The King of Oil: The Secret Lives of Marc Rich

than our competitors. Of course, I always develop relations with my customers.” Green was once more in Iran in spring 1973 when he heard that NIOC wanted to sell oil on the free market. “We thought it would be a good idea to take a long position in crude.” They bet on higher prices and signed a long-term contract with Iran without consulting their bosses at Philipp Brothers in New York. According to Rich, they committed themselves to purchasing a total of one million metric tons (approximately 7.5 million barrels) over a long period of time at a fixed price, namely5 per barrel. The total value of the deal was37.5 million.
    Philipp Brothers president Ludwig Jesselson was shocked when he was informed of the deal. “How could you do that?” he yelled at Rich. Five dollars per barrel was at least2 more than the oil’s market price at the time. Worse still, it was not a back-to-back deal, for Rich and Green did not have a buyer for the huge quantity of oil. In other words, Philipp Brothers carried the entire risk at a price that was15 million higher than the market price. This risk was intolerable for Jesselson, who still lived according to the company motto, “It is better to sleep well than eat well.”
    There followed a marathon series of telephone conferences, sometimes heated, at other times downright nasty, but the upshot was that Jesselson forced Rich and Green to get rid of the oil as quickly as possible. “It was very annoying,” says Rich. They had no choice, but they obeyed their orders reluctantly. “Pinky sold the oil to Ashland Oil in Kentuckyfor a small profit. They took over the contract. Too bad,” says Rich. He perceived Jesselson’s behavior as a breach of trust and a rejection. It was a foreshadowing of the final split with Philipp Brothers that was soon to come.
    It must have been one of the best deals in the history of Ashland Oil, for Rich and Green were proved right only months after the sale. On October 6, 1973, Yom Kippur, Egypt and Syria attacked Israel. The Arab nations brought Israel to the verge of military defeat for the first time in its history. The Soviet Union supported Egypt and Syria, whereas the United States weighed in on the side of the Israelis. The Jewish state only managed to drive its opponents back after conceding large areas of land. There was no victor in this three-week-long conflict, which was the fourth in a series of Israeli-Arab wars (after the Israeli war of independence in 1948, the Suez War of 1956–57, and the Six-Day War in 1967).
    The oil-producing nations made a further attempt to use their oil as a weapon. This tactic may have failed miserably during the Six-Day War, but the political and economic situation was different this time. Libya and Saudi Arabia were the first to cease delivery to the United States and Western Europe. Six more important oil producers had joined the boycott by the end of 1973—the United Arab Emirates, Iran, Iraq, Kuwait, Algeria, and Qatar. At the same time, OPEC decided to cut oil production and raise prices. The “oil weapon,” which had proved so lack-luster only six years previously, now hit home with the force of a bomb. It was also around this time that President Nixon signed the Emergency Petroleum Allocation Act, which introduced controls on oil prices in the United States and would cause such enormous problems for Rich ten years later (see chapter 9 ).
The Breaking Off
     
    By the end of the year, everyone realized how spot-on Marc Rich’s instinct had been. The long-term contract with Iran had been a stroke ofgenius, the like of which has seldom been seen. The price per barrel rose from just under3 before the war to an official11.60. On the free market, however, oil could fetch anything up to the then record level of13—over8 more than Marc Rich had agreed with Iran. If the heads of Philipp Brothers had only trusted him, the company could have easily earned60 million on this one deal. Nevertheless, Philipp Brothers profited from Rich’s dealings with Israel, Spain, and Iran. The company, which by then was a division of Engelhard Mineral & Chemicals, posted record profits in 1973. This was mainly due to the trade in crude oil. Thanks to Marc Rich and Pinky Green, Philipp Brothers would soon be one of the largest oil traders in the world.
    Never before in the company’s history had only two men been responsible for so much profit. Rich and Green’s trade in oil alone earned the company between4 million