‘There’s no way to do business in the Third World without enriching government leaders,’ said Calil. He explained how the practice of greasing the palms of African potentates evolved: ‘You used to give a dictator a suitcase of dollars; now you give a tip on your stock shares, or buy a housing estate from his uncle or mother for ten times its worth.’
Introduction: The Last Swashbucklers
In the UK, a covert ‘oil cell’ at the Foreign Office worked to prevent Gaddafi’s forces from obtaining fuel or selling crude internationally. Washington granted a sanctions waiver to allow US companies to buy Libyan oil from Vitol. And, of course, there was the NATO drone.
Rival traders believe there may have been another reason why Taylor felt comfortable sticking with his deal with the Libyan rebels: Gaddafi had billions of dollars frozen in Western bank accounts. Had the war ended badly for Vitol’s deal, Taylor’s friends in Western governments could have ensured that the trading house would be repaid from those frozen assets.
For Libya, however, the story didn’t have a happy ending. In the years after Taylor flew into Benghazi, the country lurched from one conflict to another. Gaddafi’s death didn’t end the fighting: local warlords in the country’s west and east continued to battle over its oil resources. In 2014, Libya descended into a second civil war — which, at the time of writing, is still smouldering. And the fall of Gaddafi had wider destabilising effects across the whole region, as the Libyan army’s arsenal was smuggled to conflict zones including Syria, where the terrorist group Islamic State was beginning to gain a foothold.
To some extent that’s by design. For the most part, the commodity traders are privately owned companies, with less obligation to disclose information about their activities than their publicly listed counterparts. Many have traditionally viewed their superior access to information as a competitive edge — and so have gone to great lengths to avoid giving out any information about themselves. As Ian Taylor, who died in 2020, said as he sat down with us for an interview for this book: ‘We would prefer you not to write it.’
We’ve spoken to more than two dozen current and former Glencore partners, to every living founder of Trafigura, and to a dozen current and former executives of Vitol. The process of carrying out the interviews has offered its own insights into the riches that the commodity trade has generated. We interviewed Andy Hall, who has a good claim to being the world’s most famous living oil trader, at his 1,000-year-old castle, bedecked with modern art, near Hanover. Another retired oil trader invited us to his stud farm in the English home counties. A third hosted us at his chalet in an exclusive Swiss ski resort.
One former Glencore trader began his conversation with us with the words: ‘What I’m going to tell you is not going to be the whole truth and nothing but the truth. There are things I’m just not going to tell you.’
Many of those companies belong to a single corporate dynasty. While Glencore dominates commodity trading today, in the 1980s it was Marc Rich + Co that played the dominant role, and, in the 1960s and 1970s, Philipp Brothers. The companies have an almost familial connection: Marc Rich was a senior trader at Philipp Brothers before he left to found the company that bore his name; and Marc Rich + Co was renamed Glencore when the top traders ejected Rich from the company he had founded.
In agriculture, Cargill is king. The US company, the world’s largest trader of grains, carries itself with the quiet self-assurance of the generations of Midwest wealth on which it was built. As the major trading house that has been at the pinnacle of its industry the longest, it is also the most corporate — with its own archivist and its own authorised company history, which runs to three volumes, at a total length of 1,774 pages.
Some of the largest commodity traders, such as Vitol and Trafigura, don’t have a single woman among their top executives. Glencore, in its annual report published in March 2020, said it wouldn’t hit a target set by investors to have a third of its senior management made up of women by the end of the year: ‘Still today we find it challenging to fill senior positions… by women.’ 22 It’s not just on gender diversity that the commodity traders fall down: their upper echelons are not only overwhelmingly male, but also overwhelmingly white.
As they have grown, they’ve also become important conduits of finance for global trade– a kind of shadow banking sector that is willing to pay oil producers up front for their crude, or supply copper to manufacturers on credit. As Jim Daley, a former head of oil trading at Marc Rich + Co, puts it: ‘Oil is just a form of money.’
But while this book is about the rise of the commodity traders in the second half of the twentieth century, it also tells a wider story. Their tale offers an insight into how the modern world works– a world where the market is king, where international enterprises seem able to shrug off almost all attempts at regulation, and where titans of global finance hold more power than some elected politicians.
