Venezuela Crisis of 1902–03

The Venezuela Crisis of 1902–1903 was a naval blockade from December 1902 to February 1903 imposed against Venezuela by Britain, Germany and Italy over President Cipriano Castro's refusal to pay foreign debts and damages suffered by European citizens in the recent Venezuelan civil war. Castro assumed that the United States' Monroe Doctrine would see the US prevent European military intervention, but at the time the US saw the Doctrine as concerning European seizure of territory, rather than intervention per se. With prior promises that no such seizure would occur, the US allowed the action to go ahead without objection. The blockade saw Venezuela's small navy quickly disabled, but Castro refused to give in, and instead agreed in principle to submit some of the claims to international arbitration, which he had previously rejected. Germany initially objected to this, particularly as it felt some claims should be accepted by Venezuela without arbitration.

U.S. President Theodore Roosevelt forced the Germans to back down by sending his own larger fleet under Admiral George Dewey and threatening war if the Germans landed. With Castro failing to back down, US pressure and increasingly negative British and American press reaction to the affair, the blockading nations agreed to a compromise, but maintained the blockade during negotiations over the details. This led to the signing of an agreement on 13 February 1903 which saw the blockade lifted, and Venezuela commit 30% of its customs duties to settling claims. When the Permanent Court of Arbitration in The Hague subsequently awarded preferential treatment to the blockading powers against the claims of other nations, the US feared this would encourage future European intervention. The episode contributed to the development of the Roosevelt Corollary to the United States' Monroe Doctrine, asserting a right of the United States to intervene to "stabilize" the economic affairs of small states in the Caribbean and Central America if they were unable to pay their international debts, in order to preclude European intervention to do so.

Background
At the turn of the nineteenth century German traders dominated Venezuela's import/export sector and informal banking system. Most of these, however, had little influence in Berlin—rather it was German industrialists and bankers, including those associated with building railroads, who had connections and influence. The revolutionary turmoil of the last decade of the 19th century in Venezuela saw these suffer, and send "a stream of complaints and entreaties for protection" to Berlin. Matters were particularly bad during the Venezuela civil war of 1892 which had brought Joaquín Crespo to power, which saw six months of anarchy with no effective government, but the civil war of 1898 again saw forced loans and the taking of houses and property. In 1893 the French, Spanish, Belgian and German envoys in Caracas had agreed that joint action was the best route for settling claims from the 1892 civil war, but in the event reparations in that case had been paid.

While German investment in Venezuela was substantially less than in countries such as Argentina or Brazil, Krupp's Great Venezuela Railway Company, valued at 60m marks, was "individually one of the more valuable German South American ventures", and despite a renegotiation of the concession terms in 1896, payments were irregular after 1897 and stopped in August 1901. In addition, Cipriano Castro, one of a succession of Venezuelan caudillos (military strongmen) to seize the Presidency, halted payment on foreign debts after seizing Caracas in October 1899. Britain had similar grievances, and was owed the bulk of the nearly $15m of debt Venezuela had obtained in 1881 and then defaulted on.

In July 1901 Germany urged Venezuela in friendly terms to pursue international arbitration via the Permanent Court of Arbitration in The Hague. Between February and June 1902 the British representative in Venezuela sent Castro seventeen notes about the British government's concerns, and did not even receive a reply to any of them. Castro assumed that the United States' Monroe Doctrine would see the US prevent European military intervention. Theodore Roosevelt (US President September 1901 – March 1909), however saw the Doctrine as concerning European seizure of territory, rather than intervention per se. As Vice-President, in July 1901, Roosevelt said that "if any South American country misbehaves toward any European country, let the European country spank it," and reiterated that view to Congress on 3 December 1901.

