PDF Summary:The World for Sale, by Javier Blas and Jack Farchy

Behind the products that power our modern world—from fuel and metals to grains and cotton—lies a complex network of traders who shape global commodity markets. In The World for Sale, Javier Blas and Jack Farchy explore the evolution of the commodity trading sector, charting its transition from the post-World War II era to the financial crises of the 21st century.

The authors detail how pioneering traders gained influence by navigating political turmoil and seizing opportunities in emerging markets. They reveal the pivotal role these traders played—from stabilizing markets amid the COVID-19 pandemic to wielding power over governments in resource-rich regions. The book offers an inside look at the machinations of this oligopoly of traders, their dealings with repressive regimes, and the widespread corruption endemic to the industry.

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• The narrative around the purchase of Philipp Brothers by Salomon may not consider the broader context of financialization in various sectors, not just commodity trading.
• The consolidation of the raw materials trading sector in the 1980s and 1990s could be seen as part of a larger trend of globalization and consolidation across industries, rather than a unique phenomenon within commodity trading.
• The dominance of the ABCD companies in agricultural trading might be critiqued for not fully addressing the potential negative impacts of market consolidation on small farmers and global food security.
• The rise of Glencore, Vitol, and Trafigura could be examined in light of the ethical and environmental concerns associated with the commodity trading industry.
• The success of Trafigura and similar companies might be contrasted with the broader challenges and criticisms faced by the commodity trading sector, such as transparency, regulation, and social responsibility.

Commodity traders play a pivotal role in shaping the global markets for energy, food, and financial products.

Blas and Farchy argue that traders started to wield a new kind of influence in the aftermath of the Soviet Union's collapse. They transformed into vital middlemen, channeling substantial capital from financiers in the West into emerging markets and, through their deep involvement with worldwide natural resources, established ties with both reputable and some dubious individuals. Their function as unconventional financiers, providing essential capital to bodies such as governments and companies that are often ignored by traditional financial systems, has markedly shaped the political landscapes of many countries and has also played a part in the creation of new states.

Taking advantage of the Soviet Union's collapse,

The collapse of the Soviet Union signified a critical juncture, offering individuals engaged in the trade of commodities unparalleled opportunities for profit that had not been observed since the energy shortages of the 1970s. The disintegration of the Soviet Union's organized trade system suddenly released vast amounts of oil, metals, and grains into the international market, significantly reducing their prices. During times of upheaval, the Reuben siblings built extensive empires dedicated to the commerce of natural resources. The traders played a pivotal role in forming new economic partnerships between former Communist Bloc countries and emerging markets such as China, significantly influencing the continuous transformation of global commodity trade.

- Trans-World's aluminum empire in Russia, exemplified by David Reuben's partnership with Lev Chernoy in privatizing the Soviet aluminum industry for enormous profits

Javier Blas and Jack Farchy highlight the immense opportunities that awaited those ready to venture into the newly opened Russian market, exemplified by the success of the metal trading company Trans-World, established by a pair of entrepreneurial siblings. After the Soviet Union collapsed, many Western companies were hesitant about the idea of investing in Russia. The guidelines for individual ownership of assets were not yet established, and the economy was plummeting. The line between legitimate business figures and criminal elements was often blurred in this perilous environment, where homicides were a common occurrence. David Reuben capitalized on the chance to obtain a stake in a resource-rich sector when it was accessible at a lower price.

Reuben, alongside his sibling Simon and the shrewd Russian businessman Lev Chernoy, pooled their considerable monetary assets and Chernoy's widespread connections in the region, creating a powerful coalition poised to wield considerable sway in Russia's expansive aluminum sector. They secured advantageous deals for processing with the leading smelting companies in Russia and obtained shares in these firms during the era of privatization by supplying alumina and monetary assistance. Over a decade, the Reubens channeled their investments into Russian companies and leveraged the returns to expand their London property holdings, significantly increasing their fortune and elevating their status to that of billionaires.

By stepping in to issue currency in Zimbabwe, Cargill ensured the continuation of cotton production even amidst rampant hyperinflation, effectively serving as a substitute for the central banking system.

The authors illuminate a time around 2003 to 2004 when Cargill took on roles in Zimbabwe that went beyond typical trading activities, essentially stabilizing an exceptionally volatile economic setting in a manner similar to an alternative central bank. Zimbabwe experienced extreme hyperinflation, resulting in widespread financial turmoil. The country experienced a deficit of physical currency in addition to other deficiencies. In the last decade, Cargill has emerged as Zimbabwe's foremost cotton buyer, yet it has faced challenges in providing payment to the farmers due to monetary limitations. As a result, the company, recognizing the essential requirement to secure a steady flow of cotton from Zimbabwe despite rising expenses, boldly set up its own form of currency.

