893.6363 Manchuria/63
The Ambassador in Japan (Grew) to the Secretary of State
[Received November 3.]
Sir: I have the honor to refer to this Embassy’s despatch No. 956, dated September 6, 1934,41 and to previous correspondence on the subject of the proposed oil monopoly in “Manchukuo” and to report below the more recent developments in the situation.
While the Embassy has received no reply from the Japanese Foreign Office to its informal representations on the subject of the proposed oil monopoly in Manchuria, the representations appear to have had some effect, as it is now reported that both the Japanese Army and the Japanese Navy are somewhat opposed to the scheme. According to reports received by the Embassy from various sources, dissension has arisen between the Financial Bureau of the “Manchukuo” government (which is drafting the plans for the proposed monopoly), and the Japanese Navy and the Japanese Foreign Office. The Financial Bureau is proceeding with its plans, but the Japanese Navy fears that the foreign oil companies, or their governments, might adopt retaliatory measures which would interfere with the Navy’s supplies of fuel in time of war. Moreover, according to a report from the Consul at Mukden, the Japanese Navy does not want the oil monopoly plan enforced until the quality of the oil products manufactured in the new Dairen refinery of the Manchuria Oil Company has been tested and found satisfactory. The Navy therefore wishes to wait for two or three years before a monopoly system is put into effect.
The Kwantung Army (Japanese) also appears to desire postponement or abandonment of the plans for an oil monopoly. The Army apparently fears the ill-will of the oil supplying nations should a monopoly system be enforced, with the possibility that oil supplies might be cut off in a time of great need. The refusal of the Standard Oil interests, the Shell interests and the Texas Oil Company to quote for the crude oil for the Dairen refinery of the Manchuria Oil Company has upset the Japanese officials, particularly those of the Army [Page 742] and Navy. The Army, however, is precluded from showing any active opposition to the monopoly project, as General Hishikara, the Commander of the Kwantung Army and Japanese Ambassador to “Manchukuo”, is the brother-in-law of Mr. Hashimoto, the President of the Manchuria Oil Company, and is tacitly, at least, in agreement with the project. Without the active support of the Army it is possible that the monopoly project will be abandoned or postponed.
It now appears, from reports which have reached the Embassy, that the monopoly scheme is largely the work of the Nippon Oil Company, the largest oil-producing and refining company in Japan. Mr. Hashimoto, the President of the Manchuria Oil Company, is also the President of the Nippon Oil Company. Mr. Tsuge, the Petroleum Adviser to the “Manchukuo” government, is a Director of the Nippon Oil Company and has been the leading advocate of the monopoly project. The Kwantung Army, however, has been insistent throughout (and it is believed sincerely insistent) that an ideal state, free from capitalistic control, should be formed in Manchuria, and therefore it is possible that the Army will more actively oppose the control of the oil business of Manchuria by the Nippon Oil interests.
According to a confidential report from Dairen, the work on the storage tanks of the refinery at Kanseishi (near Dairen) of the Manchuria Oil Company is progressing rapidly. Two tanks are now being erected and the foundations have been laid for three more. Work is also progressing on several stills, and one is near completion. The refinery, however, according to expert opinion, will hardly be ready for operation until late in 1935, although the original plan was to put the plant in operation by January, 1935. At the present rate of progress on the storage tanks, however, the Company should be ready to take delivery of crude oil for refining within two or three months. The first contract for crude oil, amounting to 10,000 tons, it is reported, has been secured by the Rio Grande Oil Company.
Respectfully yours,