Preparations
It remains disputed to this day how the Anglo-German cooperation on Venezuela came about, with varying opinions as to the source of the initiative. In mid-1901, with the distraction of the Boxer Rebellion gone, Chancellor Bernhard von Bülow decided to respond to the German concerns in Venezuela with some form of military intervention, and discussed with the German navy the feasibility of a blockade. Admiral Otto von Diederichs was keen, and recommended occupying Caracas if a blockade didn't succeed. However, disagreements within the German government over whether a blockade should be pacific (permitting neutral ships to pass) or martial (enabling them to be seized) caused delays, and in any case Kaiser Wilhelm II, German Emperor was unconvinced about the military action. Nonetheless, in late 1901 a renewed demand for reparations was backed up by a show of naval strength, with Vineta and Falke sent to the Venezuelan coast. In January 1902 the Kaiser declared a delay to any blockade due to the outbreak of another civil war in Venezuela (led by financier Manuel Matos) which raised the possibility of a more amenable government. Complicating matters were rumours "rampant in the United States and in England" that Germany wanted Margarita Island as a South American naval base; however a May 1900 visit by the German cruiser SMS Vineta had concluded it was unsuitable, and the German navy had become more conscious of how vulnerable such far-flung bases would be. In late 1901, the British Foreign Office became concerned that Britain would look bad if it failed to defend its citizens' interests while Germany took care of theirs, and began sounding out the Germans about a possible common action, initially receiving a negative response. By early 1902, British and German financiers were working together to pressure their respective governments into action. The Italians, who had begun to suspect the existence of plans to enforce debts, sought to be involved too, but Berlin refused. Their participation was agreed by the British "after Rome had shrewdly pointed out that it could repay the favor in Somalia".

In June 1902 Castro seized a British ship, The Queen, on suspicion of aiding rebels, in another phase of the Venezuelan civil war. This, together with Castro's failure to engage with the British through diplomatic channels, tilted the balance in London in favour of action, with or without German cooperation. By July 1902 the German government was ready to return to the possibility of joint action, with Matos' insurrection having led to further abuses against German citizens and their property, including by government troops. In mid-August Britain and Germany agreed in principle to go ahead with a blockade later in the year. In September, after the Haitian rebel ship La Crête-à-Pierrot hijacked a German ship and seized weapons destined for the Haitian government, Germany sent the gunboat SMS Panther to Haiti. The Panther found the ship and declared that it would sink it, after which the rebel Admiral Hammerton Killick, after evacuating the crew, blew up his ship and himself with it, assisted by fire from the Panther. There were concerns about how the United States would view the action in the context of the Monroe Doctrine, but despite US State Department legal advice describing the sinking as "illegal and excessive", the State Department endorsed the action, and the New York Times declared that "Germany was quite within her rights in doing a little housecleaning on her own account". Similarly, Britain's acquisition of the tiny island of Patos, in the mouth of the Orinoco between Venezuela and the British dependency of Trinidad and Tobago, seemed to cause no concern in Washington, even though as a territorial claim it "skirted dangerously close to challenging the Monroe Doctrine".

On 11 November, at a visit of Kaiser Wilhelm's to his uncle King Edward VII at Sandringham House, an "iron-clad" agreement was signed, albeit leaving key details unresolved beyond the first step of seizing Venezuela's gunboats. The agreement specified that matters with Venezuela should be resolved to the satisfaction of both countries, precluding the possibility of Venezuela making a deal with just one. The agreement was motivated not least by German fears that Britain might withdraw from action, and leave Germany exposed to US anger. The British press reaction to the deal was highly negative, with the Daily Mail declaring that Britain was now "bound by a pledge to follow Germany in any wild enterprise which the German Government may think it proper to undertake." In the course of 1902 the US received various indications from Britain, Germany and Italy of an intention to take action, with the US declaring that as long as no territorial acquisition were made, it would not oppose any action. The British minister in Venezuela emphasised the need for secrecy about the plans, saying that he thought the US minister would leak warning to Castro, which would give Castro the opportunity to hide Venezuela's gunboats up the Orinoco.

