Chad is a very poor country and was run by a dictator Idriss Deby. While he lived in influence the people remained poor. In 2013, there was threat of Islamist militants and he had to deploy the military to counter this problem. The Chadian president had no money to pay for this exercise but the nation had some oil resources. The World Bank and IMF had cut off aid as there were credibility issues. This is where Glencore stepped in and kept providing loans to Deby in return for oil that was then sold in the market. All this happened in the background and still happens today in various countries.
In 2014, BNP Paribas, which had been working together with Trafigura in Cuba since the 1990s, suddenly was on the blacklist of the US government and was penalised for dealings with Cuba, albeit indirectly. America had outlawed companies dealing with Cuba but the Dutch company dealt with oil in Cuba. Here again, while politics pulls economic decisions in one direction, there are ways to circumvent it and this is where intermediaries add value.
When crude oil price crashed to nil during the global lockdown, Glencore kept buying oil from all producers from different states and later took positions in the futures market at three times the return.
While Glencore dealt directly with Chad, Vitol had complex dealings with Kazakhstan. From 2016 onward, Vitol channeled loans worth more than $6 billion to KazMunayGas (KMG), the state-run oil company in return for future oil supplies when the country was in trouble. This was facilitated through banks.
What does all this show? Commodity traders play a big role in the politics of various countries, especially those that have low economic credibility. They remain in the background most of the time but can be relied upon for picking of commodities and making money on sale while providing loans to distressed nations that are considered pariahs by the global financial system.
Welcome to The World for Sale, a book written by journalists Javier Blas and Jack Farchy, where they take us through various deals struck by the largest commodity dealers who never are at the forefront but facilitate a large flow of cash between different governments while dealing with commodity trading. These traders independently arrange for the sale and delivery of metals, oil, foodstuff, etc, that they do not own. They could operate outside of government regulations and often deal with the world’s dictators and ignore sanctions that the rest of the world may have imposed. We may be knowing of these companies as being plain commodity dealers—not a very glamourous profession unlike their counterparts in the financial world. But these players manage politics and economics with dexterity and are hence very powerful.
Their goal is quite straightforward— to make money by buying and selling raw materials, which can mean flogging Russian gas to Europe, Saudi oil to America and Congolese metals to Silicon Valley. They evidently do not follow the conventional way of dealing with these nations and do whatever it takes— whether funneling cash to Vladimir Putin’s sanction-stricken Kremlin, cosying up with Russian metal oligarchs after the collapse of the Soviet Union, or striking deals with the Libyan rebels at the height of the Arab Spring. Some may call this amoral, but probably in business everything is acceptable when money is concerned.
As the world changes, natural resources would be required by all countries and their movement has to be facilitated seamlessly. Owning commodities is going to be the route to power and hence commodity traders have a big role to play as they commercialise these natural resources. It goes beyond oil, and even agricultural commodities like soybeans or corn have high value in this circle of trade. Their power remains quite entrenched.
The authors take us through several such case studies starting with Libya, which was a pariah to Iraq to China, and the lesser known names of Chad to illustrate how these traders have gained power. The UN’s food-for-oil program had to go through an account maintained in New York, which is not what Iraq wanted. This was to keep Saddam Hussein in check, for he required money to go ahead with his military adventures. Here, the commodity traders stepped in and the money was routed through myriad channels so that the identity of the two parties would never be known. The oil was handed from one company to another via a network of anonymous identities included in tax havens. Vitol channeled payments via mysterious outfits in the British Virgin Islands so that tracing it to Iraq was virtually impossible. An investigation showed that Glencore was one of the largest players in this deal that bought Iraqi oil.
The authors give another story of such dealings in agricultural products. The soybean crisis of 2008 left China in a condition where shortages amidst high prices had put it in a corner. They had to contact the four big dealers known as the acronym ABCD—Archer Daniels Midland, Bunge, Cargill and Louis Dreyfus. Most of the trades were prop trades and their interaction with myriads of small farmers gave them all the information that was needed to have a grip of the market.
The book is fast moving and could read like a novel as the authors take us through various case studies that involved also interviewing several people involved in this business. It makes interesting reading for sure. It will also set the reader thinking on the present situation in Russia, with an embargo on trading with this country. Will the commodity traders offer an escape route because sanctions can cripple any nation if they become permanent? Going by what has been described by the authors in this book, one may never know what dealings are going on that allow surreptitious transactions to take place in the background.
The World for Sale: Money, Power, and the Traders Who Barter the Earth’s Resources
Javier Blas & Jack Farchy
Penguin Random House
Pp 416, Rs 599
(Madan Sabnavis is chief economist, Bank of Baroda.)