At the centre of this book’s story are four developments which moulded the global economy in the commodity traders’ favour. The first was the opening up of markets that had previously been tightly controlled– above all, oil. The dominance of the large oil companies, known as the ‘Seven Sisters’, was loosened by the wave of nationalisations that swept the countries of the Middle East in the 1970s. Suddenly, oil that had been locked into a single company’s supply chain from well to refinery to petrol station was freely tradable, and prices that had been fixed began to move. Middle Eastern and Latin American leaders alike now had oil to sell, and the commodity traders dealt with them indiscriminately. In the process they helped to create a new form of global power, the petrostate.
The second was the collapse of the Soviet Union in 1991, which, at a stroke, redrew a global network of economic relationships and political allegiances. Again, the commodity traders dived in, bringing the law of the market to what had previously been planned economies. Amidst the chaos, they became key lifelines for struggling mines and factories, even propping up entire governments. In exchange, they were able to secure access to natural resources at extremely favourable terms.
The third was the spectacular economic growth of China in the first decade of this century. As the Chinese economy industrialised, it created enormous new demand for commodities.
The fourth was the financialisation of the global economy and the growth of the banking sector, beginning in the 1980s. Where their predecessors would need to have enough capital to pay for each shipment of metal or grain they bought, suddenly the modern traders could use borrowed money and bank guarantees, enabling them to trade in much larger quantities and to marshal much larger sums of money.
No one that we have interviewed appears to be ethically troubled by that: the traders simply argue that they will continue to trade fossil fuels as long as the world keeps consuming them.
1. The Pioneers
In 1956, he opened the Geneva office of Tradax as Cargill’s hub for international trading. The city was chosen for its ‘excellent travel and communication facilities’, its multilingual tradition, and its ‘limited corporate taxes’. 16 The opening of the Tradax office would mark the beginning of a long and profitable partnership between Switzerland and the international commodity traders.
Trading on a larger scale required larger and longer-term contracts– and that required a large address book of suppliers and consumers of commodities. The pioneers incessantly cultivated relationships, spending enormous amounts of time and money to woo crucial business contacts. This focus on the personal connection became an obsession in the industry, giving some trading houses an air of old-world charm that they maintained even after email and video conferencing overtook the face-to-face meeting as the main form of business communication. At metals trader Transamine, for example, it is still said that a trader is more likely to be fired for taking a contact out for a bad lunch than for losing money on a trade.
When it became clear how much Belousov had bought, traders realised there wouldn’t be enough American grain to go around. In total, Belousov– spurred on by the risk of mass starvation at home after the Soviet crops had failed– bought almost 20 million tonnes of grains and oilseeds from the grain traders. The size of the wheat purchases was extraordinary: 11.8 million tonnes — equal to almost 30% of the US wheat harvest. When the market woke up to the sale, it was clear the US wouldn’t have enough grain to meet the combination of its own domestic consumption, the demand from traditional importers, and the extra purchases from the Soviet Union.
Wheat, corn and soybean prices raced higher, triggering a bout of food inflation the like of which Americans hadn’t experienced in a generation.
2. The Godfather of Oil
The erosion of the power of the Western corporate oligopoly had reached a key juncture in August 1960. With Soviet oil undermining their market dominance, executives at Standard Oil of New Jersey (a forerunner of ExxonMobil) had taken it upon themselves to cut their Middle East posted price by 7%– without consulting the governments of the countries that were producing it. The sheikhs were livid. Resentful about the loss of income and furious that they hadn’t been consulted on the price cut, oil-producing nations started agitating for action. A month later, the oil ministers of Saudi Arabia, Venezuela, Iran, Iraq and Kuwait gathered in Baghdad. After four days of deliberations, they announced, on 14 September 1960, the birth of the Organization of the Petroleum Exporting Countries– or OPEC.
It was the first step in a transformation of the energy industry that took place in the 1960s and 1970s. Increasingly assertive under the auspices of OPEC, countries began nationalising their oil resources, and where foreign companies were allowed to stay, they were forced to hand over more profits and taxes to their hosts.
But Rich’s natural aggression and raw enthusiasm for the new commodity meant that he soon supplanted Flacks as the company’s principal oil trader. ‘I was working in a commodity trading house and the oligopoly of the Seven Sisters was coming to a halt. Suddenly, the world needed a new system of bringing the oil from the producing countries to the consuming countries, so that’s exactly what I did,’
For the traders, the secret to an easy profit was a long- term contract to buy oil at the official prices. Then, with prices soaring in the spot market, they could resell the same oil for five or even ten dollars more per barrel. And how would a trader get hold of such a lucrative contract? ‘What he had to do to get this contract was to pay a ridiculously small commission to the appropriate parties,’ said an executive at a major oil company at the time. ‘And sometimes the required brown envelopes would be passed.’
