How to Get Rich

Rotterdam​ city centre sits a few miles inland from the North Sea, its skyscrapers and office buildings lining the New Meuse River, a tributary of the Rhine. A ferry tour takes you past ship repair yards, grain silos, terminals receiving coal and iron ore for Ruhr Valley industries, and even a massive orange juice storage facility that receives its cargo from Latin America. If you want to see the biggest container terminals, however, you have to go on the longer tour offered only during the summer. It takes you down the Nieuwe Waterweg and out to sea, where land reclamation has created extensive breakwaters around the port’s deepest harbours. Out here vast loading cranes loom and white blisters of oil depots flank refineries operated by Shell, ExxonMobil, Koch, Gunvor and BP. The depots are owned by companies with acronyms for names, cloaking their part ownership by global oil giants: Aramco, Vitol and Kuwait Petroleum International (also known as Q8).

Rotterdam is the largest port in Europe, the tenth biggest in the world. Its position as the gateway to Germany’s industrial heartland was secured more than 150 years ago, when the expansion of European heavy industry was powered by the coalmines of the Ruhr Valley and the raw commodities extracted in the colonies. But it was the transition from coal to oil after the Second World War that decisively shaped the port city, as crude was imported on a massive scale and refineries built to process it.

Whose petroleum feeds Rotterdam’s refineries? The answer isn’t straightforward. Many different businesses can be involved in the provision of oil, from the state enterprises that own the ground under which oil reservoirs sit, to the oil companies that extract it, to the outfits that sell it. Sometimes, a multinational has the rights to the oil, is able to draw it from the ground, and has the facilities to refine it and trade it. The ‘oil majors’ acquired this status because they could do all these things, with operations stretching around the globe.

In the late 19th century John D. Rockefeller’s Standard Oil had a monopoly on oil refineries, pipelines, rail transport and storage facilities in the US, but it didn’t control US oilfields, and – to start with – depended on British oil traders to ship its products to Europe. In 1911 Standard Oil was dissolved by antitrust legislation into 34 companies, among them the future Amoco, Chevron, Conoco, Exxon and Mobil. Elsewhere, these new companies took shared ownership of enterprises such as Saudi Arabia’s Aramco, which belonged to Standard Oil of California (Chevron), Standard Oil of New Jersey (Exxon), Socony Vacuum (Mobil) and Texaco. Aramco provided the US government with intelligence, helped with diplomacy and – literally – fuelled its war machines. Similarly, oil companies across the Gulf littoral were whole or partial subsidiaries of BP, which was itself 51 per cent owned by the British until Thatcher sold it off.

The oil majors didn’t have it all their own way. In 1951 Mohammad Mossadegh nationalised the Anglo-Iranian Oil Company, and in response the companies known as the Seven Sisters – BP, Chevron, Exxon, Gulf, Mobil, Royal Dutch Shell and Texaco – boycotted Iranian oil. They had the assistance of the British, whose fighter jets forced the Rose Mary, which was transporting oil from Abadan for an Italian client, into the harbour at Aden, where it was detained. When the shah was reinstalled in a US-sponsored coup in 1953, he agreed to share control of Iran’s oil with the Seven Sisters and the French firm that eventually became Total. Decolonisation brought the nationalisation of oil and the establishment of state-owned oil companies, which, to varying degrees, worked with the oil majors. By the end of the 1970s the Seven Sisters’ share of the international oil trade had fallen from 90 per cent to 42 per cent, and commodity traders rushed in to fill the gap. The global spot market in oil was (re)born.

Anything can be turned into a commodity. Humans and their labour, flora and fauna, livestock and crops. The ocean yielded not only pearls and fish but whales, whose oil was used in lamps before a technique was developed to transform petroleum into kerosene. Anything extracted from the earth can be commodified. Oil, and all the metals – copper, mercury, lithium – that industrial production and commerce have depended on. Commodities from the colonies and the trade in slaves were the lifeblood of early European capitalism. Commercial contracts and financial devices became instruments of conquest, colonisation and commodification. Futures contracts were themselves turned into abstract commodities. By the mid-19th century, futures contracts at the Chicago Board of Trade for grain, timber and meat surpassed cash trades. As the historian William Cronon wrote in Nature’s Metropolis (1991), ‘one could buy, sell and settle up price differences without ever worrying about whether anything really existed to back up contracts.’

