The XYZ Affair was a diplomatic incident between French and U.S. diplomats that resulted in a limited, undeclared war known as the Quasi-War.
In the late 1700s, the final French Revolutionary government (the Directory) had problems financing its European wars. The French were angry that the United States had signed the Jay Treaty with Great Britain, so they issued an order to seize American merchant ships. President John Adams dispatched three U.S. envoys to restore harmony between the United States and France—Elbridge Gerry, Charles Cotesworth Pinckney, and John Marshall.
Upon arriving in France, the envoys were denied a meeting with French Foreign Minister Talleyrand. They were instead approached by several intermediaries, who stated that Talleyrand would be willing to meet with the Americans and come to an agreement if certain conditions were met. The French demanded that the United States provide France with a low-interest loan and pay a substantial bribe to Talleyrand.
Talleyrand intended to end attacks on U.S. merchant shipping, but first he wanted to increase his personal wealth. However, as French power grew following French military victories in Europe, the French changed the loan terms and threatened an invasion of the United States. The U.S. envoys were unwilling to meet the French demands. Talleyrand finally met with them and dropped most of his requirements, but he did not agree to end the seizures of American ships. Two envoys prepared to leave France, while one intended to stay in the hopes of averting a war.
When the French demands reached the U.S., the public was outraged and President Adams prepared for war. Leaders of the Democratic-Republican Party were suspicious of Adams’ motives and demanded that he release the diplomatic correspondence describing the negotiations in France. Adams did so, but he replaced the names of the French intermediaries with the letters W, X, Y, and Z.
Talleyrand, realizing his mistake attempted to restore relations, and Congress approved a commission to negotiate with the French government. In the meantime, the U.S. Navy began to fight the French in the Caribbean—referred to as the Quasi-War.
Peace negotiations proceeded in France. Napoleon had come to power. President Adams wanted to avoid a major war. U.S. and French negotiators restored peace with the Convention of 1800.
Source: The XYZ Affair and the Quasi-War with France, 1798 – 1800
Office of the Historian, U.S. Department of State