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German supply problems: oil and iron ore

Under the terms of the Four-Year Plan, the production of synthetic mater-ials and domestic German iron ore was meant to cope with such problems.

The synthetics programme proved in the long run a remarkable success;

but in the short term it failed to achieve the over-optimistic targets set for it in 1936. Self-sufficiency in oil within eighteen months was Hitler’s aim in 1936; by 1937 the date was put off until 1940; and then it vanished into the future. Production reached 2.3 million tonnes in 1939, or approxi-mately a quarter of estimated mobilisation needs; and 5.7 million tonnes in 1943, or about half Germany’s supplies for that year. The programme was

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These sources would be immediately cut off in time of war by naval blockade. Middle East oil was under British control; the Soviet Union seemed likely to be among Germany’s enemies. This left Rumania as the only significant source of oil not subject to blockade or enemy control.

With synthetic production lagging, and demand rising, the importance of Rumanian oil was increased. Total Rumanian production in 1937 was 7.1 million tonnes; but most of this went to other markets.

The Germans therefore set themselves to increase their purchases of oil from Rumania, and to secure their source of supply by tightening their hold on the Rumanian economy. Their starting-point was unfavourable.

German investment in Rumania in 1938 amounted to about 1 per cent of the total share capital; British and French to about 16 per cent. In the oil industry, British, French, Belgian, and Dutch capital totalled 45 per cent of investment, German a mere 0.2 per cent. Germany’s only advantage was as a market for Rumanian exports; in 1938 Germany took 26.5 per cent of Rumanian exports, against 22.4 per cent going to Britain and France together.

On the other hand, only 15 per cent of Rumanian oil exports went to Germany, against 25 per cent to Britain and France together. Moreover, the possession of oil, a highly saleable commodity, put Rumania in a

TABLE 10.1. German oil imports, 1937

Country of origin Amount (tonnes) Percentage

Mexico and Neth. West Indies 1,796,000 42

USA 1,000,000 23

Rumania 520,000 12

USSR 301,000 7

Others 690,000 16

Total 4,307,000

Source: Philippe Marguerat, Le III Reich et le pétrole roumain, 1938–1940 (Geneva 1977), p. 19.

Institut des Hautes Etudes Internationales.

extremely expensive, demanding heavy capital investment, a big construc-tion programme, and the use of 4 tonnes of coal and 8–10 tonnes of lignite to produce 1 tonne of oil.13As for iron ore, German domestic production increased after 1936, but it was expensive and of poor quality, unsuitable for high-quality steel products. These two commodities, oil and iron ore, exemplified Germany’s problems. In 1937 Germany imported oil from the sources given in Table 10.1,14which shows that 65 per cent of Germany’s oil imports came from the American hemisphere, a pattern which had also prevailed for the previous three years.

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stronger position than other countries of south-eastern Europe, which were much more dependent on the export of agricultural produce.15

In November 1938 Germany opened an economic offensive against Rumania, designed to secure a new trade agreement which would adapt the Rumanian economy to German needs, and secure a large increase in oil exports to Germany. The Rumanian government resisted, with encourage-ment from Britain, which set out in autumn 1938 to use economic weapons to obstruct German influence. In September 1938 an Anglo-Rumanian clearing agreement was signed, involving a devaluation of the Rumanian currency against sterling, leading to a sharp rise in Rumanian exports to Britain. In October, the British government agreed to buy 200,000 tonnes of Rumanian grain, despite opposition from the Treasury and the Board of Trade: the first occasion that Britain allowed political considerations to predominate in a deal of this kind. During the winter of 1938–39, the British were generally successful in blocking German efforts to increase imports of Rumanian oil. In March 1939, however, the situation changed.

Germany occupied Czechoslovakia, and was able to apply heavy pressure on Rumania, leading to a trade agreement on 23 March which met nearly all their demands. From April to August 1939 Rumanian exports to Germany increased sharply, including a rise in the supply of oil.16

The British did not give up. They gave a political guarantee to Rumania in April 1939 (see below, p. 298) and made a new economic agreement in July, extending a credit of £5 million, and undertaking to buy another 200,000 tonnes of grain at the next harvest. When war broke out between Britain and Germany in September 1939, the British successfully bought up oil on the Rumanian market, to the detriment of Germany. In March 1940 Germany imported only 45,000 tonnes of oil from Rumania, while Britain took 130,000 tonnes, or nearly 44 per cent of Rumanian exports, to which France added a further 6 per cent. Germany responded with economic and political pressure, and a new German-Rumanian agreement in March 1940 put imports of oil up to 104,000 tonnes in April. Then on 27 May 1940 a further oil agreement, signed in the full flood of German military victory in western Europe, was highly favourable to Germany. By August, German imports of oil were up to 187,000 tonnes, and British down to 6,000 tonnes.17