Cargill ensured a steady supply of global cotton by distributing large quantities of Zimbabwean currency, which bore its logo, across the nation to procure cotton. In the era of global economic growth, commodity traders gained considerable power and showed a willingness to engage in activities of dubious legality when the potential profits justified the risks. Additionally, the rapid devaluation of Zimbabwe's currency presented Cargill with an unexpected benefit: the company capitalized on the delay between the distribution of its vouchers and their redemption to pay its farmers with a diminished dollar amount.

The emergence of China as a major player has reshaped the landscape of global commodity trade, with firms like Mercuria playing a key role in the movement of Russian oil to the Chinese market.

The collapse of the Soviet Union paved the way for a notable transformation in the global commodities market in the 2000s, which happened alongside China's rise as a dominant player in this field. The end of alliances from the Cold War era presented new avenues for traders to investigate. The transformation of J&S into the entity now known as Mercuria exemplifies this principle. After the Soviet Union fell, Russian refineries and state-owned oil marketing companies were eager to find new customers, and the traders promptly adapted to meet this demand.

J&S established a foothold in the Russian oil industry by acquiring refined petroleum and then ensuring its widespread circulation across Poland. The company pioneered a new commerce pathway, channeling the growing abundance of resources from Russia to meet the rising needs of China. J&S, together with a multitude of seasoned commodity traders and a wave of newcomers, were keen to penetrate Russia's oil industry. They forged relationships with key figures in the Russian petroleum sector, engaging with senior executives at Yukos before its collapse and later with the leadership at Rosneft. They played a crucial role in facilitating the financial and logistical aspects of a significant increase in oil exports from Russia to China, becoming key players in a trade shift that has had a substantial impact on the worldwide economic landscape for the past twenty years.

China's swift expansion of its economy led to a marked increase in demand for raw materials, which in turn yielded benefits.

During the 1980s and 1990s, there was a prevalent assumption that the earnings from commodities would fail to reach the lofty levels seen during the boom of the 1970s. The early 2000s witnessed a substantial expansion period that coincided with China's rapid industrial progress. China's growing demand for oil, metals, and grains initiated a sustained period of elevated commodity prices, transforming the dynamics of the global market and significantly increasing the fortunes of traders in these commodities. The merchants, thanks to their widespread global connections, were swift to notice the early shifts in market needs and resource availability, placing them at the vanguard in acknowledging the emerging circumstances. The industry's early identification of global patterns ahead of their competitors facilitated a pivotal change in their strategy, evolving from mere trading to securing control over crucial infrastructure such as mines, ensuring a steady flow of important commodities.

Mick Davis's strategic vision of China's industrial expansion greatly benefited Xstrata, demonstrating his adeptness in capitalizing on the burgeoning economies of developing nations.

The book details Mick Davis's adept maneuvering of Xstrata from a struggling entity to a powerhouse within the mining sector, capitalizing on the anticipated rapid expansion of China's economy—a factor that numerous incumbent mining and oil firms had yet to completely understand. In 2001, Davis took the helm at Xstrata, anticipating a significant surge in the prices of raw materials driven by the growing demands of China and other emerging markets. Davis foresaw a future shortage of commodities, recognizing the downturn in worldwide commodity output, the heavy debt burden carried by many mining companies, and an extended phase of low prices.

Davis recognized the opportunity and boldly set out to turn Xstrata from a firm facing collapse into a dominant force in the industry of mineral extraction. Davis quietly amassed mining assets, holding the belief that commodity prices would sustain their high levels, even though futures contracts indicated a potential drop in those prices. In just five years, Xstrata's market valuation soared, multiplying by over tenfold and making it a highly coveted entity, which consequently increased the value of Davis's personal shares to well over $100 million.

Ivan Glasenberg's tactical move into coal mining operations set the stage for Glencore's economic success, highlighting their shift towards asset ownership.

During the 1990s, under the leadership of Ivan Glasenberg in its coal trading division, Glencore initiated the acquisition of assets, a strategy that allowed the firm to adeptly navigate the challenges of the supercycle and accumulate significant wealth. At that time, many of Glasenberg's peers found his choice to put money into coal mines puzzling, considering the diminishing value of coal. Glasenberg raised concerns about the enduring supremacy of commodity traders, recognizing that the increasing availability of information might erode the competitive advantage of his company.

