What inspired you to jump into the murky waters of commodities trading, Jack?
Javier and I were both journalists covering natural resources for the Financial Times, and we kept finding ourselves gobsmacked by the importance of a very small group of commodity trading companies, and equally surprised by how little anyone seemed to know about them. We wanted to learn more, but realised that almost no books had been written about them. That’s when we realised we’d have to go out there and get the story ourselves.
Tell us more about the importance of those companies…
Within those companies, there are a few individuals who have played a huge role in shaping our modern world. The story we discovered was one of how money and power interact in ways that most people don’t understand. Commodity traders have been growing in importance from the end of the Second World War through to the present day. They have shaped history along the way, playing a role in everything from the collapse of the Soviet Union to the rise of China.
How much of this was uncharted territory?
So much of the world of commodity traders is secretive, so a lot of what we found hasn’t been reported before. We spoke to more than 100 traders, many of whom have rarely if ever spoken in public before. Among other things, we discovered how American teachers’ pension savings went to fund an oil war in Iraq, with a little help from the world’s largest commodity trader; and we also found that the three largest commodity traders (which, because they are private companies, don’t have to publish accounts) made more money in the first decade of the 2000s than either Apple or Coca-Cola.
What was the discovery that surprised you the most?
It was a surprise to hear people talking quite openly about bribery as if it was just another business expense. This is not just something that happened many years ago – the world’s largest oil trading company, Vitol, admitted to paying bribes in Latin America as recently as July 2020. And we were genuinely shocked to discover that in Switzerland, paying bribes to foreign companies was not only legal but also tax deductible until as recently as 2016.
What gives commodity traders their influence?
Commodities mean money, and money means power – it’s as simple as that. As the companies who can turn commodities into cash for resource-rich governments or individuals, the traders get very close to power. And sometimes they influence it. Take the example of Vitol in the Libyan civil war of 2011. The Arab Spring was sweeping through the Middle East, and in Libya there was an uprising against the dictatorship of Colonel Muammar Gaddafi. But the rebels had a problem – they didn’t have enough fuel. Gaddafi controlled all the refineries. Then Ian Taylor, the boss of Vitol, flew in to Benghazi and agreed to supply the rebels with $1bn of fuel – and it wouldn’t need to be paid for until after the war had been won. There’s little doubt that Vitol’s intervention altered the course of the conflict.
How did the traders become so influential?
A couple of big trends have benefited them massively over the past three-quarters of a century. One is the freeing up of global markets: the oil market, for example, used to be tightly controlled by the big oil companies known as the ‘Seven Sisters’. Then as governments in the Middle East, Africa and Latin America seized control of their resources, they needed someone to help them sell them – to turn them into cash – and the commodity traders stepped in.
The other big trend that worked in their favour was globalisation and the growth of global trade. More trade means more commodities that need to be traded, and so more money to be made for the traders. The most important development here was the growth of China, which triggered an enormous commodities boom in the 2000s.
Why do you think these once secretive people were happy to talk to you?
Javier and I have been covering the commodity sector for a long time, so a big part of it was the network of contacts we’ve built up over that time. People in the commodity trading industry know us; they know we’re serious and diligent journalists – even if they might not always like what we write. And then we really squeezed our network – asking and begging contacts for introductions to the key people we wanted to speak to.
Does the world need commodities traders?
Yes. Put simply, because supply and demand of commodities don’t always match. Coffee is grown in Colombia and Ethiopia and Indonesia, but it is drunk all over the world. Someone has to get it from the farm to your local coffee shop – and that someone is a commodity trader.
So there are things we should be thanking commodities traders for?
They make markets more efficient, which contributes to lower prices for goods for all of us. For example, last year, when coronavirus struck and oil prices collapsed, it was the commodity traders that stepped in and bought up oil for next to nothing, holding it until prices rose and the world needed it again. As a result, the oil price collapse only lasted for a short time. If they hadn’t don’t that, the oil price would have been much lower for much longer, more oil companies would have gone bust, and – paradoxically – now that the world needs oil again, it might not have been available.
What makes a successful commodities trader?
First of all, you need to have an interest in the world and a desire to make money. Then you need to be relentlessly hardworking, always looking for ways to make money – and also charming and personable.
What does an edge look like in commodities trading?
It’s all about information. Commodity traders have huge networks of suppliers and buyers, and each deal gives them a little bit of information about what is happening in the market. Put it all together, and you have a level of insight that few other investors can match.
Why do you think commodities trading is dominated by white men?
It’s a corner of the business world that hasn’t changed with the times as fast as other areas have. A couple of years ago we spent some time with our Bloomberg News colleagues looking at the top management of commodity trading companies, and found that fewer than one in 20 of their senior staff were women. One part of the reason is that many commodity trading companies are privately owned, so they haven’t had the pressure from shareholders like other companies have to focus on diversity.
Why are there so few commodities traders?
There are actually a lot of commodity traders, but there are only a few really big commodity traders: five trading houses handle a quarter of the global oil market; seven control half of the world’s food commodities; and the metals markets are dominated by just two companies. Why? It is an industry where size matters. And there is very little regulation.
Are all commodities traders dodgy to some extent? Or does the sector have some upstanding players?
My day job still involves writing about commodity trading companies, so I probably shouldn’t answer that question…!
Does commodities trading have to be as furtive as it is?
Not entirely. We’ve seen in the past few years that a number of the traders have become a lot more transparent – most notably Glencore, which since 2011 is a publicly listed company and so publishes lots of information about itself. But because information is the traders’ edge, they’ll always be cautious about revealing too much information about their trades.
Should it be better regulated?
Without doubt, regulators ought to have a much better understanding of what the commodity traders are doing and how they operate. We’ve been shocked in the past to receive calls from some governments and regulators to ask us basic questions about the industry and the markets. And there needs to be better coordination: commodity trading is a truly global business, so one country alone can only do so much.
Why has it been so hard to regulate to this point?
Few regulators focus on the actual physical commodities – like barrels of oil or bushels of wheat – instead, they spend their time looking at derivatives like futures and options. One reason is that the physical markets are hard to regulate: the trade in commodities often takes place on the high seas, beyond the reach of any one nation’s laws. And commodity traders themselves can move relatively easily, so they tend to be found in the places with the most lax regulatory regimes.
Is there any prospect of change on the horizon?
The US appears to be scrutinizing the sector very carefully, particularly when it comes to corruption. That’s already changing some behavior. But there’s little movement towards a globally coordinated system of regulation for commodity traders.
Finally, Jack, some pretty remarkable characters pop in and out of the book. Tell us about your favourite…
John Deuss was the epitome of the freewheeling trader, and one of the dominant figures in the oil market of the 1970s and 1980s. With his mop of sandy-coloured hair, carefully parted on the side, and pinstriped suits with oversized lapels, Deuss looked like a character straight out of the film Wall Street. But his lifestyle was more like that of a Bond villain. From his base in Bermuda, he entertained business contacts and friends on his 187ft-long, three-mast yacht. His typical entourage included two English sheepdogs, and a troupe of bodyguards and striking female assistants. He crisscrossed the globe on one of his two Gulfstream private jets. He was unafraid to play politics, even becoming an adviser to the Sultan of Oman, and he gambled on the price of oil with abandon, making and losing hundreds of millions of dollars at a time.
The World For Sale by Javier Blas & Jack Farchy is published by Random House Business. Buy it here.
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