Anniversary of the Oil Expropriation Aniversario de la Expropiación petrolera
This is a civic holiday in Mexico
The 1938 Mexican Oil Expropriation
Lázaro Cárdenas
On March 18, 1938, President Lázaro Cárdenas of Mexico issued an order that nationalized the assets of nearly all foreign oil companies operating in the country. This move led to the establishment of Petróleos Mexicanos (PEMEX), a state-run entity that assumed control over the oil industry and prohibited foreign companies from further operations in Mexico. The U.S. government responded by advocating for American companies seeking compensation for their expropriated assets while recognizing Mexico’s right to nationalize foreign property, provided fair and prompt compensation was given.
Background and Industry Control
Before the 1938 expropriation, Mexico’s oil industry was largely dominated by foreign corporations. The Mexican Eagle Company, a subsidiary of the Royal Dutch/Shell Company, was responsible for more than 60% of the country’s oil production. Additionally, U.S.-based firms such as Jersey Standard and Standard Oil Company of California (now Chevron) controlled about 30% of output. However, Article 27 of Mexico’s 1917 Constitution declared national ownership of all subsoil resources, including petroleum deposits. This provision caused tensions with the U.S. until the 1928 Calles-Morrow agreement, which temporarily reassured foreign investors by affirming their rights to continue operations.
Despite these agreements, Mexico emerged as the world’s second-largest oil producer during the 1920s, but foreign dominance of the industry led to widespread resentment. Since the domestic market was small and Mexico remained an agrarian economy, most of the oil was exported, leaving little economic benefit within the country. This issue worsened in the 1930s, as oil revenues for the Mexican government declined amid the Great Depression and a global oil surplus. Additionally, labor unrest grew, as foreign oil companies paid Mexican workers significantly lower wages compared to their counterparts in similar roles.
The Path to Expropriation
By 1937, dissatisfaction among oil workers reached a breaking point, leading to a nationwide strike. President Cárdenas initially sought to mediate the dispute through a government commission, which proposed a new labor agreement. However, foreign oil firms refused to comply with the commission’s recommendations and disregarded a ruling by Mexico’s Supreme Court. In response, Cárdenas enacted the expropriation decree on March 18, 1938.
Global Reactions and Economic Consequences
The expropriation triggered a strong backlash from foreign oil companies, which retaliated by imposing an embargo on Mexican oil. As a result, Mexico’s oil exports dropped by 50%, and the country’s primary buyer became Nazi Germany. Britain took a particularly harsh stance against Mexico’s actions, leading to the severing of diplomatic ties between the two nations.
The United States had a mixed response. While the Roosevelt administration upheld Mexico’s right to nationalize foreign assets as long as compensation was provided, some U.S. officials pushed for a more aggressive approach. They believed direct access to Western Hemisphere oil reserves was crucial for future U.S. energy security. Secretary of State Cordell Hull initially took a hardline stance, threatening economic retaliation by halting U.S. silver purchases from Mexico. However, concerns over damaging U.S.-Mexico relations led the American ambassador to delay the official delivery of Hull’s warning. Opposition from the U.S. Treasury Department also forced a retreat from more drastic measures.
Negotiations and Long-Term Outcomes
Despite initial tensions, the U.S. government prioritized maintaining diplomatic stability as World War II loomed. American oil companies continued to resist Mexico’s terms for compensation, dragging out negotiations for over two years. However, as global conflict intensified, Washington pressured the companies to settle. On April 18, 1942, the U.S. and Mexico reached an agreement, known as the Cooke-Zevada settlement, under which Mexico agreed to pay approximately $29 million in compensation to affected American firms, including Jersey Standard and Standard Oil of California. The British, on the other hand, held out longer and did not accept a compensation deal until 1947, when they received $130 million.
Efforts to reintegrate foreign oil companies into Mexico ultimately failed. After Cárdenas left office in 1940, Mexican leaders showed some willingness to negotiate, but insisted that Mexico retain full ownership of its oil resources and that PEMEX maintain its monopoly. These conditions were unacceptable to both the U.S. government and American oil companies. By 1950, the United States abandoned attempts to reopen Mexico’s oil sector to foreign firms, as U.S. companies increasingly turned their focus to more favorable investment opportunities in the Middle East and Venezuela.
This day is often commemorated with political leaders recognizing the event with speeches and parades