I have just finished reading The King of Oil by journalist Daniel Ammann, a book* that tells the story of the legendary and controversial trader Marc Rich, whom the FT once described as “one of the wealthiest and most powerful commodity traders that ever lived”. I would recommend the book to anyone that is interested in commodities.
Daniel Ammann writes,
Marc Rich, born Marcel Reich, the Jewish boy-refugee from Antwerp, barely escaped certain death in the Holocaust…Penniless and unable to speak a word of English, the young Reich fled (with his parents) to Morocco by freighter and, with a great deal of luck, finally reached the United States.
In 1954, at the age of 20, Marc Rich started in the mailroom at Philipp Brothers, at that time the world’s largest trader in raw materials. He worked his way up on to the trading floor in New York, before moving to head up the company’s Madrid office where he started trading oil. Some observers credit Marc Rich with inventing the spot crude market; previously all oil was traded on long-term fixed-price contracts. However, as Daniel Ammann writes,
“The notion of taking risks was as foreign to him as for the entire company, and this was reflected in Philipp Brothers German motto…” It is better to sleep well than to eat well”. The principle was drummed into employees that it was better to avoid a lucrative deal if the risks involved were high enough that they might endanger the entire company.
Marc Rich felt that Phibros was not aggressive enough. He left in 1974 to set up his own trading company, under his own name, in Zug Switzerland. He chose Switzerland because of the low tax rates and the fact that Switzerland was a neutral country; at that time, it was not even a member of the United Nations. As Marc Rich himself said, “The only bad thing about Zug is the fog.”
Marc Rich & Co was spectacularly profitable from the start, and by the end of the 1970s had thirty offices around the world. The five partners divided themselves between New York (where March Rich himself worked), London, Madrid and Zug.
In 1983, however, U.S. authorities charged Marc Rich with evading taxes and trading with Iran during the 1979/81 hostage crisis. Rich fled to Switzerland where he lived as a fugitive for 17 years.
Marc Rich admits buying oil from Iran during the embargo, as well as to supplying oil to apartheid South Africa and bribing officials in countries such as Nigeria. However, he argues that all this was legal at the time. For example, the bribing of foreign officials was legal in the United States until the passing of the Foreign and Corrupt Practices Act of 1977. In Switzerland, it remained legal until 2000. And as a non-US company based in Switzerland, Marc Rich & Co was legally (if perhaps not morally) exempt from the embargoes on Iran and apartheid South Africa.
Bill Clinton officially pardoned Marc Rich on the President’s last day in the White House in January 2001. The pardon was highly controversial, but, according to Daniel Ammann, it was the result of heavy lobbying by Israel. Throughout his career, Marc Rich had given large sums to the country, as well as working closely with Mossad, their security services.
For some, Marc Rich was,
“The capitalist without a country who makes deals with the enemy. The speculator who creates nothing of his own but only acts as an intermediary while profiting from others. The “bloodsucker of the Third World” as he was once referred to in the Swiss Parliament. The perfidious profiteer, who would rather leave his own country and give up his citizenship rather than pay taxes.”
But Ammann takes a more balanced view. He writes,
“Most commodities come from countries that are not beacons of democracy and human rights. The “resource curse” and “the paradox of plenty” are the terms economists and political scientists use to describe the fact that countries that are rich in oil, gas or metals are usually plagued by poverty, corruption, and misgovernment. If commodity traders want to be successful, they are forced—much like journalists or intelligence agents who will take their information from any source—to sit down with people that they would rather not have as friends, and they apparently have to resort to practices that are either frowned upon or downright illegal in other parts of the world.”
“The commodity trade is a hard, capital-intensive business with tight margins. Profits of 2 to 3 per cent are considered quite satisfactory during normal times. It is only during unsteady times…that profits are significantly higher.”
The author describes an interview that he conducted with an ex-Marc Rich trader in a New York bar.
“Ethics,” he laughed. Then he pointed to my Diet Coke. “Your Coke can is made of aluminium. The bauxite that is needed to make it probably came from Guinea-Conakry. A terrible dictatorship, believe me,” he said. “The oil that is used to heat this room probably comes from Saudi Arabia. These good friends of the USA hack the hands off thieves just as they did in the Middle Ages. Your cell phone? Without coltan, there wouldn’t be any cell phones. Let’s not pretend. Coltan was used to finance the civil war in the Congo.” Do the people who criticise our work want to know any of this? Or would they rather just pick on us so that they can feel better about themselves”.
By the early 1990s, the legal case against Marc Rich was taking its toll. A difficult divorce and the death of his daughter added to his woes, and the partners began to worry about their company’s future. Marc’s legendry feel for the markets deserted him, as did many of his key traders. A failed attempt to corner the zinc market left the company with $172 million in losses and the firm was struggling. After at first resisting, Marc Rich finally sold his 51 per cent majority share in the company in a managerial buy-out for an eventual total of $600 million.
The first thing that the new owners did was to change the company name to Glencore. The company went public in May 2011 and now has a market capitalisation in excess of $42 billion.
Marc Rich himself died on 26th June 2013 at the age of 78. Despite his pardon, he never returned to the US.
But I leave the last word to Daniel Ammann,
“You must be a lucky man,” I said to the most successful and controversial commodities trader that the world has ever seen. Rich…remained silent for some time. Then, almost as if he were talking to himself, the King of Oil quietly replied, “Sometimes.”
*Available on Amazon