‘The bribes were paid in order to be able to do the business,’ Rich told his biographer. ‘It’s not a price which is disadvantageous for the government involved in the selling or buying.’ 67 He saw nothing wrong with paying for access. While the US had introduced anti-corruption laws, some European nations hadn’t. In Switzerland it was even possible to account for the ‘facilitation fees’, as the bribes were often called in corporate- speak, as tax deductible expenses.
3. The Last Bank in Town
Jamaica was a prime example: the country was on the brink of bankruptcy, shunned by its lenders, and Rich had just delivered the government oil worth $10 million without even signing a contract. The risk would be worth it, though. The Jamaican government would not forget how Rich had saved it from ruin.
For commodity traders like Rich, with an appetite for taking risks and a willingness to do business with anyone and everyone, it was an ideal environment. A left- wing government nationalises its resources industry? The traders were on hand to help them sell the commodities. A right- wing government seizes power in a military coup? Well, they would need help selling commodities too.
Marc Rich was among those who didn’t have any qualms about dealing with anyone, including those under economic sanctions. ‘In an embargo, only the small people suffer,’ said Eddie Egloff, a senior partner at Marc Rich + Co. ‘We did business according to our own laws and not those of others.’ 40 So Rich traded just as happily with the right- wing Chilean government of Augusto Pinochet as with Nicaragua’s left- wing Daniel Ortega. His lodestar was money, not politics.
Of all the difficult places that became playgrounds for commodity traders in the 1980s, it was apartheid South Africa where the traders’ amoral approach to business was most clearly on show. And the rewards for putting morality to one side were significant. ‘Everybody was trading with South Africa,’ Eric de Turckheim, head of finance of Marc Rich + Co and later a founding partner of Trafigura, recalls. 41 Rich himself said the trade with South Africa had been his ‘most important and most profitable’. 42
The traders weren’t making money through a brilliant understanding of the market. They were simply willing to put aside any ethical principles to make more money. When challenged on their dealings with South Africa, the traders would reply that everything they were doing was legal.
Rich’s response was even more contorted. ‘I was fundamentally against apartheid. We were all against apartheid,’ he said. And then, in the same breath, added: ‘The South Africans needed oil, and people were reluctant to sell it to them because of the embargo. We agreed to do it because we felt it was nothing illegal.’
The restrictions opened up opportunities for profit to traders who could get around them. Often, this meant being able to produce documentation to show that oil or metals had come from a different place than they actually had done. Marc Rich + Co, according to one senior trader at the time, had a whole cabinet filled with stamps and customs forms from every country in the world. 56 A trader needed to prove that their oil had loaded in Puerto Rico? No problem. Or that it had been delivered to Singapore? Easy.
Ultimately, Rich and Green never faced jail time or any financial penalty. After nearly two decades as fugitives hunted around the world by US marshals, they were pardoned by President Clinton in his last act before leaving office in January 2001, thanks to a careful lobbying campaign that included the prime minister of Israel and the king of Spain. The pardon triggered a rare show of consensus in Washington, with Democrats and Republicans uniting in condemnation. It emerged that Rich’s former wife, Denise, had been a top donor to both the Democrats and the Clinton Presidential Library. Congressman Henry Waxman, a Democrat from California and traditionally a Clinton supporter, called the pardon a ‘shameful lapse of judgement that must be acknowledged because to ignore it would betray a basic principle of justice’.
4. Paper Barrels
At BP and later Phibro, Hall developed the trading style that he would become famous for: assiduously calculating the political and economic factors that would drive the oil market, placing a high-stakes bet, and waiting with nerves of steel to be proved right. ‘We’re not like other Wall Street firms that grub around for pennies and nickels, trying to chisel and scalp people,’ Hall told an interviewer in 1991. ‘As long as our analysis is valid, we will stick with our positions.’ 10
One trader, Oscar Wyatt of Coastal Petroleum, got significantly closer to the action, using his personal relationship with Saddam Hussein to secure the release of two dozen American hostages. Wyatt, a hard-bitten Texan, who had been buying Iraqi oil since 1972, flew in to Baghdad in December 1990– despite a direct request from the White House not to– and persuaded Saddam to allow him to take back to the US a group of Americans who had been held in Iraq as human shields.
