Saturday, July 6, 2013

The Economist on Marc Rich

A NEW employee once asked Marc Rich for advice on trading. He expected, perhaps, “Buy low, sell high”, or “Think long-term”. Or perhaps, given Mr Rich’s habit of going to the office at daybreak, “Up with the lark”. Instead, Mr Rich picked up a knife and ran a finger across the edge. “As a trader you often walk on the blade,” he said softly. “Be careful and don’t step off.”

Few walked it more skilfully than Mr Rich. Obsessively, he scanned the globe to see crises coming, wars brewing, shortages looming. He bought before anyone else did, and was first there when countries began to look round for oil or zinc or nickel. On the eve of the Korean war, as a mere junior trader at Philipp Brothers in New York, he created a market in mercury, which the army needed for batteries. The price soared. From the late 1960s, somehow anticipating the Arab oil-export embargo, he began to create a spot market for oil. Previously, all crude was tied up by the big companies in inelastic long-term contracts. Starting in Tunisia, Mr Rich began to buy and sell it for immediate delivery, like any other commodity. When the embargo bit after 1973 he was swimming in oil when the majors were struggling, and was able to sell it at a mark-up of as much as $14 a barrel. Some called that profiteering. Mr Rich called it a service charge. He could have demanded more, but that would have been “like taking candy from a baby”.

A free agent in this exhilarating new market, he went from strength to strength. Turning on his insistent, feline charm, he sought out buyers and sellers while his partner Pinky Green arranged shipping. It was a winning combination, forged at Philipp Brothers but soon outgrowing it. In 1974 the two of them, peeved that their bonuses were still so small, left to form Marc Rich + Co. The main office was in Zug in safe, secret Switzerland, no questions asked.

From there, with cat-like tread, Mr Rich found his way round any political or moral obstacle. He sold Soviet oil to apartheid South Africa, despite a UN embargo, and between 1979 and 1994 made profits of around $2 billion there. He sent Soviet and Venezuelan oil to Cuba in exchange for sugar, ignoring America’s ban on trade. He sold on the global market surplus Iranian oil that had flowed to Israel down a secret pipeline, and kept the arrangement going seamlessly despite the Iranian revolution of 1979, another embargo, and the American hostage crisis. The Iranians respected their contracts, he explained. They could not sell their oil, so he bought and sold it for them, using shell companies wherever necessary. Keeping well below the radar, as he always did, he was soon the world’s largest independent oil-trader, with a turnover in 1980 of $15 billion.

Read the rest here.

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