World For Sale

3. The Last Bank in Town

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To a large degree, the traders had the changing global political landscape to thank for their fortune. Jamaica’s financial distress was far from unique. The spike in oil prices in the 1970s had plunged many importing countries into chaos. Across Latin America, nations were on their knees due to a debt crisis that wiped out the continent’s middle class and sent millions into poverty. Meanwhile, Moscow and Washington were waging proxy wars around the globe, from Nicaragua to Angola. Trade embargoes proliferated. It wasn’t just the bauxite industry that the governments of the developing world were nationalising. Everywhere, control of commodity markets was being wrested from the hands of large American corporates. Four of the world’s largest copper exporters – Chile, Peru, the Democratic Republic of Congo and Zambia – nationalised some or all of their mining industries in the 1960s and 1970s.36 The Eastern Bloc of Communist states became an ever more important source of supplies of lead, zinc and oil for those willing to trade with them. Everywhere, commodity markets were opening up. Supply chains were becoming more fragmented, and the power of the large oil and mining companies dissipated. Prices were being set by the market rather than dictated by a few dominant companies – and into the vacuum stepped the commodity traders.
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As the commodity traders got involved with what others saw as difficult nations, they found a world short of money, where the risks were numerous but the rewards were enormous. In 1981, an economist at the World Bank coined the term ‘emerging markets’ to describe a set of fast-developing Third World nations rapidly being incorporated into the global economy – and the traders were discovering these nations before anyone else.37 Countries such as Brazil, Indonesia or India that today are must-go destinations for even mainstream investors were the frontiers of the capitalist world. In emerging markets, the commodity traders didn’t just buy and sell raw materials. Instead, they expanded into merchant banking and private equity, one day lending money to the government of Nigeria, the next investing in Peruvian anchovy factories. The commodity traders were, effectively, engaging in capital arbitrage: raising funds in the industrialised world, and investing them in emerging markets, where they enjoyed fatter returns. It was a risky world, however, besieged by political crisis, encumbered by foreign exchange controls, and handicapped by red tape. But if they got the timing right, the traders could hit the jackpot. In Brazil and Argentina, for example, investments paid for themselves in as little as two or three years, compared with ten years or longer in developed nations.38 The trading houses were confident they would get paid: without them, countries couldn’t export their goods and earn precious hard currencies. 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.
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In the 1980s, the list of countries that ‘most companies’ wouldn’t dream of dealing with grew longer and longer. Exactly where to draw the line was a question of personal taste. Some traders were happy to do business in tricky countries such as India or the Philippines, but drew the line at war zones and pariah states. For others, any corner of the world was fair game. 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.
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Without the traders, the economy of apartheid South Africa would almost certainly have collapsed many years earlier than it did. Chris Heunis, a South African minister, admitted that Pretoria had more difficulties buying oil than arms, and that the oil embargo ‘could have destroyed’ the apartheid regime.50 For the traders, it was a hugely profitable business. P. W. Botha, the leader of South Africa from 1978 to 1989, said that buying crude oil from the traders had cost the country an additional 22 billion rand (more than $10 billion) over a decade.51 In one single contract in 1979, Rich was able to sell South Africa millions of barrels of crude at $33 a barrel that he had bought at the official price of $14.55 a barrel, charging a 126% premium.52 ‘We had to spend it because we couldn’t bring our motor cars and our diesel locomotives to a standstill as our economic life would have collapsed,’ Botha, who was known as ‘the big crocodile’, told a local newspaper. ‘We paid a price, which we are still suffering from today.’53
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The young trader who had organised the venture took over the running of Cobuco, and began to go by the pseudonym of Monsieur Ndolo. He chose Iran as the potential source of the oil for Burundi. Through the contacts that Marc Rich + Co already had in Tehran, he organised a trip for Burundi’s president to the Iranian capital. Monsieur Ndolo gave his African partners precise instructions. The trader wanted to buy crude at official OPEC prices (about $27–$28 a barrel), significantly below the spot market at the time ($30–$35 a barrel). Payment conditions were unusually advantageous: as Burundi was a non-aligned nation, it wouldn’t need to pay for the oil for two years. Effectively, that amounted to a two-year interest-free loan. Cobuco told the Iranians that Marc Rich + Co would handle all the details of the shipments, and that the crude would be processed in a refinery at the Kenyan port of Mombasa and from there trucked up to the highlands of Burundi. The revolutionary Islamic government of Iran agreed. Over the next few months, Marc Rich + Co sent tankers to the Persian Gulf to pick up the crude. Officially, all the barrels made it to Mombasa. And actually? Of course not, says Monsieur Ndolo. ‘But we had all the paperwork saying that the barrels have been discharged in Mombasa,’ he added. Instead, Marc Rich + Co diverted the oil into the global market, re-selling the barrels at large mark-ups. A portion of the crude went into South Africa, whose apartheid regime was ready to pay a premium above even the spot price.
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Rich had made Iran the linchpin of his empire – but it was also, in some ways, his undoing. The country had been the source of his lucrative deals on the Eilat–Ashkelon pipeline in the 1970s. It had underpinned the fantastic profitability of the Cobuco arrangement. And it was the source of much of the oil he shipped to South Africa. The revolution of 1979 hadn’t deterred him: Pinky Green flew in to Tehran the very day that Ayatollah Khomeini returned to persuade the Iranians to continue selling oil to Marc Rich + Co.62 A few months later a mob stormed the US embassy in Tehran and kidnapped dozens of American diplomats, holding them captive for more than a year. In response to the kidnapping, President Jimmy Carter issued several executive orders freezing Iranian assets in the US, imposing a general trade embargo and specifically banning oil trading with the country.63 Many Americans may have put an end to their dealings with Tehran at this point – for legal or for ethical reasons. Rich, however, wasn’t deterred. He had, after all, built an enormously successful business in part through his willingness to circumvent embargoes. The international nature of the commodity trading business meant that no one government could effectively regulate it. If the US government banned oil trading with Iran, that didn’t stop a Swiss company, such as the Zug branch of Marc Rich + Co, from doing it. ‘I feel comfortable,’ he replied, when asked if he felt any guilt about buying Iranian oil during the hostage crisis.64
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And so, it was nothing unusual for Rich when, in spring 1980, John Deuss stepped into his Manhattan office with an offer to buy some Iranian oil.65 Deuss and Rich were the two oil-trading titans of the era – they handled the biggest volumes, took the biggest risks, and paid no heed to political scruples. It didn’t matter that at that very moment fifty-two Americans were being held hostage in Tehran; there was a deal to be done. And Deuss had come to Rich seeking a massive deal: the sale of more than $200 million of Iranian oil. From July to September, Rich’s trading house would deliver eight cargoes of crude oil and fuel oil to Deuss’s Transworld Oil, culminating in a cargo of 1,607,887 barrels of Iranian crude worth $56,463,649, delivered on 30 September. The money flowed from Transworld’s account at Société Générale in Paris to Rich’s account in New York, and from there back again to Paris to an account that the Iranian central bank kept at the Banque Nationale de Paris.66 The deal would change the course of Marc Rich’s life, and probably the history of the trading industry. It would mark the beginning of a twenty-year legal battle that put Rich’s photograph on the FBI ‘Ten Most Wanted’ list. Around the same time as he was trading Iranian oil with Deuss, US prosecutors were building a case against Rich for tax fraud. When they discovered the deals with Iran, the prosecutors knew they’d hit the jackpot. What had started as a complex tax case became a tale of the amorality of the commodity traders that would stir the fury of the American establishment and condemn Rich in the eyes of the public.
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The American people, suffering from high gasoline prices, cared little for his protestations. Thanks to the acres of newspaper copy written about Marc Rich and his band of traders, they had discovered the vast profits that the commodity traders had been making. To add to the aura of Hollywood drama, Rich emerged as the mysterious owner of a 50% stake in the film studio 20th Century Fox. The popular image of a commodity trader was born. Within the trading industry, the case of Marc Rich would be internalised as a cautionary tale of why commodity traders should stay out of the public eye.
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Of all the prosecutors’ charges, the one that condemned Rich in the court of public opinion was his deals with Iran at the very moment when the revolutionary government was holding American citizens hostage. But the heart of the case involved deals that had nothing to do with Iran. It focused on the byzantine regulations of the US oil sector, under which oil from new fields could be sold at higher prices than oil from older fields. Through a complex series of transactions, Rich and his companies avoided paying tax on more than $100 million of income, the indictment alleged. The federal prosecutors – first Sandy Weinberg and later Rudy Giuliani, who would later become mayor of New York and then the personal attorney to President Donald Trump – called the indictment the largest tax fraud case in US history. Rich faced up to 300 years in jail if he was convicted on all counts.
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But their protestations mattered little. Marc Rich + Co, the company, ended up paying about $200 million to settle the accusations against it. But Rich and Green, as individuals, never settled. Rather than face trial, they had fled the country, never to return. By the time they were indicted in 1983, they’d abandoned New York and relocated to Zug, where the Swiss government protected them. Rich renounced his US nationality and obtained Spanish and Israeli passports. For many Americans, that alone was an act of treachery. Rich’s own lawyer, Edward Bennett Williams, was shocked when he heard that Rich was on the run. ‘You know something, Marc? You spit on the American flag. You spit on the jury system. Whatever you get, you deserve. We could have gotten the minimum. Now you’re going to sink,’ he said.70 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’.71 Rich emerged a free man, but two decades as a fugitive from US justice had left their mark. The trader who’d relished conquering the world had for years been confined to just a handful of countries, and spent his time jetting back and forth between houses in Switzerland, Spain and Israel. Rich, ever the outsider, had become defensive, embittered and suspicious.

