but all things considered it is to be regretted that there are not more men of his calibre in Mexican life." ("The Prize")

Almost a year before that comment, a strike by oil workers had raised the potential of a general strike. To avert a showdown with the workers, Cardenas had appointed a special commission to review the oil companies' books and profits.

The commission was led by Professor Jesus Silva Herzog. It recommended much higher wages for the oil workers, a 40-hour work week, vacations and retirement benefits. It also recommended that all foreign technicians be replaced by Mexicans within two years.

The oil companies balked--especially at the commission's findings that showed the companies had milked Mexico for maximum profits. They knew this was setting the stage for determining compensation in the event of nationalization.

On March 18, 1938, Cardenas met with his cabinet and announced he would nationalize the oil industry. The decision was greeted with an exuberant six-hour parade in Mexico City. All classes appeared to support the move.

Cardenas' act was widely seen as an assertion of Mexican sovereignty against Yankee imperialism. Yet most of the nationalized properties belonged to British capital.

When the British government harshly demanded that the properties be returned, Mexico broke diplomatic relations.


The Roosevelt New Deal administration in the U.S. responded more cautiously. It was already worried that rival imperialist powers--notably Japan and Germany--were making inroads into Latin America.

FDR had announced his "Good Neighbor" policy toward Latin America. He didn't want to be seen as another Theodore Roosevelt, shaking a big stick on behalf of the oil monopolies.

The oil companies were furious at Roosevelt. They tried to organize their fellow capitalists around the world to support an embargo against Mexican oil. But Mexico had found a ready market for its oil in Germany, Italy and Japan.

As another world war drew nearer, the Roosevelt administration decided that the strategic relationship with the Mexican bourgeoisie was more important than restoring the oil companies' property, which in any case was impossible. A joint U.S.-Mexican commission was set up to determine compensation.

Finally, in 1943, the oil companies grudgingly accepted a figure of $30 million.

The carnage of World War II pulled the capitalist world out of the Depression and started a new phase of expansion.

Mexico, like Iran and other oil-producing countries later, succeeded in nationalizing the oil--but not in breaking free of the grip of international finance capital. The same social classes were in power the day after these nationalizations as the day before.

In content, the nationalizations have been qualitatively different from the revolutionary expropriations carried out in socialist revolutions. There, the political power of the bourgeois class was broken and its properties seized without compensation.

In the years since nationalization, the Mexican economy has been mortgaged deeper and deeper to the U.S. banks. Every effort to climb out of the debt trap has ended in a catastrophic slide further into the pit.

Today, as also happened in 1982, years of world overproduction of oil have ultimately led to a catastrophe--a peso crisis and virtual default to the imperialist banks. The banks then arrange a bailout of the economy only so they can begin the process of capital accumulation all over again on an even more intensive level.

If the cycle is to be broken, it can only be by the intervention of the working class. This is the class that has nothing to lose and everything to gain by taking the wealth out of the hands of the bourgeoisie and making it the property of all who have created it.

Copyright Workers World Service: Permission to reprint granted if source is cited. For more information contact Workers World, 55 W. 17 St., NY, NY 10011; via e-mail: ww@wwp.blythe.org. For subscription info send message to: ww-info@wwp.blythe.org.)