On 7 December 1902 both Britain and Germany issued ultimatums to Venezuela, even though there was still disagreement about whether to impose a pacific blockade (as the Germans wanted) or a war blockade (as the British wanted). Germany ultimately agreed to a war blockade, and after receiving no reply to their ultimatums, an unofficial naval blockade was imposed on 9 December with SMS Panther, SMS Falke, SMS Gazelle and SMS Vineta as major Kaiserliche Marine warships in Caribbean sea. On 11 December Italy offered its own ultimatum, which Venezuela also rejected. Venezuela maintained that its national laws were final, and said that "the so-called foreign debt ought not to be and never had been a matter of discussion beyond the legal guaranties found in the law of Venezuela on the public debt."

Blockade
The German naval contingent (numbering four to Britain's eight) followed the British lead in operational terms. The British ships of the "Particular Service Squadron" under Commodore R. A. J. Montgomerie included the sloop HMS Alert and the protected cruiser HMS Charybdis. An Italian naval contingent arrived in support of the blockade on 16 December. The blockaders captured four Venezuelan warships, with the Venezuelan navy providing little challenge, and virtually all its ships captured within two days. The Germans, lacking the capacity to tow them to Curaçao, simply sank two Venezuelan ships that proved unseaworthy. On land, Castro was more powerful, and arrested over 200 English and German residents of Caracas, prompting the allies to land troops to evacuate their citizens.

On 13 December, after a British merchant vessel had been boarded and its crew briefly arrested, the British demanded an apology, and failing to receive it, launched a bombardment of Venezuelan forts at Puerto Cabello, assisted by the German SMS Vineta. The same day, London and Berlin received from Washington a request forwarded from Castro to submit the dispute to arbitration, which neither Power relished, because of concerns over enforceability of any settlement. In addition, Castro's offer initially covered only claims arising from the 1898 civil war, and made no mention of other claims. Germany believed that these claims should not be subject to arbitration, but London was more willing to agree, accepting arbitration in principle, and suggested a compromise. The threat of arbitration made London move to the next stage in order to negotiate from a position of strength, and 20 December was set for the begin of the official blockade. As a result of a combination of communications issues and practical delays, the British notice of an official blockade was published on 20 December, but the German blockade of Puerto Cabello was only effected on 22 December, and on Maracaibo on 24 December.

In the mean time, whilst Britain and Germany considered Castro's offer, US public opinion increasingly turned against the action, and there were references to the nearby presence of Admiral George Dewey's US fleet, which was conducting long-planned exercises at Puerto Rico, although neither the British government nor the British press considered US intervention a serious possibility. The US did, after the December ultimatums to Venezuela, send an envoy to survey Venezuela's defensive capabilities, and thereby confirmed its confidence that the US Navy could repel a German invasion. The publication of a British government White Paper, revealing the nature of the "iron-clad" agreement, infuriated the British press, not least because the yoking of British and German interests was considered dangerous, and unnecessary for the mere collection of some foreign debts. This was exemplified by Rudyard Kipling's polemic poem "The Rowers", published in The Times on 22 December as a response to the crisis; it included the words "a secret vow ye have made with an open foe . . .  a breed that have wronged us most . . .  to help them press for a debt!"