4. Paper Barrels

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Rice brokers in Japan had been trading futures since as early as 1697, starting what is believed to be the world’s first futures exchange.
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In the 1970s, while traders such as Marc Rich and John Deuss were making a killing buying and selling oil, the traders on the Nymex were obsessed with potato futures. The tuber was by far the exchange’s most popular contract. But in May 1976, Nymex traders defaulted on their obligations in what was, at the time, the largest ever default in commodity futures. For Nymex it was a disaster; the exchange was bordering on ruin. Desperate to stay afloat, the exchange’s board of directors looked at other commodities to replace potatoes as their star derivatives contract. After much debate, they decided to try their luck with petroleum.
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On 30 March 1983, Nymex reinvented the market with the launch of its futures contract for light, sweet oil – that is, low density oil with low levels of sulphur – based on West Texas Intermediate crude delivered at Cushing, Oklahoma, where Atlantic Richfield (today part of BP) had a major storage hub.
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The US was edging closer to entering the war, and Hall remained bullish. In January 1991, the US finally launched Operation Desert Storm with an overwhelming bombing campaign to free Kuwait. For the oil market, it was an anticlimax. The market had been braced for a prolonged war and further disruptions to global oil supplies. But as oil traders watched Baghdad respond to the US assault with a few Scud missiles, which caused limited damage, they realised the US would quickly overpower Iraq. At the same time, Washington opened its strategic petroleum reserves, selling millions of barrels. The market reaction was immediate and brutal. In less than 24 hours, Brent crude plunged nearly 35%. It was the biggest one-day selloff the oil market had ever seen. In one single night of January 1991, Hall lost $100 million. After a bonanza the previous year, Phibro Energy ended 1991 in the red.18
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Philipp Brothers had reached its zenith in 1979 and 1980, riding the oil market rollercoaster on the back of the Iranian revolution.19 The company’s profits in 1979 and 1980 totalled more than $1 billion.20 BusinessWeek profiled the company in September 1979, with a photo of Jesselson on the magazine’s cover next to the headline: ‘A $9 billion supertrader most people don’t know’. In the article, Jesselson, now chairman, and David Tendler, his anointed successor and the company’s president, boasted of the company’s global reach and unmatched prowess. The supersized profits masked a dilemma, however. ‘The concern we started to have, and I started to have, was that the good days can’t go on. We needed something else,’ recalls Tendler. High energy prices had plunged the US and most of Europe into recession. ‘The oil crisis was good for the oil business. But what about everything else?’21 Tendler and Jesselson decided that Philipp Brothers should diversify into a new commodity: money. Tendler learnt that the partners of Salomon Brothers, the largest private investment bank in America, were looking to raise capital. Quickly the two sides agreed that Philipp Brothers would take over Salomon and create a new powerhouse called Phibro-Salomon.22 The merger, announced on 3 August 1981, took the financial world by storm. The Financial Times called the company ‘Wall Street’s new world force’.23 Tendler would run the new company, with John Gutfreund, the abrasive and ambitious boss of Salomon, as number two. Corporate marriages often end unhappily, and the honeymoon period for the commodity traders of Philipp Brothers and the bond traders of Salomon was pitifully short. Already at the time of the merger, the traditional metal trading business of Philipp Brothers had been struggling with a drop in profitability. On the other hand, the Salomon bankers were raking in profits thanks to a boom in bond trading. In an era when all markets, commodities included, were being transformed by the development of new financial instruments, the Philipp Brothers traders could not keep pace with their Salomon counterparts. By the end of 1983, Gutfreund had been elevated to co-CEO. A few months later, Phibro-Salomon split the commodity trading business in two: the old Philipp Brothers would handle metals, and a new division called Phibro Energy would focus on oil. Tom O’Malley, the man who had replaced Marc Rich in 1974 as head of oil, became the boss of the new unit, which moved out of New York, where the other commodity traders were based, to Greenwich, Connecticut. Tendler was technically the boss, but in reality O’Malley could do whatever he pleased.24 The metals business of Philipp Brothers continued to decline. After an abortive attempt to spin off the metals unit, Tendler left the company in October 1984.25 Soon after, Phibro-Salomon was renamed simply Salomon. Unable to evolve with the markets, the metals division where Marc Rich had cut his teeth became an ever less potent force in the market. In 1990 it finally died an ignominious death, when Marc Rich + Co bought what remained of its metals contracts. The oil business, however, thrived. When O’Malley left in 1986, Hall, after a brief interlude, became the head of Phibro Energy. He expanded the company’s reach, trading in excess of one million barrels a day in the physical market, investing in refineries and oilfields, and, above all, embracing futures and options. In doing so, he straddled the worlds of physical trading and high finance – not only shipping oil around the world but also executing derivatives trades on behalf of airlines and investors – and thereby ensured that one part of the historic trading house, at least, would prosper in the transformed landscape of oil trading.
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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
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Commodity trading, which had attracted all comers in the 1970s as a route to a quick fortune, now became known for scandals and collapses. Voest-Alpine, the largest state-owned company in Austria, had to be bailed out by the government after its in-house trading arm lost nearly $100 million speculating in the oil market in 1985.26 Klöckner & Co, a German conglomerate with interests in steel and metals trading, lost about $400 million on oil bets.27 Italian trader Ferruzzi reported a $100 million loss in 1989 trading soybeans. The company ended in bankruptcy and its president committed suicide.28 Sucres et Denrées, a French trading house best known as a sugar specialist, suffered losses of $250 million, in part in the oil market.29 And Metallgesellschaft, the historic German metal trader, lost $1.4 billion on a massive oil trade that went wrong.
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By the mid-1980s, the Brent field, operated by Shell, together with several others that fed into its pipeline system, was pumping enough crude each month to fill about forty-five tankers, each carrying about 600,000 barrels. By now, Brent had also become a global benchmark: crude varieties from the Middle East, Russia, Africa and Latin America were priced by reference to the cost of oil in the North Sea. On top of that, the physical market underpinned several layers of financial derivatives, including, from 1988, an oil futures contract at the International Petroleum Exchange in London. If a trader was able to influence the price of Brent, the effect would be felt across the world. And the price of Brent was particularly vulnerable to a squeeze. The relatively small number of cargoes each month meant any party that won control of most of them could dictate terms to the rest of the market. The physical market was – and still is – almost entirely unregulated, and there was no legal limit to how many cargoes a trader could buy.
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Starting in the summer of 1987, when North Sea production fell as oil companies performed maintenance on their offshore platforms, Deuss set about buying every cargo he could get his hands on. Mike Loya, one of Deuss’s top traders in London, scooped up all but one of the forty-two contracts for January delivery of Brent oil, driving prices higher.30 It was a bold play, even by the standards of the take-no-prisoners North Sea market in the 1980s. One of his lieutenants recalls that Deuss wasn’t satisfied with simply cornering the Brent market – he wanted to corner the entire global oil market.31 Next, Deuss attempted to engineer an unprecedented geopolitical deal: an agreement between OPEC and non-OPEC producers to cut production. The pact would have sent prices skyrocketing – making Deuss even more fabulously wealthy. The OPEC and non-OPEC talks were spearheaded by Oman and the United Arab Emirates – both nations where Deuss had deep contacts. Deuss was also on the phone with OPEC ministers, advising them what to do, and when and how to leak their intentions to the market.32 But the plan for a ‘World OPEC’, as the Wall Street Journal called the project, crashed after Saudi Arabia vetoed it. In the Brent market, Shell and others traders joined forces to break Deuss’s corner. Instead of rising prices and vast profits, Deuss was forced to retreat, losing around $600 million when oil prices fell.33 Transworld Oil only survived by selling its prized American refining empire to Sun (today’s Sunoco) for $513 million.34 The failed corner was a turning point for Deuss, and the oil market. The most outrageous oil trader of his generation would continue trading throughout the 1990s, but Transworld Oil would never recover the swagger and dominance it had once enjoyed. One by one, the old guard of the commodity trading industry was being replaced by a new generation of traders, such as Andy Hall, able to hold their own in the physical oil market but also versed in the new world of futures and options.