Philipp Brothers wasn’t alone in struggling in the markets of the late 1980s and early 1990s. The financialisation of the oil market had made life harder for all the trading houses that had grown up in an earlier era. It was no longer enough to have good connections with a few OPEC ministers or some officials at a state oil company. Succeeding in the new environment required a combination of relationships, deep pockets, geographical reach and the financial know-how required to use the newfangled derivatives markets. The arrival of well- capitalised Wall Street banks meant that those traders who had dominated the market in the 1970s found they were no longer able to do so. Some failed to adapt, and went out of business. Others tried to embrace futures and options with catastrophic consequences.
5. The Fall of Marc Rich
He’d also picked up from the old- school traders the ability to charm anyone from small- time Bolivian miners to the presidents of African countries. Edmundo Vidal, who was Trafigura’s man in Mexico City before taking over its business across Latin America, remembers Dauphin’s uncanny memory for which little gifts would best please each of the Mexican mining magnates they were meeting. For one, it was a bottle of Cognac; for another, a box of chocolates. ‘This guy was amazing, the touch he had,’ Vidal recalls. 32 Over the course of his career, Dauphin forged relationships with oil suppliers in Angola and Nigeria and buyers in Latin America; he bought minerals from dozens of small mines in Peru and Mexico and shipped them to ravenous Chinese buyers.
Marc Rich + Co had always generated enormous wealth for its partners, but now Glencore became a millionaire factory without precedent. The shares were rapidly distributed to around 350 traders, although Strothotte, Dreyfuss and the rest of the G12 kept a significant chunk of them. (In the first half of the 2000s, the years for which data is available, the top dozen executives owned between 26.7 and 44.4% of the company.) Each year, a trader would receive a salary; a cash bonus calculated as 10% of their trading profits; and, on paper, a share of the company’s net profits in proportion to their shareholding. When the trader left the company, their accumulated profits would be paid out over a period of five years.
In just one example, public because of a tax dispute, an Australian coal trader who worked for Glencore for fifteen years without ever rising to a senior management position received a payout of $160 million when he left the company in 2006. 38 It’s not outlandish to speculate that the company has turned more than 100 people into $ 100- millionaires over the course of its history.
6. The Biggest Closing-Down Sale in History
The team at Marc Rich + Co went to great lengths to make sure Tarasov would return to the Soviet Union a happy man. They put him in a suite at the Meridien hotel in Piccadilly. They hired a boat on the Thames with an orchestra to entertain him. And in the evenings, they made sure his every need was catered for. ‘They hired several nightclubs, where they told me to take any dancer I wanted back to my room: everything had already been paid for on the company account,’ recalled Tarasov. ‘Of course, this had a great effect on my delicate Soviet psyche, and soon I unquestioningly considered Marc Rich to be the best foreign company in the world. For several days, I ate and drank well, travelled, went fishing, listened to the orchestra playing in my honour, and in the end, of course, I signed a contract.’
PepsiCo briefly became one of the world’s largest naval powers when it agreed that, in exchange for the Pepsi it was selling to the Soviet Union, it would be paid with 17 Soviet submarines, a cruiser, a frigate, and a destroyer. The naval fleet was sold for scrap, leading PepsiCo’s chairman to joke to the White House: ‘We’re disarming the Soviet Union faster than you are.’
And it was not just Trans- World. ‘We sponsored a number of oligarchs,’ says Lucio Genovese, who was head of Glencore’s Moscow office in the 1990s, counting off a list of men who are now among Russia’s wealthiest. ‘They started to become owners of some of these operations and we were funding them.’ 44
7. Communism with Capitalist Influences
Vitol’s hotel gambit revealed quite how globally the fallout of the collapse of the Soviet Union was being felt. At a stroke, deeply rooted networks of trade and economic dependence were ripped up. Many foreign investors hesitated to put their cash and their reputations on the line in places that had, until recently, been part of the Soviet Union’s sphere of influence. But not the commodity traders: they propped up cash-strapped countries, supplying oil and food on credit; they plunged their money into projects across the countries of the erstwhile Communist Bloc; and they redirected flows of natural resources from the politically expedient supply chains favoured by central planners to wherever the price was highest.