Britain unofficially told the United States on 17 December that it would accept arbitration in principle, and that Germany would soon agree too, and it did on 19 December. Castro's failure to back down left limited options in the face of the Monroe Doctrine, which would make any seizure of Venezuelan territory, even temporarily, problematic. In addition, the negative reaction in the British and American press had raised the costs of the intervention particularly for Germany, whose relations with the US were more fragile than Britain's and who placed great value on the attitude of the British press. Germany had followed Britain's lead throughout the planning and execution of the operation, and as the British Ambassador in Berlin observed, "The idea of arbitration did not smile on them, but they accepted it at once because we had proposed it". Fourteen years later (during a presidential campaign against the backdrop of World War I), then US President Theodore Roosevelt claimed that Germany's acquiescence to arbitration came from his threat to attack the German ships in Venezuelan waters using Dewey's fleet. No documentary evidence has been found to confirm the claim. However, following the 18 December announcement that the US Navy fleet would be dispersed to West Indian ports for Christmas, which would take some of it to Trinidad, near the Venezuelan coast, the German embassy in Washington sought clarification from the US government. The Secretary of State's remarks "were as close to a direct threat as it was possible to come in diplomatic parlance." Roosevelt also claimed that Germany had intended to seize a Venezuelan harbour and establish a permanent German military base; and certainly the German representative in Venezuela is known to have had such ambitions. However, historical records suggest the German Kaiser had no interest in such a venture, and that motivations for the intervention lay with the insult to German prestige from Castro's actions, and only gave the go ahead after being sure that Britain would play the lead role.

In January 1903, as the blockade continued during the negotiations, the German SMS Panther attempted to enter the lagoon of Maracaibo, a centre of German commercial activity. On 17 January it exchanged fire with the settlement of Fort San Carlos, but withdrew after half an hour, as shallow waters prevented it getting close enough to the fort to be effective. The Venezuelans claimed this as a victory, and in response the German commander sent the Vineta, with heavier weapons, to set an example. On 21 January the Vineta bombarded the fort, setting fire to it and destroying it, with the death of 25 civilians in the nearby town. The action had not been approved by the British commander, who had been told by London after the incident of 13 December not to engage in such action without consulting London; the message was not passed to the German commander, who had been told previously to follow the English commander's lead. The incident caused "considerable negative reaction in the United States against Germany"; the Germans said that the Venezuelans fired first, which the British concurred with but declared the bombardment "unfortunate and inopportune" nonetheless. The German Foreign Office said that the Panther's attempted incursion into the lagoon of Maracaibo had been motivated by a desire to ensure the effective blockade of Maracaibo, by preventing Maracaibo from being supplied across the adjacent Colombian border. Subsequently Roosevelt informed the German Ambassador that Admiral Dewey had orders to be ready to sail to Venezuela from Puerto Rico at an hour's notice.

Outcome
After agreeing to arbitration in Washington, Britain, Germany and Italy reached a settlement with Venezuela on 13 February, resulting in the Washington Protocols. Venezuela's debts had been very large relative to its income, with the government owing Bs120m in principal and Bs46m in interest (and another Bs186m claimed in war-related damages), and having an annual income of Bs30m. The agreement reduced the outstanding claims by Bs150m, and created a payment plan taking into account the country's income. Venezuela agreed in principle to pledge 30% of its customs income at its two major ports (La Guaira and Puerto Cabello) to the creditor nations. Each power initially received $27,500, with Germany promised another $340,000 within three months. The blockade was finally lifted on 19 February 1903. The Washington agreements foresaw a series of mixed commissions to adjudicate claims against Venezuela (of respectively one Venezuelan representative, one representative from the claimant nation, and an umpire ), and these "worked, with a few exceptions, satisfactorily; their awards were accepted; and the dispute was widely regarded as settled."

However, the blockading nations argued for preferential treatment for their claims, which Venezuela rejected, and on 7 May 1903 a total of ten Powers with grievances against Venezuela, including the United States, signed protocols referring the issue to the Permanent Court of Arbitration in The Hague. The Court held on 22 February 1904 that the blockading powers were entitled to preferential treatment in the payment of their claims. The US disagreed with the decision in principle, and feared it would encourage future European intervention to gain such advantage. As a result, the crisis produced the Roosevelt Corollary to the Monroe Doctrine, described in Theodore Roosevelt's 1904 message to Congress. The Corollary asserted a right of the United States to intervene to "stabilize" the economic affairs of small states in the Caribbean and Central America if they were unable to pay their international debts, in order to preclude European intervention to do so. The Venezuela crisis, and in particular the arbitral award, were key in the development of the Corollary.