5. The Fall of Marc Rich

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For the founders of Glencore and Trafigura who emerged from it, the crisis that engulfed Marc Rich + Co in 1992 was a formative experience that would shape their approach to trading – and, thanks to the influence of their companies, the entire industry. They remained graduates of the Rich school, but, scarred by the megalomania of Rich’s final days, they sought to share out ownership and control of their companies, forging tight-knit groups that endured through generations. And, with the most notorious commodity trader in the world now in semi-retirement, his successors took the opportunity presented by his departure to retreat into the shadows, turning the commodity trading industry into a bastion of secrecy. By freeing themselves from the toxic name of their fugitive founder, they were able to integrate further into the wider financial industry – laying the foundations for a future in which they would combine the adventurous spirit of Marc Rich with the economic firepower of Wall Street.
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The mood of the company changed. Marc Rich + Co was still on top of the world, but it no longer felt that way. The traders who in previous years had executed deals at turns brilliant, risky or shady, were now consumed by office politics. Weiss, Strothotte and others urged Rich to distribute the shares more widely to the employees, but Rich stood firm. He gave no indication that he would ever make way for the younger generation. ‘I love the business and this is what I want to continue to do,’ he told an interviewer. ‘I like to delegate but, at the same time, on major decisions and special exposures, I have the final say.’7 The traders no longer felt like they were partners in a thrilling business venture with a chance to take over the company one day, but indentured servants doing the bidding of their distant master. Rich, the Philipp Brothers prodigy who had left because Jesselson wouldn’t give him his fair share of the company’s earnings or allow him the freedom to trade the way he wanted, was repeating the same mistakes at his own company.
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The traders eventually persuaded Rich to sell the massive zinc position – a task that took several months. But Rich had been wounded. His attempt to recreate the glorious trades of his youth had failed. His trading house had lost $172 million thanks to the disastrous zinc trade.16 It was a sign of the changing nature of the markets – by the 1990s, succeeding in commodity trading didn’t just require gumption and a wide network of contacts. It also rested on an understanding of the evolving world of derivatives, and the ability to manage risk rather than betting the house on one trade. That was a world in which Marc Rich looked increasingly out of place. The mood at Marc Rich + Co was gloomy. The traders who had remained at the company started putting pressure on Rich. Individually and in groups, they told him he needed to set out a path to reduce his stake in the company, and to bring back Strothotte. Simultaneously, they started preparing for the company’s collapse. I
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The oil team resigned en masse in February 1993. For the company’s banks, this was the last straw. They told Rich to do something to stop the crisis. He called on Alec Hackel, a universally popular figure, who had been one of his original partners and who had hired many of the younger traders, to act as a go-between. And so, on a winter’s day in early 1993, a group of traders gathered in London. They were led by Dauphin, the former head of oil. He was joined by his former team: Crandall, who, after Dauphin had left, had been elevated to run oil trading at Marc Rich + Co, as well as Graham Sharp and Eric de Turckheim. Strothotte and Weiss, the two other senior traders who’d left the previous summer, were also involved in the discussion. Hackel, the mediator, completed the group. Dauphin and his team wrote a one-page manifesto setting out the terms under which they would return. It boiled down to a total coup: Rich should sell all his shares over time, he should step down from the management, and the company would change its name. ‘I thought it was brutal in the way they wrote it,’ Weiss says.17
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The atmosphere was frosty when Strothotte and Rich met at a private room at the Glashof, the restaurant across the street from the company’s offices, to sign the contracts.21 There were no handshakes. Once the lawyers were satisfied, Rich simply stood up and walked out. As he left, he turned to Strothotte and snarled a warning: ‘I still own a good piece of the company – keep it in mind.’22 On Monday 29 November, the sale was complete, and Marc Rich formally cut his stake to just 27.5%.23 The remainder was owned by around 200 employees. The employees had an option to buy Rich’s remaining stake, but they’d have to do so in cash. ‘Rich never imagined that we would have the money,’ says Querub, the head of the office in Madrid and perhaps the closest executive to Rich at the time.24 Perhaps he had hoped that, after a few years, the minority stake would give him a way back in to his company. But Strothotte, mindful of Rich’s parting shot, was determined to sever all ties. He set about hunting for sources of funding to buy out Rich’s remaining stake.
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Roche had introduced the little yellow pill in 1963 and it soon became the world’s most prescribed drug, immortalised in the 1966 Rolling Stones hit ‘Mother’s Little Helper’. For Roche, it was a cash machine that transformed the family-owned company into a global giant. But in 1985, the patent for Valium expired in the US, and profits from its pharmaceutical business tumbled. But what Roche did have was cash, and lots of it, accumulated from selling Valium during the bonanza years. By the early 1990s it had some $9 billion.26 And so, under the watch of chief financial officer Henri B. Meier, Roche set about putting its cash pile in an array of investments that had nothing to do with pharmaceuticals. That was how, in 1994, thanks to an introduction by Marc Rich’s financial adviser Heinz Pauli, the pharmaceutical company came to Strothotte’s rescue. Unlike Ebner, Roche had no interest in how the company was run – it just wanted to make money. Strothotte agreed to sell 15% of the company’s shares for about $150 million, with a promise to buy them back at a later date and a guarantee that Roche would receive a certain return on its investment. Finally, Marc Rich could be ejected once and for all. Within the trading house, there was a hunt to find a new name for the company. Traders walked the corridors browsing Greek dictionaries for the name of an appropriate god. Eventually, a consultant came up with the name Glencore, a contraction of the words global, energy, commodities and resources. On 1 September 1994, Marc Rich + Co officially became Glencore International, and, two months later, the company announced it had severed all ties with its fugitive founder.
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Trafigura it was. The new company became the life project of its founder. Dauphin had been born into the world of commodities, the son of a scrap dealer in Normandy in northern France. He joined Marc Rich + Co in 1977, when he was in his twenties, heading to Bolivia to run the company’s office there, and rapidly rising through the ranks as head of lead and zinc and then oil. He was a trader in the old school, with a tireless work ethic and a relentless travel schedule. At Trafigura, he ensured that the company had permanent access to the earliest landing slot at Geneva airport on a Sunday morning, in order to be able to squeeze a few extra working hours out of the week. 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. Dauphin was an exacting boss who could blow up at anyone who didn’t keep up with his pace and exacting standards of dress, hospitality and punctuality. But he had an impish sense of fun. One former employee remembers a long plane journey where, after hours of intense work, Dauphin suddenly stood up and announced: ‘Gentlemen, the bar is open.’33 Over twenty-five years at the helm of Trafigura, he became a mentor for a whole generation of traders, a master of the swashbuckling school of commodity traders that valued hard work and personal relationships above all else.
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In spite of all his charm, however, it would take years for Dauphin and his band of traders to build up Trafigura from scratch. For Glen-core, on the other hand, it was an easier process. From day one, business boomed. Freed from the controversy of the Marc Rich name, the company could take advantage of new opportunities. Since 1983, when Marc Rich had become a fugitive from US justice, American banks hadn’t lent to the company. Even some European banks had held back. Then, just a few days after the buyout had been completed and the company had changed its name, Zak got a call from J.P. Morgan. The US bank wanted to see how it could be of assistance. Then Deutsche Bank called. Then Goldman Sachs. ‘For a finance guy like myself, it was heaven,’ Zak says.34
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The Glencore traders maintained the culture they’d inherited from Rich (and which he, in turn, had learnt at Philipp Brothers) of hard work and high expectations. ‘In Glencore it’s like a jungle,’ says Lucio Genovese, who joined the company in the late 1980s and rose to run the Moscow office. ‘You’ve got to perform and you’ve got to perform highly, every day and every year, otherwise you’re in trouble. It’s either perform or die.’35 A new group of a dozen senior traders was now at the helm of the company, nicknamed by some the ‘G12’ or the ‘twelve apostles’. Strothotte was their leader, now in his element as the commander-in-chief of a global empire. He would jet around the world, bear-hunting with a Siberian aluminium magnate one day, wining and dining customers on his yacht in the Caribbean the next. Among the group of rising stars was a man who would go on to run the whole company: Ivan Glasenberg. 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. The bonuses alone were enough to make most traders extremely wealthy. Between 1998 and 2001, the final four years of Strothotte’s reign, the company paid an average of $110 million a year in bonuses to a few hundred traders.36 The shares were even more remunerative. The company was averaging profits of $150–$200 million a year in the 1990s, a figure which rose into the billions in the 2000s.37 Strothotte alone was in line to receive about 10–15% of that. And the multimillionaires continued a long way down the shareholder register. 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