Without the rough edges and bullying style of some other top traders, Taylor had the social skills to succeed in an industry where personal relationships are crucial. He could work a room as well as any politician, instinctively knowing how to win over each person, remembering details of people’s family lives, and always following through on his promises.
said. ‘The Dutch were wonderful but they didn’t want to work outside nine to five. That ruled them out quite quickly.’
8. Big Bang
But few who have worked with him doubt that, for Glasenberg, relationships were only a means to an end. And that extended to his traders at Glencore. He would call them time and time again, regardless of the time of day, if he wanted something from them. He had little patience for his employees’ personal lives. And he quickly turned against people who he felt were no longer giving 100% to the Glencore cause.
It was one thing to buy a few coal mines. But if Glencore could accumulate enough mines, it would bring another advantage: an influence over prices, in particular in the annual negotiations with Japanese power plants where the price of much of the world’s coal was set. At the time, the Australian coal industry was made up of dozens of small and mid- sized players, while the Japanese power industry was represented by a few giant companies. The Japanese had little difficulty dominating the discussion. If Glasenberg could buy up a large enough share of the Australian coal industry, he would be able to change that.
Glencore would effectively become a public company. Strothotte had no desire to be forced to publish Glencore’s financials and submit to questions about its activities from investors. ‘Culturally, I don’t think it makes sense,’ he said at the time. ‘I don’t think we can operate in a way that we have to look over our shoulders, I think you have to have the entrepreneurial freedom.’ 31
9. Petrodollars and Kleptocrats
Lakhani’s role was a mixture of wheeler- dealer and diplomat. Known variously as ‘middlemen’, ‘agents’ or ‘fixers’ (Lakhani prefers the word ‘consultant’), men like Lakhani are hired by commodity traders for their connections and ability to make things happen in difficult parts of the world, where the traders may not have a fully-staffed office. It helps that they are paid as external contractors, rather than in- house staff, giving the trading houses a layer of insulation should anything go wrong. Lakhani once summed up his role, saying: ‘I get my hands dirty.’
After a decade of stagnating prices, the Chinese economic boom was just beginning to turn the oil market on its head. As prices rose, money flowed into the coffers of anyone with oil, empowering a new generation of oil barons and kleptocrats. Arab princes, Congolese governors, Russian oligarchs and Kazakh politicians all flooded the hotels and nightclubs of Mayfair and Knightsbridge in London as well as the lakeside hotels of Switzerland. A whole industry of lawyers, accountants and bankers sprung up to service this new class of multimillionaires.
In a 623-page report, published in 2005, it offered one of the most comprehensive insights ever into the murky underbelly of the world of oil trading that had blossomed in this era of rising prices and easily grabbed riches. 7 The investigators interviewed traders, politicians and bankers; they got copies of bank transfers, contracts and emails. Crucial to the investigation were the Iraqi government’s own meticulous accounts of all the illicit surcharges paid by the commodity traders, which became available to the UN investigators after the toppling of Saddam Hussein following the US invasion in 2003.
And the combination of big money and strategic significance gave the traders an important political role in many parts of the world. Their ability to keep the money flowing into the coffers of oil- rich potentates made them powerful allies. It was something Saddam had understood instinctively, prompting him to start demanding kickbacks for Iraq’s oil sales. And it was just as true in Russia, where an increasingly muscular Kremlin needed friendly traders to ensure its oil would continue to be sold, even in moments of political tension.
10. Destination Africa
The flow of dollars from the sale of commodities enriched a generation of African leaders, entrenching established political elites even when they were blatantly corrupt or widely unpopular.
In some cases, the role of such outside consultants or fixers was extremely simple: putting a layer of deniability between the commodity traders and the bribes and other payments that needed to be made to keep the oil and metals flowing. ‘There’s no way to do business in the Third World without enriching government leaders,’ said Calil. He explained how the practice of greasing the palms of African potentates evolved: ‘You used to give a dictator a suitcase of dollars; now you give a tip on your stock shares, or buy a housing estate from his uncle or mother for ten times its worth.’
In other cases, the job of the fixers was more mundane: handling cumbersome logistics in African countries where they had more experience than the commodity traders they were working for, or marshalling a superior network of connections to deal with bureaucratic paperwork and roadblocks.
