894.6363/101
The Chargé in Japan (Neville) to the Secretary of State
[Received October 22.]
Sir: I have the honor to refer to the Embassy’s despatch No. 984, dated September 21, 1934,39 and to previous correspondence on the subject of American oil interests in Japan and their difficulties under the new Petroleum Industry Law. From recent indications it appears that the various questions involved may soon reach an acute stage.
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[Page 738]I cannot escape the conclusion that every effort should be made by our Government, in connection with the petroleum situation in Japan and Manchuria, to protect as far as may be possible the large interests of our nationals in the oil trade of those regions, even at the risk that such efforts may bring added irritation to the relations between Japan and the United States.
The oil problem in Japan and Manchuria, which indicates gross disregard of the rights and legitimate interests of other nationals, is more than a mere matter of the protection of commercial interests; it is a matter which directly concerns international policy and international amity. Unfortunately, in all important instances during recent years where the Japanese have displayed their power, force could not be used effectively for the purpose of compelling a more reasonable attitude on their part. In the case of Japan’s oppression of the foreign oil interests, however, the nations concerned have an effective remedy.
Petroleum is Japan’s weakest point. The nation must have considerable supplies of oil for its navy, merchant marine, internal transport, air force, manufacturing industries and fishing fleets. The oil produced in Japan cannot fill more than twenty per cent of the requirements. By controlling the supply of crude oil at the sources, therefore, the interested countries may be able to induce a more reasonable attitude on the part of the Government and the people here toward other peoples and toward international relations in general.
From a purely commercial point of view, the action indicated above would appear to be both appropriate and feasible. The closing of the door to American oil companies in Manchuria through the operation of a monopoly system, in order to throw the business to a Japanese Manchurian refining company, and the probability that the American oil companies selling refined products in Japan will gradually be forced out of the Japanese market through the quota system already established, would certainly appear to justify us in refusing longer to sell the Japanese the materials with which they can accomplish these results. By far the greatest part of the petroleum and petroleum products used in Japan is of American origin. There would seem to be no reason why an American raw material should be supplied in unlimited quantities to assist in closing the market to American finished products.
Moreover, the action of the Japanese Government in compelling the foreign oil companies to pay for and store, in tanks which they must themselves erect, large quantities of oil in Japan in order to create a war reserve for Japan, is one that can only be described as most unfair to the foreign oil companies and one which should be resisted in [Page 739] every way possible, even though the resistance may work a temporary hardship on some interests, such as small independent producing companies in California which occasionally sell small quantities of crude oil to the Japanese refineries.
The local managers of the two large foreign oil companies operating in Japan are agreed that the plan of controlling Japan’s supply of crude oil would be commercially feasible, provided that the American Government could control exports from the United States. The Netherlands Indies fields are controlled by the Shell and Standard interests; the Persian and Burman fields are controlled by the Shell interests; the Iraq field is under the control of an international company of which large shares are held by the Shell and certain American interests. Other sources available outside the United States are in Mexico, Venezuela, Rumania and Russia. The Soviets are not expected to be able to supply Japan with large quantities of crude oil, as their production is only slightly in excess of their own requirements; their crude oil, moreover is not adapted to the existing Japanese refineries and the cost of transportation from the Black Sea is excessive. The Rumanian oil interests are anxious to sell crude oil to Japan, but the quality of the oil is poor and transportation costs are again excessive. The Japanese hope to be able to find sources of supply in Mexico and Venezuela, but as yet the quantities available from independent producers are small and the cost of transportation is heavy. Moreover, such sources as Mexico, Venezuela, Rumania and Russia would not be satisfactory in time of war, as the lines of transportation are long and could be easily cut. The managers of the foreign oil companies in Japan therefore believe that if the American Government could control the export of crude oil to Japan from the United States, the Shell and Standard interests would limit the export from other fields controlled by them, and the Japanese refineries would be placed in a most difficult position, from which they could only extricate themselves by abandoning their plans for monopolizing the oil trade of Japan and Manchuria.
Compelling the Japanese to abandon their plan of building up large reserves of oil at the expense of the oil companies would also appear to be advisable from a military point of view. The Japanese military machine is one of the most powerful in the world and therefore constitutes a constant menace to the peace of the world. It would seem, under the circumstances, to be inadvisable to consent to any measures which would tend to strengthen this machine.
In its telegram No. 182, August 20, 3 p.m., this Embassy offered the suggestion that exports of crude oil to Japan and Manchuria be limited or stopped, and further suggested that, as an indication that some such measure was being considered, the American Government [Page 740] might request exporters of oil to furnish data regarding their exports, in order to enable the Government to study the effects upon our nationals’ oil interests abroad of our exports of crude oil. This suggestion was made in the belief that even a threat of retaliatory measures would cause the Japanese Government and oil interests to relax their pressure upon American oil interests in Japan and Manchuria. It is believed that some initial step should be taken in the near future, as the foreign oil companies are being forced into an increasingly difficult position.
It is realized that many difficulties both domestic and international are involved in attempting to control the export of oil from the United States. It means in many ways an acceptance of the concept that international trade is a matter to be arranged by Governments; that the individual merchant is to be directed, perhaps even sacrificed, in an effort to promote what is supposed to be the common good. Legal and perhaps political considerations, of which the Embassy has no knowledge, might be involved before a decision could be reached. For the foregoing or other reasons it may not be feasible to adopt the suggestions contained in this despatch, but at the present writing, there seems to be no other method of relieving the situation here.
Respectfully yours,
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