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The collapse of the Soviet Union was a seismic event for the commodity traders, the most significant development in the history of the industry since the oil market had been freed from the grip of the Seven Sisters in the 1970s. At the time of its break-up, the Soviet Union pumped more oil than any other country in the world and was also one of the biggest producers of metals and grain. Now, at a stroke, it was transformed from a closed system into a shambolically integrated part of the world economy. Until the early 1990s, the Soviet Union’s trade with the outside world had been tightly controlled by the State. Suddenly Russian aluminium, copper, zinc, oil and coal flooded on to global markets. For a while, Russia and the other former Soviet states had little infrastructure to export their commodities, no expertise on how to sell internationally, and no connection to the world of finance. Commodity traders like Reuben stepped into the void, connecting Russia’s enormous natural resources industry to the rest of the world, and so funnelling precious foreign currency earnings into Russia. That made the traders extraordinarily important – to the survival of whole industries, to the health of national economies, and to the question of who would get rich from the spoils of all this economic chaos.
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A motley assortment of characters flourished in those dying days of the Soviet Union. The country’s economy was in freefall. All kinds of wild deals were struck. 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.’5
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The collapsing Soviet Union was like a closing-down sale for commodities. Valuable resources, such as oil, aluminium and chrome, could be bought for as little as a quarter of their international market price.11 For the traders, it was a prize too mouth-watering to turn down. As they dived in, they also helped to forge a new economic system. Where once Soviet economic planners had determined how resources and cash would flow around the country, now it was Western commodity traders who played that role.
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The Soviet Union’s enormous industrial enterprises were in shock. The system which had instructed them what to produce and where to send it, that had supplied them with raw materials and delivered them cash to pay their workers, suddenly stopped working. Mines, oilfields, refineries, smelters, even government ministries ran out of money to pay salaries and to buy the supplies they needed to keep operating. In desperation, they started striking deals directly with local wheeler-dealers or foreign commodity traders, ending the dominance of government agencies such as Raznoimport once and for all.

7. Communism with Capitalist Influences

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The first investor in Cuba’s first five-star hotel was none other than Vitol. The commodity trader had embarked on the project in 1994, taking the rather unconventional decision to move beyond its traditional business of buying and selling commodities and venture into the hospitality industry. Spurred on by its ambitious crude oil trader, Ian Taylor, Vitol had been selling fuel to Cuba for several years, and the cash-strapped nation had racked up a sizeable debt. The trading house was looking for a way to get its money back – and tourism seemed like the best chance it had. ‘Cuban growth will be through tourism,’ explained Enrique Castaño, Vitol’s man in Havana, as he announced plans to spend $100 million building six hotels on the island.2 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. This was how Vitol found itself building a luxury resort in Cuba. From now on, only the logic of the market would apply. It was a masterclass in how the commodity traders could transcend politics like no one else: they were stepping in to replace the old Soviet system and, in the process, helping to keep Communist regimes such as Castro’s afloat; and they were doing it all by connecting them to financial markets in London and New York. The re-carving of such a large swathe of the global economy was a gift to the traders, opening up a huge new region to play in and many more opportunities to buy and sell commodities. The traders who had thrown themselves into Russia in the early 1990s had made fortunes; but across the Communist world there were even more opportunities for profit – from Angola, with its large oil resources, to Romania, a key oil-refining hub on the Black Sea, to Kazakhstan, with its vast mineral wealth. It was an era when ideological divisions forged in the Cold War fell away, and the only thing that mattered was money. Of course, that had been the central tenet of the traders’ philosophy since at least the 1950s, and they embraced their role in the new economic order with relish.
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‘The key to Ian’s success is that he was one of these rare people who was a schmoozer and networker and contacter, but he had the commercial nous to monetise that,’ says Colin Bryce, an oil market veteran, who, as the boss of Morgan Stanley’s oil business, was for many years one of Taylor’s toughest competitors.4 It was this commercial nous that first caught Vitol’s attention. David Jamison, one of Vitol’s early partners, who was then heading its Asian operations, had shipped a large cargo of fuel oil to Singapore to sell on to other distributors. Of all the people he sold to, Ian Taylor was the only one who had correctly worked out Jamison’s costs on the trade. ‘I made very little money out of him,’ Jamison recalls. ‘And I didn’t forget that, so I invited him out to lunch and told him he had to come and work for Vitol.’5 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. And he had the charisma of a born performer. One colleague remembers being told by Taylor that, if he could swap places with anyone else in the world, it would be with Prince, the musician, who, at the time, was one of the world’s biggest stars. ‘He always did enjoy the limelight and was never one to shuffle quietly on the dance floor,’ his fellow oil trader remembered.6
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For Vitol, the way to recoup its investment in Cuba involved getting into the hotel business. By the mid-1990s, Castro had recognised the need to open up the country to foreign investment and to find a source of foreign earnings other than sugar. And tourism seemed like the natural solution. The Cuban leader, determined to find suitable investments for his commodity trader friends, ferried Taylor and the rest of the Vitol team around the island to scope out locations for further hotel investments in addition to the Parque Central. On one occasion, they flew between white-sand beaches on Castro’s personal helicopter, a Soviet Mi-8 fitted out with large leather armchairs on which the commodity traders sweated in the Caribbean heat. ‘We were trying to deliver oil and somehow get paid,’ Fransen says.19 Already in the early 1990s, the US government was asking questions about the traders’ activities in Cuba. There had been a US embargo against Cuba ever since the revolution, and in 1996, Congress passed the Helms–Burton Act, strengthening the blockade and penalising non-US companies that did business on the island. Cognisant of the risks of antagonising Washington, Vitol created a web of companies from Switzerland to Bermuda to keep its dealings in Cuba away from the reach of American regulators. The hotel investments were made, in conjunction with the Cuban state tourism company, through an entity called Amanecer Holding (‘amanecer’ is Spanish for sunrise). Vitol’s share was owned through a series of shells in Bermuda and Switzerland: Sunrise (Bermuda) Ltd, which in turn was owned by Vitol Energy (Bermuda) Ltd, which in turn was owned by Vitol Holding Sarl, a Swiss holding company for the trading house.20
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On one occasion he encountered the UK’s trade minister in Havana, and the two Brits found themselves sitting up with Castro until 4 a.m., drinking the last two bottles of 1956 Bordeaux from the Cuban cellars, a gift from French president François Mitterrand.22 They made for a strange party – the oil trading tycoon, a British politician, and the guerrilla leader of a Marxist revolution. Yet it somehow fitted the age: an era in which money mattered more than ideology, and in which the commodity traders’ influence stretched into ever-more presidential palaces around the world.
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It also required the traders to be creative, finding ways to turn a profit from countries that had little ability to pay them for their services or their commodities. It was a time of furious bartering – few countries or companies had cash on hand, and so the traders became experts in exchanging one good for another. ‘There were people that were desperate to sell things they didn’t know how to sell because Raznoimport was falling apart and nobody knew how to pay,’ says Danny Posen, who was head of Marc Rich + Co’s Moscow office in 1992, before leaving to co-found Trafigura. ‘And then we realised you didn’t have to pay with money; you could pay with things that other people needed.’25
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t of all the trading houses that sought to profit from the chaotic post-Communist world, it was Vitol whose transformation was most dramatic. At the start of the 1990s, the company had been a medium-sized player focusing mostly on refined products; by the end of the decade it was the world’s largest oil trader.
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over a period of several years, Glencore delivered a range of other, significantly cheaper varieties of oil, and falsified documents so that the Romanians wouldn’t realise. Once again using the Eilat–Ashkelon pipeline that Marc Rich had pioneered, Glencore created blends of different oils at the port of Ashkelon that looked similar to the grades it had agreed to supply, but in reality were cocktails of other varieties of crude oils from Yemen, Kazakhstan, Nigeria and elsewhere. The blends were never identical, instead being made up of whatever Glencore had on hand. But the objective was always the same: mimic the chemical makeup of the grades of oil named in Glencore’s contract, but at a lower cost for the trading house. At one point, Glencore went as far as mixing crude with much cheaper refined fuel oil, and supplying the new blend as if it were crude. It was a testament to how easy it could be to take advantage of the former Communist nations, where few officials understood the intricacies of commodity trading, and those who did understand could often be paid off cheaply.