Gertler has rejected the suggestion that the deals were done at below- market prices, arguing instead that he should get a Nobel prize for what he’s done in Congo. 20 ‘We started to invest in the early days– when nobody else wanted to invest, when the country was at war, when the copper and cobalt prices were at the bottom,’ he has said.
Africa was still what it had always been– in the jargon of the traders, an ‘origination’ business. It was the origin of raw materials for the world markets: gold from South Africa, coffee from Ethiopia, crude oil from Nigeria, cocoa from Ivory Coast and copper from Zambia.
But, at the same time, a new business emerged– a ‘destination’ business. As economic activity across the continent increased, so did demand for commodities from Africa itself. The new demand redrew supply chains: Saudi fuel oil flowed into Kenyan power stations; wheat from Kansas arrived at flour mills in the Tanzanian port of Dar es Salaam; Peruvian copper turned up in Namibia, and Thai rice became a staple in Nigeria.
11. Hunger and Profit
China was not alone. As a new wave of food inflation swept the world, rich and poor governments alike began to realise that the rise in prices was a threat not just to development, but also to security. ‘Massive hunger poses a threat to the stability of governments, societies and borders,’ said Hillary Clinton, who was US Secretary of State from 2009 to 2013. ‘Food security is not just about food. But it is all about security– economic security, environmental security, even national security.’
The traders had understood how valuable the insight from Cargill’s physical trading business could be since the days of the Great Grain Robbery, when the company had taken a small loss on its deals with the Soviet Union but the traders in Geneva had made a killing with their bets that prices would rise. From that point on, a hush would fall over the trading floor in Geneva whenever the Soviets called up to trade. One trader would whisper to another, ‘the bear is on the phone,’ and everyone would know it was time to buy grain futures in anticipation of a jump in prices.
Certainly, in some corners of the market, squeezes and other distortions did still occur. But they tended to be limited to particular locations or sub- categories of product, and they didn’t last for long. In 2010, for example, one trader bought up nearly all the available stocks of cocoa in one fell swoop, helping to push the cost of the commodity used to make chocolate to a thirty-three-year high and earning himself the nickname ‘Chocfinger’. 27 But even Chocfinger couldn’t change the weather, and the market soon came back down to earth when Ivory Coast, the main grower, produced a harvest that wasn’t as small as feared.
12. The Billionaire Factory
Inside Glencore, many joked that Xstrata’s name, a consultancy’s invention combining ‘extraction’ and ‘strata’, actually stood for Glencore’s ‘exit strategy’.
In the end, the somewhat slapdash nature of Glencore’s preparation mattered little. With investor enthusiasm for commodities reaching fever pitch, the company raised $10 billion. It was the largest listing ever in London, catapulting the company into the ranks of the FTSE 100 and into the pension funds of Britain’s retirees.
The timing couldn’t have been worse. A wave of shareholder activism was sweeping the UK, with investors threatening to vote down executives and board directors whom they considered to be greedy or inept. The movement would become known as the ‘shareholder spring’, and outsized executive pay packets were a key focus. Some of Xstrata’s top shareholders publicly voiced their disgust at Davis’s pay deal.
Still, those advantages were already fading in the late 1990s. Legislation such as the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, adopted in 1997 by the members of the OECD, and the UN’s Convention against Corruption in 2003, made it harder for companies to pay commissions or bribes. And the value of Glencore’s insights into the global economy declined as news and information became cheaper and more widely available. ‘There are some advantages, but we knew this is going to come to an end,’ says Wyler. ‘The company just grew too big for it to remain private, in my opinion.’
but until the IPO they hadn’t been forced to reckon with quite how much money the company was making. It added urgency to the question of whether the money was being made at their expense. And Glencore didn’t just lift its own veil of secrecy: its IPO made the profitability of the trading industry as a whole impossible to ignore.
13. Merchants of Power
In September 2017, only a few months after Glencore had raised money for the region through Oilflow SPV 1 DAC, the politicians of Kurdistan took a fateful decision, and attempted to turn their new-found economic independence into political liberation. With its financial security guaranteed by the oil deals with Glencore and the other trading houses, the Kurdish government defied the central government in Baghdad and held an independence referendum. The result was overwhelming: 93% of the population voted to part ways with the rest of the country.
For pension funds like that of the Pennsylvanian teachers, the investment in Oilflow SPV 1 DAC had been a way to generate more income for their growing ranks of retirees than most conventional investments could offer. It’s not clear they even considered what effect their money would have on Middle Eastern politics.