Markets in commodities are not just about supply and demand. They are protected by state coercion, whether through the enforcement of contracts or at the point of a bayonet. George Hourani, a historian of Arab seafaring, has written about the ‘lengthy stops in the hot, humid ports’ that merchants had to endure ‘at the mercy of the local ruler’, protected from the threat of piracy only ‘in the rare waters where a ruler kept a navy to safeguard shipping’. Merchants flourished where the integrity of their cargo and contracts could be guaranteed, and where they could secure reliable intelligence about supply, demand and prices. Across the empires, the protection of land and sea routes, the provision of information about rules of trade and tariff, as well as the availability and transferability of credit, helped merchants develop relationships with local agents.

In the first half of the 20th century, one French merchant, Antonin Besse, set up shop in Aden and became an agent for Shell Oil with a finger in every pie, buying and selling coffee, livestock, skin, oil, timber and frankincense across the Indian Ocean and along the coast of East Africa. The travel writer Freya Stark remembered visiting him in Aden during the Second World War: ‘I would escape twice a week or so to the old town of Crater, to see Hilda Besse and Anton sparkling with gaiety and malice. King of the Red Sea coasts and their commerce … he was distressed at this time because he could not help making money during the war; it piled itself up malgré moi.’ Besse and his British and Indian counterparts defended the empire in Aden as fervently as it protected them, their interests and networks often overlapping. In his old age, a large endowment from Besse led to the foundation of St Antony’s College in Oxford. Amid a fierce anticolonial struggle in Aden, workers at his company protested about the fruits of their labour being expatriated to England. After decolonisation in 1967 his many and various interests in the former British colony were nationalised.

Traders and merchants have always, willingly or reluctantly, been used as the advance guard for powerful states. The World for Sale starts in 2011 with the late Ian Taylor, chief executive of Vitol, on board a private jet, heading to Benghazi in Libya. Vitol, the world’s largest oil trading company, had been asked by the government of Qatar to deliver diesel, gasoline and fuel oil to the rebels fighting Gaddafi. In lieu of cash payment, Taylor had arranged to receive a shipment of crude at the Egyptian terminus of a pipeline from the Libyan oilfields. Naturally, he had secured permission from the British government for the deal, along with a sanctions waiver from the US. Vitol was lubricating the war in Libya at the behest of foreign powers, but Taylor claimed his actions were not political. This seems to be the mantra of the titans of commodity trading interviewed by Javier Blas and Jack Farchy: ‘We are just here for the money; we are not doing politics.’ I suppose it all depends on what you take ‘politics’ to mean.

The origin myth of today’s commodity trades goes back to the era of decolonisation. But they can of course be traced further back, to the East India Company and other early merchant capitalist enterprises involved in the extraction of resources from the colonies. A starting point might be 1592, when traders from the Venice Company set up the Levant Company in London; Levant Company merchants helped found the East India Company seven years later. There are similar familial connections in the modern era: many commodity trading firms emerged from Philipp Brothers, which started as a scrap and ore dealer and became a global metals merchant in the 1960s. Philipp Brothers begat Marc Rich + Co, and Marc Rich + Co begat Glencore, and Trafigura, and so on.

They aren’t always happy families. Marc Rich was put on the FBI’s most wanted list in 1983, when a young US attorney for New York’s Southern District, Rudy Giuliani, charged him with 51 crimes including tax evasion, racketeering, conspiracy and ‘trading with the enemy’. The last charge was the final chapter in a long story. After the nationalisation of the Suez Canal in 1956 and the war waged by Israel and its allies against Egypt, the Israeli government decided to build a pipeline from Eilat on the Gulf of Aqaba in the south to Ashkelon on the Mediterranean coast in order to bypass the canal. The pipeline, a secret 50-50 joint venture with Iran, was financed by Deutsche Bank in a deal facilitated by the bank’s chairman, Hermann Abs, who had been in charge of the expropriation of Jewish property in Nazi Germany. It was Rich, still then with Philipp Brothers, who ensured the supply of oil to the pipeline, dispatching tankers to lift oil in Abadan, sail around the Arabian peninsula, and unload secretly in Eilat. From the late 1950s until the 1970s, Israel imported 90 per cent of its oil from Iran.