8. Big Bang

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The transformation unleashed three decades of spectacular growth in China, with the economy expanding by an average of 10% each year between 1980 and 2010. In the biggest economic metamorphosis since the industrial revolution in Europe and America in the nineteenth century, China became the world’s factory, producing everything from household appliances to iPhones. By 2008, China was exporting more in a single day than it had done in the entirety of 1978.3
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The Chinese economic boom started almost immediately after Deng unveiled his reforms in 1978, but it didn’t make a significant impact on commodity markets until much later. To understand why, it’s necessary to examine the relationship between a nation’s wealth and its consumption of natural resources. The amount of commodities that a country consumes is, for the most part, a function of two factors: the number of people in the country, and their income. The relationship with commodity demand isn’t a straight line, however.5 As long as a country remains relatively poor, with annual per capita income below about $4,000, people spend most of their income on the basics they need to survive: food, clothes and housing. What’s more, the governments of poor countries don’t have the money to make major investments in commodity-intensive public infrastructure, such as power plants and railways. Even if a very poor country grows rapidly, it doesn’t translate into much extra demand for commodities. The same is true for a very rich country. Once a nation’s income rises above roughly $18,000–$20,000 per capita, households spend any extra income on services that require relatively small amounts of commodities: better education and health, recreation and entertainment. Governments of such wealthy countries have usually already built the bulk of the public infrastructure they need. In between the two extremes, there’s a sweet spot for commodities demand. After per capita income rises above $4,000, countries typically industrialise and urbanise, creating a strong, and sometimes disproportionate, relationship between further economic growth and extra commodity demand. China hit the commodity sweet spot around the time that Davis wrote his Xstrata memo: its GDP per capita reached $3,959 in 2001.6 Davis’s analysis wasn’t based on detailed economic modelling, but he knew from his travels there that something big was happening in China that could supercharge the commodity markets.
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It was not just Glasenberg’s optimism about the future of coal that drove him. He was also pessimistic about the future of trading. The trading industry was no longer the preserve of a few companies in the know – competition was relentless. And as mobile phones, the internet and email revolutionised communications, the advantage of a traditional trading organisation in the Philipp Brothers style was waning. Maintaining offices in dozens of countries around the world was expensive, and each year it was less certain that the trading profits would be enough to cover those costs. Buying mines was one way to address the issue: now Glencore’s traders would have a guaranteed flow of commodities to sell, without having to outbid their competitors to secure them. ‘I’ve always said, pure commodity trading without the assets backing up the trading is very difficult,’ Glasenberg says today.25
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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. In 1998, the coal market entered a broader downturn and Glasenberg’s chance came. The price of a tonne of coal dropped to the lowest point since the mid-1980s.26 Much of the coal mining industry was losing money. Glasenberg became convinced that prices could only rise. But in coal, with no futures market, there was nowhere to place a bet on rising prices. The only way was to buy entire mines. So that’s what Glasenberg did.
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The race was on to find a source of cash to buy out Roche. The price that the two sides had negotiated was $494.3 million. That would soon seem a trifling sum, but in the early 2000s, it was still a meaningful amount of money for Glencore to have to raise. It was more than the company’s combined net profits in 1998 and 1999. ‘It is our intention to acquire the shares from the Investor [Roche] as soon as the financial condition of Glencore will permit,’ the company said in another prospectus.32 Glasenberg found a solution to the problem. The trading house, he thought, could put all the coal mines he had been buying into a new entity. Rather than selling shares in Glencore to raise money, it could instead sell shares of the coal empire that he had just built. Glencore would raise enough money to buy out Roche, and the trading house would only have to tell investors the secrets of its coal mining business, rather than of the whole company.

9. Petrodollars and Kleptocrats

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Out of this reactive mix of a world desperate for oil and petrostates hungry for cash sprang two companies that leapt into the big league of global oil trading in just a few years. In many ways, they would be emblematic of the oil market of the 2000s – opportunistic, well-connected, linking rapidly-growing oil producers in emerging markets with China’s insatiable demand. They were Mercuria and Gunvor. The two companies had emerged from the free-for-all of the former Soviet Union in the 1990s at around the same time that David Reuben was turning Trans-World into the world’s largest aluminium trader. But for Mercuria and Gunvor, the real big time was to come not in the 1990s but in the 2000s, when they became critical outlets for Russia’s oil, helping to keep the billions of dollars flowing into the Kremlin’s coffers that gave a young president Putin the confidence to become more assertive on the world stage.
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Mercuria’s origins dated back to the days after the break-up of the Soviet Union, when two Soviet-born jobbing musicians named Wiaczeslaw Smolokowski and Gregory Jankilevitsch got a break trading oil. In the 1980s, the pair had made a living playing guitar and piano at gigs in restaurants and clubs in Moscow. They had emigrated to Poland, and were running a small business buying and selling computer equipment and other white goods, when one of their customers in a remote Siberian oil town made them a suggestion: would they like to get into oil trading? He had secured an export licence, a rare and precious thing in the early 1990s. The two traders demurred. They didn’t know the first thing about oil. But he was persuasive. ‘He said we would learn together,’ Jankilevitsch later recalled.23 And so, they graduated from refrigerators to tankers of oil. Back in Poland, they struck a deal with a struggling refinery, and soon became the dominant shippers of Russian oil via the Soviet-built Druzhba pipeline into Poland. By the mid-1990s their company, J&S, accounted for 60% of the country’s crude supply. How did the two émigrés manage to establish such a dominant position in the ‘wild east’ of Russia in the 1990s? ‘We meet the requirements of both [producers and consumers]; we take risks,’ Jankilevitsch said. ‘We have never let our partners in Poland down.’24
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Until this point the business of these new oil traders had been profitable, but limited in scope. Their profits measured in the tens rather than the hundreds of millions of dollars each year. But the really big time was just around the corner. The Chinese economy was booming, providing the opportunity for spectacular profits to anyone with access to oil supplies. It was in this environment that Saddam Hussein had succeeded in persuading international oil traders to pay surcharges under the oil-for-food scheme. Mercuria and Gunvor got lucky: they were in the right place, at the right time, and with the right connections to get access to lots of oil. Russian oil production was booming too. After a collapse in production in the early 1990s as the Russian economy crashed with the fall of Communism, the country’s oil sector recovered just as fast in the early 2000s. By now, the ownership of the industry was well established in the hands of a few powerful oligarchs, and they now turned their focus from protecting their shareholdings to improving their companies. From 1999 to 2005, Russian oil production expanded by more than 50%.30 Exports surged. The traders, as the link between the Russian producers and the international financial system, took on a new political significance for the Russian state. The new Russian president, Vladimir Putin, recognised that oil meant money and power. As the Kremlin sought to strengthen its control of the oil sector, Mercuria and Gunvor opened new doors for Russia’s oil sales, in different ways helping to maintain the flow of dollars to the Russian state.
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For Mercuria, that meant pioneering the trade in oil between two of the most important geopolitical forces of the new century: Moscow and Beijing. As Russian oil production surged in the early 2000s, J&S had started buying more crude than it could sell in Poland. And so the company started exporting, taking oil from Siberia into Poland and to the port of Gdansk on the Baltic Sea coast, and from there, by tanker, to the world.
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If Mercuria had shown the money to be made in bringing Russian oil to China, then its main rival, Gunvor, revealed another way to get ahead: political connections. Timchenko and Törnqvist had long been cultivating relationships with important people in Russian politics and business. But one of those relationships would do more than any other to shape the future of the company, as Vladimir Putin ascended to the Russian presidency on 31 December 1999. Timchenko and his partners had first dealt with Putin in the early 1990s, when he was in charge of foreign economic relations for the city of St Petersburg. By the end of the decade, Putin was poised to become president, and Timchenko was an established oil trader who had just started working under the name Gunvor. They stayed in touch: in 1998, Timchenko and others sponsored a judo club and made Putin – for whom judo had been a passion since childhood – the honorary chairman.
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after Putin became president that Timchenko and Gunvor had their greatest success. After Russia’s chaotic 1990s, Putin promised order, stability and strong leadership. Like many ordinary Russians, he was resentful of the oligarch class and the way they had taken advantage of a weak Russian state under the presidency of Boris Yeltsin, who ruled from 1991 to 1999, to grab the country’s resources at knock-down prices. When he first came to power at the turn of the millennium, Putin had offered the oligarchs an implicit deal: he would not seek to reverse the privatisation deals through which they had acquired their fortunes, but they in turn should stay out of politics. But tension was never far below the surface. Mikhail Khodorkovsky, the owner of oil company Yukos, was the oligarch who more than any other tested the boundaries of Putin’s stance.
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Yukos was also a poster child for everything that infuriated Putin and his allies about the oligarchs of the 1990s. It was one of the most aggressive users of offshore companies and low-tax special economic zones to reduce its tax bill. It was among the most brazen corporate lobbyists in Russia. And Khodorkovsky became increasingly bold – even provocative. He challenged Putin over corruption in a televised meeting at the Kremlin. He said that he would retire from Yukos in 2007 – the year before Putin would be required by the constitution to step down – and allowed speculation to build that he might be interested in a move into politics.38 And he started talks with Chevron and Exxon-Mobil to sell a stake in Yukos. He even came close to a deal to merge Yukos with Chevron that would have created the world’s largest oil company.39 On 25 October 2003, Khodorkovsky was flying across Siberia when his plane stopped to refuel, only to find it surrounded by special forces. Russia’s richest oligarch was under arrest. He would spend the next decade in a prison camp on charges of fraud, tax evasion and embezzlement. A year later, with the tax claims against Yukos rising, Russia’s state oil company Rosneft took control of its main asset – a massive oil production business in the heart of Siberia. It was one of the defining moments of Putin’s presidency: an assertion that no oligarch could hope to be more powerful than the Kremlin, that Russia’s businesspeople would enrich themselves only so far as it pleased the president, and that Russia’s natural resources ultimately belonged to the state. The event became a lightning rod for critics of Putin at home and internationally, and has been the focus of a protracted, multibillion-dollar legal battle between the Russian government and the former Yukos shareholders. For Gunvor, it was the ticket to the big time of oil trading.
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As Yukos collapsed under the pressure of the Kremlin campaign against it, Gunvor was on hand to help the Russian state keep the oil flowing. The trading house, little known until then, suddenly became an essential cog as Putin sought to re-establish the state’s dominance over the Russian oil industry.
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Khodorkovsky made two mistakes. The first was to ignore Putin’s warning not to meddle in Russian politics. The second was his talks to sell Yukos to a US oil company.
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They didn’t pay for this: they got it. And they’re now going to sell it to an American multinational?’‘That was the moment they decided to take him down,’ Törnqvist says. ‘They’re very open about it … If we allow this to happen, Russia will fall apart. Russia’s riches will end up everywhere, and the Russian people will get nothing.’ After Yukos’s oilfields were seized, Gunvor was on hand to help sell the oil.
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Once again, Russia and the rest of the former Soviet Union had delivered great riches to the commodity traders. Unlike the 1990s, though, this time the profits weren’t thanks to the chaos of a collapsing system, but to the region’s ability to boost production just as China and other emerging markets were clamouring for oil. Mercuria and Gunvor were the two most obvious winners. By the end of that period, they were comfortably established as the world’s fourth- and fifth-largest independent oil traders. In the ten years to 2018, the two companies’ combined profits totalled about $6.6 billion – most of it accruing to just six individuals: Jankilevitsch, Smolokowski, Dunand, Jaeggi, Timchenko and Törnqvist.45