Just as in Kurdistan, Glencore didn’t lend Chad all the money itself. Instead, it persuaded a group of banks and other investors to back the deal. 40 And just as in Kurdistan, the investors included some of the largest US pension funds
If Glencore was the lender of last resort in Chad, in Kazakhstan that role was performed by Vitol. While Glencore’s deals in Chad had been relatively straightforward, advancing money in exchange for future oil supplies, Vitol’s many years of dealings in Kazakhstan were a demonstration of the complex network of relationships commodity traders were willing to build to maintain their business in resource- rich countries– and the rewards for doing so.
Conclusion: A Lot of Skeletons
But some, notably Switzerland, were extremely slow to act. Paying bribes to foreign officials was not only widely accepted within the business community, but the bribes were even tax deductible. It was only in 2016 that Swiss companies stopped being able to claim a tax credit against the bribes they had paid to businesspeople abroad, with the approval of new legislation. ‘Bribery payments to private individuals should no longer be allowed as expenses that are justified for business purposes’, the Swiss government wrote.
At Glencore, there were traders who would fly the world carrying briefcases full of cash. ‘I used to go with 500,000 pounds to London,’ says Paul Wyler, who was one of Glencore’s most senior executives until 2002. Once, he was stopped in Heathrow airport by customs officials shocked at the amount of cash in his luggage. They asked him what he planned to do with such a lot of money. Knowing that he wouldn’t be able to get a receipt for what he was planning to spend it on, Wyler calmly replied: ‘I go gambling.’
Still, he says there was less corruption in Glencore’s history than is commonly believed. ‘It’s not like that we got the business only because we paid everybody off,’ he says. ‘In many countries it was just a no- go. You couldn’t pay commissions in Japan, or you couldn’t pay commissions in Chile, or in most of Western Europe it wasn’t really that widespread. In South America, yes… And, yes, in China it was very corrupt.’
In the 1980s or the 1990s, a metals trader could turn up in Zambia, Peru or Mongolia and buy a cargo of copper at the price of a week earlier, booking an immediate profit. The easy money wasn’t just limited to developing countries. Before the launch of oil futures in London, the UK subsidiary of Exxon used to sell its North Sea crude based on the price quotation of the previous day.
The situation began to change in the 1980s, with the arrival of new technologies that allowed the publication and distribution of news and data in almost real time. Ironically, the development was prompted by one of the commodity trading industry’s biggest deals: the merger of Philipp Brothers and Salomon Brothers. When they joined forces, the two firms fired some staff. Among them was Michael Bloomberg, an executive at Salomon. He walked away with $10 million and used the money to build a data company that would become ubiquitous on trading floors around the world, helping to erode the commodity traders’ informational advantage.
‘Bluntly, the Chinese probably are willing to take much more risk than we are,’ said Ian Taylor. 45
Many in the West were still blasé about the threat posed by the coronavirus even as it began to spread beyond China’s borders to South Korea, Iran and Italy in February 2020. But inside Glencore’s unassuming headquarters in Baar, the traders were anything but relaxed about the impact on the world economy. The trader’s staff in China had been relaying messages about the deadly seriousness of the new virus for weeks. It seemed inevitable that as other countries around the world confronted the same threat, they would need to take similar measures to the ones China had taken, shutting down large swathes of their economies and instructing citizens not to travel. That could only mean one thing: that demand for oil, the commodity that had fuelled the human race’s vastly increased mobility over the previous century, was going to fall dramatically. If a price crash was to be averted, producers would have to cut output just as aggressively.
The trading house started to prepare itself for a world awash with oil. Its traders in Singapore began calling up brokers to hire ships, ready to store a wave of unwanted crude. It was an exact replica of the trade that Andy Hall had executed three decades earlier. Only now the scale was even more gigantic. In March, Glencore hired the Europe, the world’s largest oil tanker, capable of storing 3.2 million barrels of oil beneath a deck that is longer than the Eiffel Tower is tall.
Then, as demand began to recover, Glencore started to unwind the trade. Countries in Asia had weathered the first wave of the pandemic more successfully than their counterparts in the West, and their economies were driving a rebound in the oil market. The Europe was located in just the right spot. In early July, one million barrels of its cargo was unloaded on to another tanker and sent to the port of Onsan, in South Korea, home to one of the world’s largest oil refineries.