The King of Oil: The Secret Lives of Marc Rich

line of credit. Its collateral for the credit deal was the commodity at issue, in this case oil.
The Oil Shock of 1974
     
    It was a good time for a commodities trader who wanted to go into business for himself. The world had been changed forever by the Arab oil embargo—imposed in the wake of the Yom Kippur War—and skyrocketing oil prices. These developments led to the world’s first oil shock, a shock that would have serious economic consequences the world over. The price for a gallon of gasoline rose from 38.5in May 1973 to 55.1in June 1974. 5 It was the first time since the Second World War that the United States had seen gasoline shortages. Huge lines formed at the pumps throughout the country. It was a situation that had only been seen in poorer African or South American countries before then. Rapidly rising oil prices pushed the industrial nations into economic crisis.
    It was a fabulous time for Rich and his partners. While the American oil companies and motorists were left high and dry, Marc Rich + Co. was simply swimming in oil—oil for which U.S. and European oil companies were willing to pay a very good price. “It was a good situation for us,” Rich laughingly remembers. “It was a shortage of oil, and we had the oil.” His company was able to gradually expand the contract with Iran to buy 8 million to 10 million metric tons per year (approximately 60 million to 75 million barrels).
    “Then I learned that Ecuador was selling its share of oil. I sent Jacques Hachuel to Ecuador to buy it,” Rich explains. A military coup had brought a sort of benevolent dictatorship to power in the South American country. Guillermo Rodríguez Lara, nicknamed “General Bombita” (General Balloon), invested massively in schools, hospitals, and the nation’s infrastructure. These expenses could only be financed by a massive boost in oil production so that the
oro negro
—the black gold—could be sold for hard currency. This would prove a lucky break for Marc Rich + Co. Hachuel, a native-born Argentinean, came back with something worth much more than a tanker full of oil: a long-term contract with the state oil company of Ecuador, the Corporación Estatal Petrolera Ecuatoriana (CEPE). The biggest part was bought by ARCO.
    From the company’s very first days, Marc Rich + Co.’s financial success was nothing less than astounding. In 1974, the company’s first fiscal year, it had a turnover of more than1 billion while reaping a net profit of28 million. The company’s profit in 1975 was50 million, and it went on to earn what was then an unbelievable200 million in 1976.
Faster, Longer, More Aggressive
     
    There were three main reasons for Rich’s success—a success that took the industry completely by surprise. First of all, Rich’s company was willing to take on a much higher level of risk than its competitors. Second, the best people in the business were working for the company. Finally, Marc Rich + Co. was the first company to develop a sophisticated system for trading oil independently. It is no exaggeration to state that Marc Rich and Pincus Green truly did invent the spot market for crude oil.
     
    Marc Rich + Co. operated according to a completely different philosophy than did Philipp Brothers. It was more aggressive, faster, and more oriented toward long-term contracts. The partners recognized opportunities and followed up on them faster than the competition. They saw themselves as pioneers who were pushing forward into new territory, and they were interested in obtaining contracts that extended as far as possible into the future. Ecuador is selling oil? Fly over there immediately, and don’t just buy the oil that is up for sale. Get the client to agree to a long-term contract. Turkey is looking for oil? Fly over there right away and sell it to them. “Pinky and I flew to Houston to discuss an oil deal,” Rich recalls. “On the way there we learned that Turkey needed oil. Pinky, who once lived in Turkey, instantly interrupted his visit to Houston and flew to Istanbul. He concluded a very profitable transaction. We were faster than the others.”
    This willingness to take on risk was a big advantage in the years following the great oil shock. Rich won a lot of deals because he was readyto pay the oil-producing nations more for their oil than the competition. He enticed them with contracts that provided his company with stable supplies for several years into the future. Rich had analyzed the