Breakingviews – Review: The wild history of the commodities boys – Reuters

LONDON (Reuters Breakingviews) – Javier Blas and Jack Farchy should be awaiting the call from Hollywood. “The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources” contains at least half a dozen narrative threads that would form the basis of a good thriller. But the authors’ main achievement is to subject the biggest commodity players, and their impact on the real world, to proper critical scrutiny.

An oil tanker is seen at Jose refinery cargo terminal in Venezuela.

It has become a cliché to describe Glencore, Vitol, Cargill and the handful of other major companies that trade oil, metals and food as shadowy, secretive and deceptively powerful. Even so, it’s not always apparent just how large they are. The five largest oil traders handle a quarter of the world’s daily demand for petroleum while the seven top agricultural traders process nearly half of the world’s grains and oilseeds. In 2019 the five largest trading companies had a combined turnover of $865 billion.

This kind of financial heft has made them political players of serious consequence. When Jamaica ran out of cash to pay for its 300,000 barrels a month of oil in the early 1980s, Energy Minister Hugh Hart’s only option to avoid riots on the streets was to call Marc Rich. The founder of the eponymous trading firm that eventually became Glencore delivered the oil within 24 hours. When rebels in Libya ran out of fuel in 2011, and when Cuba needed oil in the early 1990s, long-term Vitol boss Ian Taylor personally negotiated a fresh supply.

The striking aspect of these stories is how much risk the traders were taking. The Libyan rebels had no money, so had to pay for refined oil with their own crude, which dried up when government forces blew up a pipeline. When Cuba struggled to make payments to Vitol in the form of sugar, the country invited the trader to help develop domestic hotels. Such bets were ultimately shrewd: delivering for desperate clients meant charging fat fees and commanding their long-term gratitude. But the deals could also have threatened Vitol’s survival.

All of which engenders some respect for trader chutzpah. There’s also an enticing, spy novel feel to some of the goings-on, amplified by the occasional need to speak about countries subject to sanctions in code. Crude Number Three, for example, referred to illicit Iranian oil. Rich handled this via a bogus middleman from Burundi called Monsieur Ndolo, who was actually one of his own traders.

Still, the beneficiaries of the go-anywhere, do-anything mentality were not just plucky rebels. In a telling comment before he died in 2013, Rich professed his dislike of South Africa’s Apartheid policy, but he supplied the racist pariah state regardless. Glencore sold oil it had mixed with cheaper variants to Romania. In 2006, Trafigura paid an inadequate middleman to dispose of toxic waste on an open pit in Ivory Coast, causing a local health emergency.

Alongside their moral shortcomings, the traders also suffered from hubris. Rich, feeling U.S. outrage over his Iran oil trades, lost $172 million betting on zinc. Bermuda-based oil trader John Deuss lost $600 million in a failed attempt to corner the North Sea market. According to Blas and Farchy’s sources, even relatively restrained American agri-trader Cargill riskily shorted oil in 2008 and 2009, making a $1 billion profit.

The depth of the reporting by the Bloomberg journalists, who previously worked for the Financial Times, is impressive. Details of Monsieur Ndolo’s cameo come from the man himself. The authors also conducted a five-hour “combative” interview with pugnacious Glencore boss Ivan Glasenberg. And they join the dots. One fascinating passage charts Glencore’s role in pushing for an export ban on Russian grain, how its surreptitious long position benefited from the subsequent jump in prices, and how those dislocations ultimately fed through to the popular risings of the 2011 Arab Spring.

The heyday of Rich and his cohorts looks to be long gone. Even if modern traders remain unconstrained by ethical considerations, practical ones loom. The banks on which they depend for credit lines are now wary of U.S. sanctions or being labelled pariahs by environmentally and socially conscious investors. The practice of paying bribes to officials and fixers in tricky jurisdictions, which in Switzerland were hilariously treated as tax-deductible expenses, is more likely to be punished. It’s also harder to carve out an information advantage when everyone is online and satellites can track oil tankers. Glasenberg long ago realised he needed to be a miner as well as a trader and snapped up cheap mines, a strategy that paid off spectacularly when China’s breakneck growth sent commodity prices soaring.

Traders remain major players in commodity markets. When U.S. oil prices briefly turned negative last April, Glencore snapped up the dirt-cheap crude, stored it in a massive tanker in the Strait of Malacca and wound up making $1.3 billion in the first half of the year. New tariffs and other trade barriers could also open up fresh opportunities. But if it becomes harder for this group of swashbucklers to nonchalantly change the course of world history, that would be no bad thing.

Breakingviews

Reuters Breakingviews is the world’s leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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