The King of Oil: The Secret Lives of Marc Rich

accompanied his departure from the company. “No company is particularly pleased if its best people leave to start a competing operation.”
    Even if these reports of industrial espionage are mere cock-and-bull stories, they illustrate the fact that the commodities trade was a hardgame—and the atmosphere became noticeably harder. The competitors gave each other a run for their money, and Philipp Brothers gave as good as they got. They even pressured Rich’s banks not to extend him a line of credit, a financial expert involved in the affair told me. That would have meant an early death for Marc Rich + Co.
    It is impossible to trade commodities quickly and on a global scale without credit. Credit is the lifeline of any commodities trading business. This was particularly true for the newly formed Marc Rich + Co., as it had practically no cash and no equity of its own. Therefore the company’s most important goal was to obtain sufficient credit to allow it to trade oil. A bank extends credit (for which it charges a fee) up to an agreed-upon sum that the company can draw upon repeatedly when necessary. The commodities themselves serve as collateral. The letter of credit represents the bank’s promise to pay for the commodities. It is a form of insurance for the seller as well as the buyer. The buyer only has to pay after the seller has delivered the agreed quantity and quality of raw materials. The seller has a guarantee that he will be paid after the goods have been delivered if he can present the required documents as evidence.
Thanks to Iranian Oil
     
    Rich’s decision to found his own company didn’t come as a surprise. Jesselson had forced him to drop the long-term contract with Iran one year earlier, and since then Rich had known his time with Philipp Brothers was nearing its end. Rich began to see his departure from the company as a serious possibility, and like every other good trader, Rich wanted to be prepared for this eventuality should it indeed come to pass.
    Rich’s trump card was his continuing connection with the Iranian-Israeli oil pipeline. He managed to bring this business with him to his own company, thanks to his relationship to “Mr. Steel” Ali Rezai and to “Dr. Mina”—as Rich likes to call Parviz Mina, the NIOC director. “Myknowledge of this contract allowed me to found the new company,” Rich says. He had already found a long-term buyer for this oil: the Spanish government, which he had previously secretly supplied with oil. An additional purchaser of Iranian oil was the American oil firm Atlantic Richfield Company (ARCO), which would later become one of Rich’s best customers. The contract with ARCO was of particular importance. He did not have to conduct this business secretly, as was the case in the Spanish deals. Instead, Rich was able to use this trade as a form of collateral in order to obtain his first, all-important line of credit.
    John Trafford engineered the first new trade for the young company. Rich’s former assistant had good contacts at the French oil company Elf, which was producing oil in the West African country of Nigeria. Rich in turn had a good relationship with Standard Oil of Ohio (Sohio, the company founded by John D. Rockefeller in 1870). “So we put Elf and Sohio together and made a profit: fifteen cents a barrel. That was a very good profit at the time,” Rich remembers. A trade involving 150,000 metric tons of Nigerian Bony Light Crude (approx. 1.1 million barrels) brought the new company165,000 in profit. Even more important, Sohio, too, agreed to pay with a letter of credit, which Rich could then use to purchase even more oil. “They were reluctant at first to pay by letter of credit, but they accepted because both the price and the supply were attractive to them. These letters of credit which came in we had transferred on to our suppliers,” Rich explains.
    Marc Rich + Co. was thus able to develop a long-term and stable network of suppliers and buyers within a very short period of time. The first trades were financed by Bankers Trust Company and, most important, by the French bank Paribas. “They liked the business. They opened letters of credit whenever and wherever we needed them,” Rich explains. “To make money with other people’s money, with the bank’s money,” as a former employee explained, was the company’s financial philosophy. In these commodity trades, the risk was primarily carried by the bank that had extended the