10. Destination Africa

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At the vanguard were commodity traders such as Glencore. They bought African commodities, they invested in mines like Mutanda, and they helped to finance African governments. In the process, they propped up many unpopular and authoritarian leaders. And they forged new connections between African commodities and Chinese factories, and between African kleptocrats and bank accounts in London and Switzerland. For Glencore, emerging from the tussle for resources as the owner of Mutanda, the race for Africa was a blessing but also a curse. It would be the foundation of much of the trading house’s wealth, but also the source of the darkest cloud over its future.
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Most African countries export commodities, and little else.1 And that means Africa’s economic fortunes have risen and fallen with the commodity markets. The 1950s and 1960s, when many African nations won independence from European colonial powers, were a golden era for the continent. After the Second World War, Europe and Asia needed commodities for the reconstruction. Traders travelled to Africa for copper and other metals. But soon Africa’s reliance on natural resources became a liability. Low commodity prices, mismanagement, corruption, wars and the legacy of colonialism hampered the continent’s development throughout much of the 1980s and 1990s. By 2001, the size of the economy of sub-Saharan Africa was no larger than it had been in 1981.2
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The commodity traders made money in Africa even during the bad years: this was the period in which Marc Rich and John Deuss defied the UN embargo to supply South Africa with fuel. But, generally, the trading houses focused their attention elsewhere. With commodity production falling through the 1980s and the 1990s, there wasn’t much to buy in Africa. And with economic activity falling, there wasn’t much to sell to Africa, either. Then, starting in the early 2000s, the Chinese-led boom upended commodity markets, and the fortunes of the continent changed dramatically. The traditional sources of commodity supply, such as the US, Canada, Australia, the Middle East and Latin America, were no longer sufficient. If the world needed more natural resources, the industry would need to travel further afield. The answer was Africa. The commodity traders rushed in, not just trading with African countries but investing in mines, oilfields and agricultural processing. For the African economy, commodities were once again a blessing. In a decade of booming prices from 2001 to 2011, the economy of sub-Saharan Africa quadrupled in size.6
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doing business in Africa posed challenges. Dealing on the continent often meant crossing paths with brutal dictators, corrupt politicians, and rapacious local tycoons. In many cases, the commodity traders’ solution was to outsource their relationships with local kingpins to a motley crew of agents, fixers and consultants. These were men like Ely Calil, one of the most prominent fixers in the region, whose contact book stretched from Nigeria to Congo, Senegal to Chad. 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.
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‘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.’8
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About two-thirds the size of Western Europe, the Democratic Republic of Congo contains one of the world’s richest tracts of minerals. Known previously as Zaire and the Belgian Congo, it has been one of the most important suppliers of metals to the global market for a century.
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Congolese uranium from a mine about eighty kilometres from Mutanda was used in the Manhattan project to produce the first atomic bomb, dropped over Hiroshima in the last days of the Second World War. And Congolese copper was later used to rebuild Japan and Europe. The country is also rich in the minerals that fuel modern life: cobalt, used in high-performance batteries, such as the ones in electric cars, and tantalum, used in mobile phones.
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But in 1965, Mobutu Sese Seko came to power. A kleptocratic dictator who would rule the country for more than three decades, Mobutu wasted little time in nationalising the mining industry. Congo’s mineral riches paid for Mobutu’s extravagant whims, such as turning the village where he was born into a vulgar pleasure palace with a runway hacked out of the forest long enough to land Concorde. As metal prices dropped in the 1980s and 1990s, Congo’s mining industry fell into disrepair. With plentiful supplies elsewhere, international miners and commodity traders simply retreated to places where doing business was easier. Dan Gertler arrived in the Democratic Republic of Congo for the first time in 1997, still in his early twenties, just as Mobutu was deposed in a bloody conflict.9 Gertler was a young diamond merchant, the scion of a wealthy family of gem dealers, whose grandfather founded the Israel Diamond Exchange. Laurent-Désiré Kabila, the new president of DRC, was fighting a brutal war to consolidate his power, and was desperate for money.10 Gertler saw an opportunity. In August 2000, his company agreed to pay $20 million to the Congolese government, in exchange receiving a monopoly on diamond sales from the country.11 His influence increased when, in 2001, Laurent-Désiré Kabila was assassinated by one of his own bodyguards, and his son, Joseph Kabila, became president. Gertler soon became the confidant of the young president. The two men were the same age. Gertler lived in Israel, but flew every week into Congo.
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Gertler got the opportunity to redraw the landscape of the Congolese mining industry in the run-up to the Congolese presidential elections of November 2011. Kabila was short of money, and his right-hand man Katumba worked feverishly to secure a victory.18 Most of all, he needed to raise money. The Congolese state started selling off stakes in key mineral resources, in a series of deals that only came to light later. The buyers were offshore vehicles that often turned out to be connected to Katumba’s ‘twin brother’, Gertler. Between 2010 and 2012, the Africa Progress Panel, a group led by former UN Secretary General Kofi Annan, estimated that the Congolese state earned $1.36 billion less than it should have done by selling stakes in mines at knock-down prices.19
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The US government disagrees. In 2017, it imposed sanctions on Gertler, saying he used his close friendship with Kabila ‘to act as a middleman for mining asset sales in the Democratic Republic of Congo, requiring some multinational companies to go through’ him to seal deals
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Gertler and Glencore together were a formidable combination: the commodity trader brought financial firepower and market sway; Gertler opened the doors to Congo’s corridors of power. In 2011, just as Katumba was working to fund the Congolese president’s re-election campaign, Gertler joined Glencore as a shareholder in Mutanda. In March, one of his companies bought a 20% stake in the mine from Congo’s state-owned mining company, Gecamines. The price, just $120 million, looked unfathomably low.28 Copper prices were sky high, and at almost exactly the same time, a mining consultant hired by Glencore valued the whole mine at almost $3.1 billion, suggesting that the true value of the 20% stake that Gertler had bought was $620 million.29 Only a few months later, Glencore would increase its own stake in Mutanda at a valuation four times higher than Gertler had paid.30 Over the course of more than a decade, Gertler and Glencore were involved in more than a dozen transactions, worth over a billion dollars.
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If Glencore had any doubts about going into business with Gertler, it didn’t voice them. ‘His involvement has helped to attract much-needed foreign investment to the DRC,’ Glasenberg said in 2012.32 But Gertler’s reputation as a businessman involved in opaque deals in Congo was already well-established as Glencore did deal after deal with him. When, in early 2008, another investor in the Congolese mining industry sought information about Gertler, the report it received from a due diligence company, disclosed in later legal filings, read like a cautionary tale. Gertler kept ‘what can only be described as unsavory business associates’, according to the report, which was prepared for Och-Ziff Capital Management, a multi-billion-dollar US hedge fund. Gertler, it added, was using ‘his significant political influence’ in Congo ‘to facilitate acquisitions, settle disputes and frustrate competitors’.33 Och-Ziff eventually paid more than $400 million in September 2016 to settle a case with the US regulators involving, among other things, its deals with Gertler in Congo.34 In the deferred prosecution agreement with the hedge fund, the US government laid bare the influence of the tycoon, alleging that Gertler, together with others, paid more than $100 million in bribes to Congolese officials.35 In February 2017, a few months after the details of the Och-Ziff case became public, Gertler cashed in his chips. Glencore bought out his stakes in its two main mines in Congo. The price was a cool $960 million.36
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The Congolese deals appeared to have been a coup for Glasenberg. He had seized on other big companies’ hesitancy to invest in Congo and established a huge position there for Glencore, making the company a leading supplier of copper and cobalt, two metals used in electric cars and batteries whose future prospects looked bright. For Kabila, too, Glencore’s bet on the Congo was a boon. The company led a wave of investment into the Congolese mining sector, and soon became one of the country’s largest taxpayers.
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Then, on 3 July 2018, the music stopped. Glencore announced that it had been subpoenaed by the US Department of Justice in a wide-ranging probe into corruption and money-laundering that included its dealings in Congo dating back to 2007 – the year it first invested in Mutanda, and the year it started dealing with Gertler. The company’s share price tumbled.37 Glasenberg’s African adventure was no longer a triumph of canny investment, but a stain on the Glencore chief’s legacy.
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Cargill, whose staid Midwestern origins made it relatively cautious by the standards of its industry, dived in. The venerable grain trader would seem an unlikely candidate to set itself up as an alternative to a country’s central bank. But, in Zimbabwe, that’s exactly what it did. In the middle of 2003, Zimbabwe was in the throes of a financial and economic crisis. The supermarkets in Harare, the capital, were half empty. Inflation was spiralling out of control
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Faced with the impossible task of buying cotton without banknotes, Cargill hit on a novel solution: it would simply print its own. And so it asked a local company to print 7.5 billion Zimbabwean dollars, worth about $2.2 million, in 5,000- and 10,000-Zimabwean dollar bills. To guarantee the notes, it deposited funds at a local bank.43 This Monopoly money, which looked a bit like a cheque, carried the logo of Cargill Cotton and the signatures of two of its top local executives. It didn’t matter that the bills didn’t bear the signature of the governor of the Zimbabwean central bank, or the wildlife scenes that typically decorated Zimbabwean banknotes. They were soon being accepted alongside the country’s official currency at shops across Harare. In all but name, Cargill was acting as the country’s bureau of engraving and printing and its central bank.
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executives told US diplomats they were ‘making a killing’ printing their own money. The reason was simple. Zimbabwe was suffering from hyperinflation, with consumer prices increasing at a rate of about 365% per year. With banknotes in short supply, the recipients of Cargill’s Monopoly money tended to spend it rather than take it to the bank. When the notes finally trickled into the bank, their value had been eaten away by inflation, sharply reducing Cargill’s actual payout in dollar terms. ‘That makes monopoly money even better business than cotton in this oddball economy,’ the deputy chief of the American embassy in Harare wrote in a diplomatic cable.46
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The business of buying commodities in Africa and exporting them to the world continued to draw commodity traders to the continent. 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:
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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.
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One reason why so many African countries were an attractive destination business was that quality regulations were often far less strict than in the developed world, allowing the traders to supply products that would be considered substandard in the West. In Europe, oil traders can’t legally sell diesel with more than 10 parts per million of sulphur, a cause of acid rain. In some African nations, however, they can sell the same diesel with sulphur content as high as 10,000 ppm without breaking local rules.48 As such, commodity traders can buy cheap cargoes of low-quality refined products from unsophisticated refineries in Latin America and Russia, and ship them to Africa.
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Namibia has no restrictions on the arsenic content of its copper ore imports, making it a useful destination for a savvy trader.
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By the mid-2000s, Africa, in the traders’ eyes, had become a place where the commodities that no one else wanted could be disposed of. It was not just the supplier of last resort, but also a buyer of last resort. And for the least scrupulous, it became a dumping ground.
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people living in the ramshackle villages near Akouédo awoke to a repulsive stench of rotten eggs.50 Thousands soon started experiencing flu-like symptoms. The trucks had contained a toxic residue, so noxious that few companies in Europe would touch it. The company responsible for shipping the cargo to Ivory Coast was Trafigura. The resulting international outcry would see the commodity trader lambasted in the media and hauled in front of courts in London and Amsterdam. Ultimately the scandal cost the company more than $200 million and ruined its reputation.
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Trafigura still held on to the feeling of being the underdog of the trading industry, always ready to scrap for a few dollars of profit or jump at an unconventional deal.
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Trafigura was starting to run out of options. If it could not carry out the caustic washing, the company would be forced to re-sell the coker gasoline to a refinery, which would most likely wipe out any potential profit. Claude Dauphin, the tireless Trafigura boss, instructed his team to be creative.56 It took a few weeks, but the traders came up with an imaginative solution. Rather than shipping the coker gasoline to a terminal for treatment, they would perform the caustic washing on board the tanker that was transporting it. Then, they thought, they could ship the toxic residue to wherever they could find someone willing to take it. Caustic washing is a nasty process. Not only does it release foul-smelling chemicals, but the caustic soda is highly corrosive. So the best solution, one of the traders thought, would be to find an oil tanker about to be scrapped and park it off the coast of West Africa. Was that possible? Could it be done on the cheap? ‘That implies you do not want insurance … and you do not care if she sinks,’ replied a shipping broker who acted on behalf of Trafigura.57 The sacrificial ship that the Trafigura traders found was the Probo Koala. The 182-metre-long tanker had seen better times: built in 1989, it was nearing the end of its serviceable life, with rusty patches showing through the paintwork on its hull.
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But the Probo Koala was able to do the job. On 15 April, the ship’s captain radioed a message to confirm that the caustic washing had been completed. He was instructed to pump the toxic residue into the vessel’s slop tank, used in normal circumstances to collect the mixture of oil, water and other chemicals left over from cleaning the ship’s tanks. By this point, the ship was floating near Gibraltar. It now contained a cargo of treated coker gasoline that could be sold. But it was also carrying another, nastier cargo: 528 cubic metres of the toxic residue in its slop tank. Trafigura was still looking for a way to dispose of the toxic residue. In the meantime, it would not help for its contents to become widely known. ‘Kindly do not, repeat do not disclose the presence of the material,’ the captain was instructed.58 Trafigura thought it had found a solution, as a terminal in Amsterdam was willing to help to dispose of the residue. But then the terminal demanded a small fortune for the service. So the Probo Koala headed to Africa. At Lagos, the commercial capital of Nigeria, Trafigura tried again to unload the toxic residue, but, again, it was unable to do so.59 Inside Trafigura, tempers were rising. The traders had been trying to find a home for their cargo for several months. The emails bouncing back and forth between the different Trafigura offices were no longer full of optimism about the deal. Everyone in the oil department, from Dauphin down, was involved in finding a solution. None of their ideas worked, and by mid-August, the Probo Koala, still carrying the waste, was near Abidjan. Here, Trafigura finally found a company willing to take the waste off its hands. Its name was Compagnie Tommy. In the wake of the scandal, Trafigura laid much of the blame at the door of Compagnie Tommy. The Ivorian company, Trafigura says, produced its operating licences on request, and acknowledged ‘the necessity for correct and legal treatment’ of the waste.60 But Compagnie Tommy didn’t sound much like a serious company, and it wasn’t. It had only secured a permit to deal with waste in the port of Abidjan on 9 August, little more than a week before it signed a contract with Trafigura.61 An official investigation in Ivory Coast concluded that the speed with which Compagnie Tommy obtained its permits was ‘troubling and suggested fraudulent collusion’.62 If that wasn’t enough to raise alarm bells, the price Compagnie Tommy charged to do the job might have done. Where the Amsterdam waste disposal company had asked for nearly $700,000, Compagnie Tommy was willing to dispose of the very same waste for just $20,000.63 Disposing of toxic waste is a specialised job, the kind of thing that prompts company lawyers to draft dense legal contracts. Yet the contract between Trafigura and Compagnie Tommy, dated 18 August, was a single, handwritten page of just 108 words. It stated that, due to the ‘high smell of this product’, it was planning to ‘discharge your chemical slops in a place out of the city properly prepared to receive any type of chemical product called Akouédo’.64 Of course, Akouédo was an open-air dump, in no way set up to handle toxic waste. A matter of hours after the contract was signed, the first truck arrived. A few hours after that, the residents of Abidjan began waking up to its rotten stench. And the crisis began. The scandal soon exploded into an existential issue for Trafigura. The Ivorian government asked for international help to deal with the toxic waste. Dauphin, sensing the magnitude of the threat, flew in to Abidjan to try to smooth things over. But instead, he was thrown into jail, where he would spend the next five months in pretrial detention. The next year, to secure Dauphin’s release, Trafigura paid $198 million to the Ivorian government for clean-up costs and compensation to more than 95,000 victims who said they had fallen ill. Later, the company would pay another £30 million to settle a case against it in the UK.65 The stigma, however, would remain.