The story is instructive. When the weapons used were economic, the conflict between Germany and Britain for Rumanian exports, and especially for oil, was evenly balanced. The definitive German success was brought about by military action, not in Rumania itself, which the Germans did not want to invade for fear of damage to the oil installations,

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In the event of war with Britain and France, Newfoundland, France, and French North Africa would become enemy territory, and their supplies cut off. During the Spanish Civil War, Germany put much effort into establishing a share in the control of mining companies in Spain; but this proved something of a blind alley. When the Civil War was over, General Franco proved resistant to German economic domination. A German trade delegation went to Spain in June 1939, but did not secure an economic agreement until December; and even this was immediately fol-lowed by economic agreements between Spain and France (January 1940) and Britain (March 1940). Between September 1939 and June 1940 the Anglo-French blockade curtailed all German trade with Spain, and in 1940 German imports of iron ore from Spain totalled only 1,000 tonnes. By the time a land route to Spain was opened up by the fall of France, Germany had other sources of iron ore at her disposal, and even at their maximum in 1942 German imports of Spanish ore did not attain pre-war levels.19

The key to German imports of iron ore lay not in Spain but in Sweden.

Here, from August 1939, Germany held many advantages. After the

TABLE 10.2. German iron-ore imports, 1938

Country of origin Amount Percentage

(in 1,000 tonnes of iron content)

Sweden 5,395 52.1

France 1,517 14.6

Norway 671 6.5

Newfoundland 561 5.4

Luxemburg 553 5.1

Spain 542 5.0

Spanish North Africa 398 3.8

French North Africa 340 3.3

Others 408 3.9

Source: Martin Fritz, German Steel and Swedish Iron Ore, 1939–1945 (Göteborg 1974), p. 34.

Gothenberg University: Institute of Economic History.

but in the Low Countries and France. When Germany controlled almost the whole Continent, Rumania was in no position to hold out, and British purchasing power lost all effect. The Germans wanted secure access to a large share of Rumanian oil exports: the lesson of these events was that the only certain way to attain it was by force.

German imports of iron ore posed rather different problems, with a much lower proportion of the sources being subject to naval blockade or likely enemy control. In 1938 German imports were as shown in Table 10.2.18

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Nazi–Soviet Pact of August 1939, German influence was predominant in the Baltic. When war began, the Swedish government undertook to main-tain normal pre-war deliveries of iron ore to Germany, which would keep supplies at a high level, though not necessarily high enough to meet wartime demands. The British meanwhile disputed the German position by trying to buy up Swedish iron ore and by using their control over the oceanic trade routes to put pressure on the Swedish government. In terms of economic pressure, the balance as between Germany and Britain was only marginally in favour of Germany. The decisive push was given by German military action, not directly against Sweden, but by the German occupation of Norway in April–May 1940, which largely cut Sweden off from the outside world. Invasion of Sweden was unnecessary to give Germany effective control of Swedish exports. Finally, military victory in western Europe in May–June 1940 brought Germany physical control of the ore-fields of Lorraine and Luxemburg.

In both these cases, of oil and iron ore, Germany’s shortage of raw materials and lack of foreign exchange with which to pay for imports was dealt with by conquest – not of the countries most involved (Rumania and Sweden), but of most of the rest of Europe, so that German predominance was firmly established.

In 1939, however, there was another solution available for problems of raw materials and food: a deal with the Soviet Union. The USSR possessed more of the commodities Germany needed than did the countries of south-east Europe; and communications with it could not be affected by naval blockade. In December 1938 the German government approached the Soviet government with a request for 300 million RM worth of raw mater-ials and agricultural produce over the next two years, to be supplied in return for manufactured goods. In February 1939 the Soviets offered 200 million RM worth, and the talks were still going on when, on 20 May, Molotov stated that there would have to be a new political basis before they could go any further. The nature of the negotiation was changed, and the road opened to the Nazi–Soviet Pact of August.

The importance of Soviet economic resources to Germany grew plainer as the likelihood of war with the Western powers increased in the summer of 1939. War with Britain and France would mean that German imports from across the oceans would be cut off by naval blockade. In August 1939, the War Economy staff of the Wehrmacht pointed out forcibly that Germany could only be made secure against blockade through economic co-operation or amalgamation with the USSR.20There was thus a power-ful economic incentive for Germany to come to an agreement with the

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Soviet Union in 1939. How long the Germans would remain content with co-operation rather than seizing control of Soviet resources was another matter.