The King of Oil: The Secret Lives of Marc Rich

situation and had decided that the situation in the Middle East would remain insecure. According to Rich’s theory, oil prices would continue to rise. “The world market was changing. The world was changing. The prices were going up,” he explains. He was sure that these rising prices would more than compensate for the higher prices he was paying for the oil. “The most important thing as a trader,” Rich says, “is to see the opportunity. The others didn’t see what I saw.”
    In order to carry out his plans, Rich needed the right people. Rich knew exactly what he was looking for when he chose his four partners. Each was responsible for a different part of the world. Rich traded mainly in oil from Iran and selected the employees. Jacques Hachuel was responsible for the new markets in Africa and South America. John Trafford saw to North Africa and France. Finally, Alec Hackel was a specialist in metals and minerals who knew his way around Eastern Europe. Hackel would become one of the few people Rich would unquestioningly trust. “He is a wise man,” Rich says, “and he always had the right answers—or questions.”
The Invention of the Spot Market
     
    Then there was the man without whom Rich could never have succeeded—Pinky Green, “the Admiral.” Green was mainly responsible for transport and financing. “Each charter is a separate bargain,” Rich explains. “He always knew everything—not only the prices but the technicalities, the condition of the charter, what is acceptable or unacceptable, and the best routes.” One of the best-known experts in the field told me, “In the old days the traders looked down upon the charterers. Ever since Pincus Green came along they have enjoyed a much better reputation and are treated with a great deal of respect.” A Swiss banker who regularly financed deals for Marc Rich + Co. told me, “Green was alogistics genius who could squeeze a profit from the smallest of price differences due to delays or distances.”
    The following is a poignant example from the company’s later years that illustrates how Green was able to utilize such price differences. In the 1980s the Soviet Union supported Cuba, its “socialist brother nation,” with cheap oil. Instead of transporting this oil over long distances from Russia to Cuba, the state trading company Cuba Metales traded a portion of this oil with Marc Rich + Co. Rich’s company then delivered the same amount of oil to Cuba, obtained from nearby Venezuela. Rich was able to buy the Russian oil meant for Cuba at its reduced price and sell it for a profit on the global market.
    Green developed the tanker trade, which had previously never existed outside of the Seven Sisters’ supply network. Without this it would never have been possible to develop a competitive spot market for oil. Thanks to the spot market, consumers were no longer dependent on a single company controlling a value-creation chain that began at the oil wells and ended at the gas pump. Now buyers could purchase oil whenever and from whomever they wished. A large number of offers would soon develop, and a buyer could look for the cheapest barrel on the spot market. From an economic point of view, the spot market was much more efficient than the Seven Sisters’ oligopoly. On the lookout for profit, companies attempted to find a niche at some stage of the process and remain as competitive as possible.
    The development of freer markets was particularly advantageous for emerging African nations that possessed oil reserves but were unable to extract the oil and bring it to market themselves. “The spot oil market allowed and made it interesting for all the countries to explore, drill for, and export their own resources—their oil,” an oil trader told me. The result was that from the mid-1970s onward, oil was traded more freely, more efficiently, and at more transparent prices than ever before. Tankers and refineries—the fixed costs—could be used more efficiently than under the multinational oil companies and governments thanks to independent oil traders like Marc Rich. Rich was able to achieve what theSeven Sisters could not manage because of competitive pressures and cost structures. For example, Rich could sell one half of a tanker full of oil to a buyer in Spain and the other half to the same buyer’s competitor in the United States. Both buyers enjoyed the benefits of cheaper bulk transport that they never could have afforded or utilized