11. Hunger and Profit

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Faced with spiralling prices and a population fearful of shortages, China’s premier turned to the only group of people who could be relied on to secure food supplies no matter what the weather: the commodity traders. Beijing didn’t have to phone many traders. If Vitol, Glencore and Trafigura were the leading traders of oil and metals, the trade in food commodities was dominated by four companies, known as the ‘ABCD’: Archer Daniels Midland, Bunge, Cargill, and Louis Dreyfus.
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By 2008, Cargill’s Geneva operation was a well-oiled machine, synthesising information and adjusting trading positions with practised ease. A
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Cargill has never said anything publicly about the speculative trades, nor has it revealed how much money it made from them. But, according to two people with direct knowledge of them, the company made more than $1 billion between late 2008 and early 2009 from its short positions in oil and freight.
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Of all the commodity trading houses, however, it is the agricultural traders whose business model has traditionally relied the most on speculation. That may be unsurprising: the agricultural traders had decades of trading in the Chicago futures markets, which had been founded in the nineteenth century, before there was even such a thing as an oil futures market. But it was also a function of the different structure of the agricultural commodity markets. In oil or metals, there are a few key suppliers – government agencies of oil-rich countries and large oil and mining companies. That means that, for oil and metals traders, winning large and favourable contracts with those organisations is one of the keys to success. But it also means that being a trader, in and of itself, doesn’t confer such a large informational advantage. Agricultural commodity traders, on the other hand, buy from thousands of individual farmers. That makes the traders’ job harder, but it also provides an opportunity: dealing with so many farmers gives the largest traders valuable information. Long before the concept of ‘big data’ became popular, the agricultural traders were putting it to work, aggregating information from thousands of farmers to get a real-time insight into the state of the markets. Each month, when the US Department of Agriculture published its update on the world’s key crops, the agricultural houses’ traders were able to bet on what it would say with near-certainty that they were right. Within most trading houses, there was a group of traders whose sole job was to speculate profitably with the company’s money – they were known as the proprietary, or ‘prop’, traders.
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‘In all the companies that I have worked for, most of the money was made trading prop,’ says Ricardo Leiman, an agricultural trader by background who worked for Louis Dreyfus and then went on to become CEO of Noble Group and Engelhart Commodities Trading Partners.8
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The series of revolutions soon became known as the Arab Spring. And rising food inflation in 2010 was one of the sparks that helped to trigger it.
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Across the commodity trading industry, it was a time of spectacularly lucrative trades. In the decade to 2011, the world’s largest oil, metal and agricultural trading houses – Vitol, Glencore and Cargill, respectively – enjoyed a combined net income of $76.3 billion (see table on page 332). That was an astonishing amount of money. It was ten times the profits the traders were generating in the 1990s.16 It was more than either Apple or Coca-Cola made over the same period.17 And it would have been enough money to buy entire titans of corporate America, such as Boeing or Goldman Sachs.18 Even adjusting for inflation, it was by far the most profitable period the industry had seen in modern history, surpassing the wild years of the 1970s, when traders like Philipp Brothers and Marc Rich made hundreds of millions of dollars in the oil market, and Cargill and Continental did the same in grains. And it had accrued to just a small handful of people. Cargill was still owned by the Cargill and MacMillan families, which between them now had fourteen billionaires – more than any other family in the world outside of royalty.19 Glencore, Vitol and Trafigura were still owned by their staff, meaning the commodity trading bonanza made a few top executives fantastically rich.
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As commodity demand tumbled in the wake of the financial crisis, oil traders like Vitol made a killing buying up unwanted oil and storing it – doing a version of the deals that Andy Hall had done nearly twenty years earlier. It was a trade they would repeat to great profit every time the market was oversupplied – not least in 2020, when the coronavirus pandemic struck.
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as commodity prices spiked, crashed and then spiked again in 2007–11, there was a heated discussion about the role of financial speculators in the markets. Scholars, researchers, traders and bankers offered arguments for and against. While most believed that financial speculators may have amplified short-term price swings, even helping to inflate some bubbles,31 for the most part they argued that supply and demand factors were the main reason for the moves in prices.32 Academics found some support for this conclusion in an obscure niche of the global economy: the price of some raw materials that weren’t traded on financial markets, including the likes of burlap, hides and tallow, rose in tandem with the price of those traded on exchanges, suggesting that financial investment had had little effect on commodity prices.33 The IMF concluded that ‘recent research does not provide strong evidence that commodity market financialization has had obvious destabilizing effects’.34
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At Chevron, Woertz had warned about the ‘unintended consequences’ of mandating the use of corn-based ethanol.41 But now, with the faith of a convert, she applauded Washington’s support for ethanol: ‘Biofuels are good for the environment, for energy security and for the American economy.’42 With Woertz at the helm, ADM would expand its ethanol capacity with giant new plants across the US Midwest. At the same time, the company increased its lobbying spend from about $300,000 in 2006 to nearly $2.1 million in 2008.43 ADM’s efforts were not in vain. In the early 2000s, as oil prices began to rise, the policy of promoting ethanol united a set of unlikely political bedfellows: right-wing security hawks worried about US dependence on Middle Eastern oil; farmers seeking higher corn prices; and some left-leaning climate change activists pushing for an alternative to fossil fuels. It was a formidable network of supporters, and it made ethanol politically irresistible. In 2005, George W. Bush approved legislation that mandated oil refiners to blend billions of gallons of ethanol into gasoline. Ethanol production ballooned. In 2000, the US distilled roughly two billion gallons of ethanol from corn; by 2006, the new law mandated consumption of at least four billion. As oil prices soared above $100 a barrel, a fresh set of US government regulations forced even greater use of ethanol on the energy industry. By 2011, as the Arab Spring engulfed the Middle East, the US ethanol industry was consuming one in every six bushels of corn on the planet.44 Of course, ethanol wasn’t solely responsible for the rise in agricultural commodity prices, but there’s little doubt that it was a contributing factor. Even ADM now disavows the fuel: the company has put its ethanol plants up for sale. ‘We’ve been very clear that ethanol is not a strategic focus area for us going forward,’ a spokeswoman says.45

12. The Billionaire Factory

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being public meant that, when something went wrong, it played out in lurid detail on a public stage. Glasenberg didn’t have to wait long to experience that: even as the company was preparing its IPO, the cotton price had soared to an all-time high. Glencore, a relatively new entrant to the cotton market, was on the wrong side of the move. When Glasenberg came to announce the company’s full-year results for the first time as a public company, he had to reveal a cotton-trading loss in excess of $330 million.35 The Glencore traders’ aura of invincibility, so carefully cultivated during the IPO, was shattered.

13. Merchants of Power

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With sufficient scale, the traders could exploit their oil contracts and assets in response to minute moves in market prices. Perhaps a cargo that was due to head to the US could be redirected to Asia? Or a refinery could switch the blend of different types of crude it was processing to take advantage of price differences? Maybe one contract allowed the trader to deliver a few days later, or to deliver a few barrels fewer or more? Or perhaps a few million barrels could be parked in storage tanks, awaiting the next jump in prices? This kind of system became the model for commodity trading – particularly oil trading, but also in metals and grains. And for it to work, the traders needed to have large volumes of oil flowing through their system, ready to respond to any opportunity the market might present. The best way to secure large volumes of oil was to finance the producers, locking them in to a multiyear relationship.
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There are few places in the world where a commodity trader has played such a dominant role in one country’s economy as in Chad. Glencore’s dealings in the African nation showed how some traders were prepared to put their financial resources to work alongside some of the most unsavoury figures in international politics. Landlocked, desperately poor and relentlessly corrupt, Chad is an uninviting prospect for international investors.32 Since a coup d’état in 1990, it has been ruled by Idriss Déby, a battle-hardened army general whose commitment to Chivas Regal whisky has often run deeper than his commitment to democracy.33 Fending off attempts to oust him from inside and outside the country (the French government once offered him a pension and a comfortable apartment in exchange for stepping down),34 Déby has maintained his grip on power, becoming one of the world’s longest-serving leaders. The people of Chad haven’t shared his good fortune, despite the development of the country’s modest oil resources. Life expectancy is the third-lowest on the planet;35 nearly half the population lives below the World Bank poverty line;36 and the country has been blighted by conflict and unrest.
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In May 2013, Déby received a $300 million influx of cash from Glencore, in the form of a loan backed by future oil supplies, a type of arrangement known as a prepayment. By the end of the year, the trader had doubled the size of the loan to $600 million.37 The cash came with a proviso: the money could only be used ‘for civil purposes to support the state budget’.38 But this seemingly restrictive clause was a gimmick: Chad could use the Glencore money for non-military expenses, freeing up the rest of its budgetary resources to fund the military. In effect, Glencore was helping to finance Déby’s wars against jihadist Islam in his neighbouring countries. With oil prices above $100 a barrel, Déby found in Glencore a bank that was willing to lend him vast sums of money despite an appalling human rights track record and international concerns about economic mismanagement. Soon, he was back for more: in 2014, he borrowed a further $1.45 billion from Glencore, this time in order to buy out Chevron’s stake in Chad’s oilfields.39 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
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With output rising from the US shale oil industry, the oil price tumbled from a peak of $115 a barrel in 2014 to just $27 in early 2016. Chad simply couldn’t repay its debts in the new oil price environment. The African nation asked to renegotiate the deal, and after protracted talks, Glencore agreed to restructure the loans. But the restructuring demonstrated quite how important a force Glencore had become in Chad: with oil prices still low, the poverty-stricken country owed Glencore and its partners almost $1.5 billion, equivalent to 15% of its gross domestic product.42 Even after it had been restructured, the Glencore loan imposed punishing austerity on the Chadian government. The country was forced to slash education, health and investment spending, and struggled for months to pay salaries – all so it could meet its repayment obligations to the world’s largest commodity trader. Even the IMF, well known for imposing fiscal discipline on struggling countries, described Chad’s spending cuts as ‘dramatic’.43
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All over the world, the commodity traders’ cash was changing the course of history. Yet there was no guarantee that the traders – many of whom travelled the world on British and American passports and operated from bases in Europe and America – would be acting in line with Western political interests. In some cases, such as the war in Libya, when Vitol shipped more than $1 billion of fuel to the rebels, they were clearly pulling in the same direction as the foreign ministries of their home governments. In some cases, such as in Kazakhstan, Western governments were more or less indifferent to their activities. But in other cases their deals went squarely in the face of Western policy. The traders’ money helped spur a Kurdish independence referendum in the face of strong opposition from the US, which argued it could jeopardise the fight against ISIS.64 In Chad, Glencore’s money helped bankroll Idriss Déby’s government even as Western-led institutions, such as the World Bank and IMF, were trying to impose strict conditions on him. In Russia, the traders’ cash very directly flew in the face of Western policy, by helping Rosneft and Putin weather the impact of US and EU sanctions against them. And as they realised that the commodity traders had become enormously important actors in global finance and politics, Western politicians and regulators also began to realise that they had terrifyingly little oversight of what the commodity traders were doing. Even as the traders had accumulated unprecedented financial power, their activity remained almost entirely unregulated. There had been a push for greater regulation of futures markets in the wake of the wild price gyrations of 2007–2011, but it had left the physical commodity markets largely untouched. The issue was not lost on the regulators themselves. For the most part, however, they lacked the legal authority, the political support, or simply the resources to do much about it. But there was one aspect of their business where the commodity traders were potentially vulnerable to aggressive regulation. They were reliant on a relatively narrow group of banks to provide them with huge sums in credit. And, more than anything, they relied on being able to access those sums in US dollars.

