The King of Oil: The Secret Lives of Marc Rich

at the same time strengthen their hand against the oil companies. The countries of Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela had already founded the Organization of the Petroleum Exporting Countries (OPEC) in 1960. They came together in order to counter the pressure exerted by the oil companies, who wanted to keep both the price of oil and the royalty payments as low as possible. In the early years, OPEC was committed to negotiating a larger share of the oil companies’ profits for themselves as well as greater control over production quotas. In the 1960s OPEC called for wide-scale nationalization of the member states’ oil fields, but the member states would do very little to realize these ideas over the next ten years. However, the situation suddenly exploded in the 1970s, and within a short period of time the entire oil trade had been shaken to its very foundation.
    This radical break with the past had its roots in two important developments. In August 1971 President Richard Nixon abandoned the gold standard, whereupon the dollar immediately lost 20 to 40 percent of its value against most other currencies. As the global oil trade was based on dollars, this meant that the oil-producing nations were earning even less “real” income in terms of purchasing power. In effect, these countries had to spend more of the devalued dollars they had exchanged for oil to purchase goods on the international markets. Several important oil-producing countries now began nationalizing their domestic oilindustries. The North African nation of Algeria was the first to do so, in 1971, and it was soon followed by neighboring Libya. The floodgates were opened when Iraq, one of the world’s largest producers, nationalized the concessions belonging to British Petroleum, Royal Dutch Shell, the French Compagnie Française des Pétroles, Mobil, and Standard Oil of New Jersey (now Exxon) on June 1, 1972. Six months later OPEC pushed through a plan of gradual nationalization of all Western concessions in Kuwait, Qatar, Abu Dhabi, and Saudi Arabia, and in spring 1973 the Persian shah nationalized all of Iran’s oil assets. 5
    Within only a few years the dynamics of power within the oil industry had been completely turned on their head—forever. Today, in 2009, the corporations that made up the Seven Sisters no longer control the global oil trade. There are now ten state oil companies that control three-fourths of global oil reserves. 6 The most important oil-producing companies are politically fragile states: Saudi Arabia (Saudi Aramco), Russia (Gazprom), and Iran (NIOC).
“I Was the Right Person at the Right Time”
     
    In 1969 no one could have expected such a radical shakeup of the global oil trade, but the writing was on the wall for those who could read it. Developments in the oil market offered opportunities for those who were the first to recognize them and were willing to take the risks. As history has shown, times of upheaval and insecurity usually provide good pickings for commodities traders. An increase in insecurity and volatility within a commodities market goes hand in hand with an increasing demand for independent traders who can guarantee supplies for solid cash. These traders allow buyers to compensate for market fluctuations.
    Alan Flacks was the first trader at Phillip Brothers to break into the oil trade, but he held back from taking these trades to the next step. He had no experience dealing with the particular problems inherent inthe oil trade. The notion of taking risks was as foreign to him as it was for the entire company, and this idea was clearly reflected in the Philipp Brothers’ German motto:
Besser gut schlafen, als gut essen.
It is better to sleep well than 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.
    In this respect, Marc Rich was more aggressive than his bosses, and it was this fear of risk, among other things, that would later lead Rich to leave Philipp Brothers in order to found his own company. “I was the right person in the right place at the right time,” he told me, as if that were all there was to it. “I was working in a commodity trading house, and the oligopoly of the Seven Sisters was coming to a halt. Suddenly the world needed a new system of bringing the oil from the producing countries to the consuming countries, so that’s exactly what I