Rich left Philipp Brothers in 1974 and set up his own more aggressively risk-taking firm in Switzerland, continuing to provide Iranian oil to Israel even after the 1979 revolution. Ayatollah Khomeini seems to have been pragmatic about this trade with the Little Satan, just as he would be about the dubious trade in arms with the Great Satan a few years later, which became public as the Iran-Contra affair. In the US, however, Rich’s clandestine deal with Iran to provide oil for Israel was encouraged before the revolution but censured after it, leading to Giuliani’s attack on him. Rich’s mistake had been not to secure a sanctions waiver; Taylor did not make the same mistake thirty years later. Rich was eventually, and controversially, pardoned by Bill Clinton, apparently at the behest of Ehud Barak, partly on the grounds that he had helped provide Mossad with intelligence on Iran.

When​ Ghana’s first president, Kwame Nkrumah, published Neo-Colonialism: The Last Stage of Imperialism in 1965, it was already clear that the newly independent states were going to have to fight to be allowed to be economically self-sufficient. ‘Decolonisation,’ Nkrumah wrote,

is a word much and unctuously used by imperialist spokesmen to describe the transfer of political control from colonialist to African sovereignty. The motive spring of colonialism, however, still controls the sovereignty. The young countries are still the providers of raw materials, the old of manufactured goods … Colonialism has achieved a new guise … And neo-colonialism is fast entrenching itself within the body of Africa today through the consortia and monopoly combinations that are carpetbaggers of the African revolt against colonialism.

The new markets for primary commodities were engineered by those carpetbaggers, the merchants and traders who took advantage of the desperation of newly decolonised and impoverished states which were rich in commodities. Rich cultivated relationships with the conservative government in Jamaica, offering much needed oil in return for shipments of bauxite and even advancing cash to repay Jamaica’s IMF loan. The arrangement led in 1985 to a ten-year contract whereby Jamaica sold alumina to Rich + Co at 25 per cent below market price. A profitable trade followed: he supplied this cheaply bought commodity to Jamaica’s smelters and received finished aluminium products. With Jamaica on the verge of economic collapse, its politicians were grateful for this daylight robbery.

Rich’s company and the other major commodities traders – Cargill, Glencore, Louis Dreyfus, Mercuria, Phillip Brothers, Trafigura, Vitol and Xstrata – didn’t just benefit from decolonisation. They also profited from the end of the Soviet Union and the subsequent fire sale of its state assets. Commodity traders made deals with the new state enterprises, as well as the private firms set up by the oligarchs, and companies that blurred the lines between the two. When Putin ordered the imprisonment of Mikhail Khodorkovsky, it was, according to a commodities trader quoted by Blas and Farchy, because he had tried to sell Yukos Oil to a US firm. ‘You can imagine the anger. These guys got this for free. They didn’t pay for this: they got it. And they’re now going to sell it to an American multinational?’ Trading with the enemy wasn’t only an issue in the courts of New York’s Southern District.

From the 1970s onwards, trade was buoyed by the availability of the easy credit that accompanied the financialisation of the global economy. Banks loved commodity traders and lavished them with credit lines. Rich used letters of credit from Paribas for large cargos he couldn’t afford to pay for in cash. Derivatives and options allowed traders to hedge their risks on commodity purchases so that they made money whether the prices for the contracted goods went up or down.