Conclusion: A Lot of Skeletons

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Trafigura’s success had been built overwhelmingly thanks to money from one bank: BNP Paribas
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Dauphin hadn’t expected what he heard next. This was not a social call. BNP Paribas was telephoning to inform the Trafigura boss that the bank no longer wanted to do business with him. The French lender was pulling about $2 billion in credit lines from Trafigura. Their relationship, forged over decades of trading commodities on every corner of the planet, was over.1 It was a cataclysmic moment for Dauphin, who had poured his life into Trafigura. Chain-smoking, relentless, charming and witty, he was the last of a generation of traders who had been seen as the heirs to Marc Rich in the 1980s, trading missionaries who brought Rich’s style of trading to all corners of the globe. He had built Trafigura in that image, driving the upstart trading house into the big league alongside companies like Vitol and Glencore almost through force of will alone. It was also a moment that would mark the beginning of a new era for the commodity traders. Just as they had reached the zenith of their wealth and influence around the world, their industry was about to change for ever. After decades in which they had expanded their reach around the world in the almost total absence of regulation or oversight, there was now an aggressive and unpredictable policeman in town: the US government. BNP Paribas had just pled guilty to violating US sanctions against Cuba, Sudan and Iran, and agreed to pay nearly $9 billion.2 It was a landmark case that shocked both the French elite and the global banking industry – the first time US officials had pursued such a large case against a major bank in a foreign country that was also a US ally.
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For years, the Americans were unaware. The US had outlawed American companies from dealing with Cuba, but European governments opposed the ban and many European companies were happy to invest there. The problem for BNP Paribas was that its loans to support Trafigura’s Cuban business were in US dollars, meaning that they had to be routed through the American financial system. Aware of the US sanctions, the French lender concealed the connection to Cuba. Rather than make direct payments, the bank set up layers of accounts to disguise the origin of the deals and instructed other banks involved that ‘they should not mention CUBA in their transfer order’.7 When Washington uncovered the plot, it moved aggressively against BNP Paribas. The $9 billion settlement in 2014 was one of the largest ever fines imposed on a single financial institution. Just as damaging, the US blocked parts of BNP Paribas from accessing the US dollar system for one year – a punishment of unprecedented severity for a bank operating in the global financial markets where the US dollar is king.
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The case against BNP Paribas highlighted the US government’s changing philosophy to the world beyond its borders: from now on, it would aggressively prosecute behaviour that ran counter to its foreign policy – even if that meant attacking major companies in countries that were US allies. And its main weapon was the US dollar, whose singular importance to the global banking system gave Washington enormous power to enforce its will. No bank could afford to be locked out of the US dollar system, as BNP Paribas had been. And so every bank around the world would effectively become an extension of US law enforcement, pro-actively hunting for any behaviour that ran counter to US policy.
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For years, many commodity traders had looked on sanctions and embargoes as an opportunity rather than a threat. Countries under embargo had fewer choices about whom to trade with, and so the profits for those who found ways to do business with them were proportionately higher. That’s what had allowed Marc Rich and John Deuss to make astronomical profits from subverting the oil embargo against apartheid South Africa in the 1980s. It was possible because the embargoes were poorly enforced. If they were put in place by only a few countries, then it was easy enough for the traders to open up a subsidiary in a country that hadn’t imposed sanctions, and deal through that subsidiary. Much of the traders’ activity took place in international waters, and so went ungoverned by any one nation’s laws. And the traders’ businesses similarly operated in the most opaque corners of the international financial system, where they might use a Cayman Islands shell company one day and a Maltese shell company the next; and where ships could sail under the flag of any number of nations, from Panama to Liberia or the Marshall Islands.
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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.14
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Switzerland also dragged its feet in prosecuting bribery of foreign government officials. Its first foreign corruption case against a company in Switzerland came only in 2011.15 And the penalties, beyond public shame, remained very low. For companies whose employees bribe a foreign official, the maximum penalty is five million Swiss francs, plus forfeiture of profit. The IMF has described the fines as ‘not effective, proportionate or dissuasive’.16
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Thanks to antiquated regulations and the willingness of countries like Switzerland to turn a blind eye, many commodity traders had little trouble finding ways to keep their most important relationships sweet
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in 2014, when the US levied its enormous fine on BNP Paribas, the world was changing. For decades, the US had imposed its will around the world using its pre-eminent military might. But now, after years of fighting in Iraq and Afghanistan, the US public was tired of wars. Under President Barack Obama, Washington found a new method to enforce its will: using the power of the dollar in the global financial system as a weapon.
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Sanctions programmes proliferated as a tool of US foreign policy – against countries that were America’s foes, and individuals who, in the opinion of the US government, were responsible for corruption and human rights abuses around the world. All of this was possible because of the overwhelming importance of the US dollar. As the US became the world’s dominant economy in the second half of the twentieth century, a large proportion of global trade was priced in US dollars – including almost all commodities. Because any US dollar transaction must be cleared through an American bank, US sanctions took on ‘enormous weight and influence beyond our borders’, according to Jack Lew, the Treasury secretary from 2013 to 2017.20
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Secondary sanctions involved the threat to block access to the US financial system to companies that had done business with sanctioned entities, even if they hadn’t done so in dollars. The effect was to make the US the world’s policeman. Lew himself acknowledged that such secondary sanctions ‘are viewed, even by some of our closest allies as extra-territorial attempts to apply US foreign policy to the rest of the world’.21 The first target was the banks. BNP Paribas was not alone. The US forced HSBC to pay $1.9 billion for allowing itself to be used to launder Mexican drug money;22 Credit Suisse paid $2.6 billion for helping US citizens to avoid taxes.23
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US sanctions started to target many of the countries where the traders had done most business – including Iran, Russia and Venezuela. And the US placed many of the traders’ closest friends and allies on the sanctions list it had previously reserved for terrorists and drug dealers
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But the economic slowdown in China is only part of the reason why commodity traders’ earnings are no longer growing. The traders have several far deeper and more structural problems. The first is the democratisation of information. For decades, the commodity trading houses enjoyed a tremendous information advantage over the rest of the market.
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Information was the most valuable resource. And the traders controlled it. Even the most basic piece of information, the exact price of each commodity, wasn’t readily available to everyone. 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.39 If prices were going up, traders could buy from Exxon with near certainty of a profit. 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.40
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A second challenge to the traders’ profitability comes from the reversal of one of the trends that has benefited them most over the past three-quarters of a century: the liberalisation of global trade. From the world’s first modern free trade treaty, the General Agreement on Tariffs and Trade in 1947, to China’s accession to the WTO in 2001, the trend after the Second World War was for open borders, frictionless trade and globalisation. For the commodity houses, that meant growing global trade and markets that were more easily connected: in a truly globalised market, a trader can just as easily sell Chilean copper to China or to Germany, and so can direct it to wherever the price is best. The final boost for the traders came in 2015, when the US ended a de facto export ban on American crude oil, opening a new trade flow for the global oil market. Since then, however, the zeitgeist has shifted against globalisation and free trade. Donald Trump was elected president in 2016 on an explicitly anti-free trade platform. And he delivered on it, tearing up free-trade agreements and launching a trade war with China, which led to new tariffs on everything from steel to soybeans. The tariffs caused trade flows to be redirected: US exports of soybeans to China, for example, previously worth $12 billion a year, were for a couple of years displaced by Brazil. Some traders were wrongfooted by those moves; others made money from them. More worrying, however, is what the trade wars could mean for the overall volume of global trade: just as the traders profited from decades of expanding international trade, so they are likely to suffer as that trend goes into reverse. The fragmentation that is taking place in global trade goes beyond US trade policy. Consumers increasingly care about traceability and ethical sourcing of their products – whether that means a Fair Trade chocolate bar or conflict-free minerals in their mobile phones. And that means they can’t buy just any cocoa beans or cobalt. They must know exactly where the raw materials have come from. The result is a more fragmented market, in which the commodity traders are less able to buy from anywhere and sell to anyone.
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A third challenge for the traders strikes at the core of their business: climate change. Much of the industry’s profits come from trading fossil fuels, such as oil, gas and coal. If Big Oil and Big Coal are responsible for polluting the planet, the traders are their enablers, shipping their production to global markets. As the world increasingly turns against oil and coal consumption, the traders’ business will suffer. At Glencore, coal is one of the biggest money makers. The company is not only the top coal trader, but also one of the world’s largest coal miners. Vitol, Mercuria, Gunvor and Trafigura rely on oil trading for the bulk of their profits.
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Finally, the traders have become victims of their own success. The industry’s tentative move out of the shadows, epitomised by the Glencore IPO, has laid out the traders’ enormous profits for all to see. It has not just been US policymakers and law enforcement officials that have been dismayed by some of the details of the traders’ activity. It’s also the traders’ clients – the producers and consumers of natural resources – who have begun to wake up to the profits the traders have been making, in some cases at their expense. In response, many of them are getting smarter about how they buy and sell commodities
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Among the oil producers to start their own trading operations are Saudi Aramco and the Abu Dhabi National Oil Company, two state companies with massive oil resources in the Middle East; and Rosneft of Russia and Socar of Azerbaijan, which in 2015 bought the remnants of the oil trading business of Philipp Brothers.42 It’s not only state-owned producers that are getting into trading: so is ExxonMobil, the largest oil major, and so are mining companies such as Anglo American. For the traders, that’s a challenge. As more oil producers do their own trading, an ever-larger chunk of the market is effectively walled off from the commodity traders. It’s a reversal of the trend that has been in place since the Seven Sisters lost control of the oil market in the 1970s. The biggest threat of all comes from the traders’ biggest client: China. For the past two decades, the trading industry’s profits have been driven by China’s appetite for raw materials. But, just like the rest of the resources industry, the Chinese government has also woken up to the enormous profits of the trading industry. And so, while China remains a large and important market for the trading houses, Beijing is increasingly pushing to build its own commodity trading capability. The clearest example is in agriculture: the Chinese state agriculture trading agency, Cofco, has spent $4 billion since 2014 to establish an international food trading arm. In metals, Chinese companies have bought several mid-sized trading firms in recent years, including the metals business of Louis Dreyfus. And in oil, trading companies, such as Unipec, ChinaOil and Zhuhai Zhenrong, are handling a significant share of China’s import needs.
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as American sanctions have proliferated and Western commodity traders have been forced to step back from certain markets, the Chinese traders have benefited.
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Many of the characters at the heart of our story are no longer active. Marc Rich died in 2013; Claude Dauphin in 2015; and Ian Taylor in 2020. John Deuss has retired into obscurity at his base in Bermuda; Andy Hall is enjoying his art collection; even Ivan Glasenberg, the most relentless and driven trader of them all, has announced plans to retire in 2021