The boys’ club of commodities merchants is interlocked and intimately connected, fortifying their secretive, aggressively profit-seeking methods of trade. Most firms operate as partnerships and, apart from Glencore, none has chosen to go public and expose itself to the scrutiny that a prospectus for a stock market listing brings. Commodities traders don’t want scrutiny. They work with kleptocrats and oligarchs, do some of their best deals in countries at war, pour money into the coffers of warlords and help out intelligence agencies. Prosecutions for wrongdoing often fail, especially in countries where the government has limited reach. In any case, firms can only effectively be prosecuted for bribery and underhand business – such as dumping lethal waste in residential neighbourhoods in Ivory Coast, as Trafigura did in 2006 – not for their usual modus operandi of rapacious trade.

Any successful prosecutions, including by US courts, have almost invariably been the result of alliances and enmities. Whenever the US has been unable to prevent commodities merchants from trading with its enemies – Iran, Cuba, Sudan, Russia, Venezuela – it has imposed multi-billion dollar fines on the banks that finance those trades. The US’s ability to extract fines and impose compliance on banks is a remarkable feat, made possible by the fact that commodity prices are denominated in dollars and by the enormous power the US wields over global financial infrastructures. Geopolitics has played a role, too, in deciding which banks and traders receive special treatment and sanctions waivers, and which do not.

Commodities traders rely on compliant financial and legal regimes. But they also need easy access to a vast infrastructure of shipping and market facilities. This is the reason Rotterdam, which for the last 75 years has poured public and private investment into its port, has become a significant hub. When the Seven Sisters lost control of global oil in the 1970s, Rotterdam became the clearing house for the oil market, and its position as Europe’s most important re-export hub for hydrocarbons was sealed. Even the supposed 1973 Arab oil embargo didn’t affect its status. A civil servant in charge of the port at the time told the New York Times that ‘the tankers arrived this week at the same rate as the week before, and the week before that.’ By the turn of the millennium, Rotterdam hosted seven refineries and the main or regional offices of Vitol, Vanol, Transol, Bulk Oil, Transworld Oil and Mabanaft. Royal Dutch Shell’s headquarters is nearby, in The Hague. Some traders shifted their headquarters to London for ready access to banking, laxer regulation and more aggressive office cultures, but many more remain in Rotterdam.

In 1986 Marc Rich’s firm had no need to own the Jamaican alumina foundry whose profits it enjoyed. In the intervening decades, however, commodities traders have acquired not only factories and refineries but also mines and oilfields. Vitol has major storage facilities in Rotterdam, Singapore, the Caribbean and Fujairah in the UAE. Glencore owns 150 mines, smelters and factories around the world. Trafigura has refineries and quarries. Cargill owns feedlots, sugarcane plantations and factory farms on several continents. Their trajectory is similar to that of the Shell Transport and Trading Company at the beginning of the 20th century, when it came in possession of oilfields through a merger with Royal Dutch. National hydrocarbon producers have entered the trading business too: among them, Saudi Arabia’s Aramco, Rosneft of Russia and Abu Dhabi National Oil. Shell, BP, ExxonMobil and Total already control wildly successful trading arms, buying and selling other producers’ oil and speculating on the financial markets. These in-house traders are earning significant money, with annual pre-tax profits of $4 billion for Shell and $2 or $3 billion for BP and Total. At a time of over-supply in the oil market, production isn’t nearly as profitable as it once was, so the big companies rely on the magic of financial derivatives to rake in the cash through their trading arms. Even better, they can avoid paying taxes by operating their trading operations from low-tax offshore jurisdictions like the Bahamas.

These days, an intermediary role of the sort Marc Rich once took, transporting the oil of one state to the pipelines of another, may not be necessary. The oil that flows through the Eilat-Ashkelon pipeline is now supplied by a company called Med-Red Land Bridge. Med-Red is a consortium between two Israeli hydrocarbon infrastructure firms and Petromal, a strange little oil services firm based in Abu Dhabi, whose ownership – once one peels back its shell companies – can be traced to two princes from the country’s ruling family. Meanwhile, Israel has unilaterally taken over the pipeline and is refusing to pay the $1.1 billion (plus interest) it owes Iran. The pipeline itself is a state secret, and a Knesset committee has ruled that anyone leaking information about it may be subject to a prison term of fifteen years.