Glasenberg's purchase of mining operations ensured that Glencore could consistently provide global buyers with a stable source of coal. While the mining sector was broadly scaling back, selling off assets, and cutting jobs in anticipation of enduringly depressed coal prices, the commodity trader took advantage of the market slump to purchase mines at reduced prices. Glasenberg, however, harbored a more expansive vision that established the foundation for his personal fortune and Glencore's prosperity during the upcoming surge. The surge in China's coal demand in the early 2000s transformed the low-cost coal mines acquired by Glasenberg into substantial sources of income, enabling the firm's leadership to purchase Glencore from its founder and aiding in the enterprise's debut on the stock market a decade later.

The swift growth in oil trading has enabled the rise of new players like Mercuria and Gunvor, while also heightening reliance on unstable partnerships.

The dramatic rise in agricultural expenses in 2007 and 2008 led to a comprehensive reassessment of the global food system, similar to the many investigations triggered by the severe swings in oil prices into the elements affecting the oil market. During that period, the firms specializing in trading commodities saw a substantial rise in their profits. It introduced fresh obstacles as well. The conventional practice of depending on a small network of known contacts to obtain oil was rendered outdated in a worldwide setting where the rising demands of expanding economies such as China increased the price per barrel, thus presenting chances for countries with plentiful oil resources to capitalize on market conditions for their financial or strategic advantages.

Companies and traders skilled in securing resources from the world's most challenging or hazardous regions gained an edge due to the oil market's insatiable appetite for crude oil—the more isolated the area, the bigger their benefit. The Russian government's aggressive actions to assert control over the oil industry became particularly apparent during Putin's administration's resolute steps to bring Yukos under state ownership. Two specific individuals dealing in oil experienced significant expansion, primarily due to their robust networks within Russia. The sentence addresses the parties engaged in the trading of commodities, particularly focusing on Mercuria and Gunvor. The two firms capitalized on their extensive understanding of Russia's economic and political environment, allowing them to forge lucrative deals with major organizations, channeling substantial investments from financial institutions and investors into the nation, thereby achieving significant profits. Western policymakers grappled with increasing dependency on Russian oil while also dealing with Putin's rising assertiveness on the global stage.

During the 2020 downturn, merchants played a crucial role within the petroleum industry.

The onset of the COVID-19 pandemic in early 2020 underscored the pivotal part that commodity traders have in the energy sector, while also exposing the enduring flaws in their operational strategies. They capitalized on the indifference of traditional oil buyers, using their comprehensive grasp of global market dynamics to attain financial profits, which also highlighted their willingness to invest in commodities amid widespread apathy. Nevertheless, they were cognizant of the fact that the escalating geopolitical tensions were exacerbating the decline in oil prices: through their well-established networks within Russia, Glencore had gained an understanding of Moscow's likely decision to maintain oil production levels, an essential measure needed to bolster prices.

Glencore showcased its supremacy in purchasing when traditional buyers were absent, partaking in oil storage trading that mirrored Hall's tactics from the 1990s, though on a scale without precedent.

The petroleum sector experienced a sharp and substantial decline. As global lockdowns were enforced and the Kingdom of Saudi Arabia increased its oil output, the need for crude oil sharply declined, resulting in storage capacities being entirely occupied. In April, there was an unprecedented event when the cost of oil dropped to less than zero for a brief period. At one point, it seemed as though the decline in oil prices could continue, or that the market could cease to function entirely. But as before, the traders stepped in, buying cheap oil and storing it in tankers at anchor around the world, thereby ensuring that there would always be a buyer for even the most unwanted barrel.

Glencore demonstrated this strategy perfectly. The company employed a fleet of tankers, including the notable Europe, which stood out as the largest, to hold the excess crude oil purchased from collaborative shale oil producers in the United States. Glencore's deep-rooted connections with national oil corporations around the world, dating back to Felix Posen's dealings with Soviet Raznoimport and Willy Strothotte's relationship with Chad's Idriss Déby, provided the company with a unique ability to anticipate market fluctuations in the petroleum sector, thus enabling it to secure a substantial portion of the world's oil reserves. During the latter half of the year, as prices escalated, Glencore leveraged these conditions to secure significant profits amidst widespread instability.

Traders played a crucial part in stabilizing markets and preventing a more severe economic downturn.

The ability of traders to accumulate and store substantial quantities of oil functioned similarly to a central bank's economic stimulus efforts, aiding in the stabilization of prices and bolstering the vitality of the petroleum industry by diminishing the market's excess supply. The absence of it could have had significant consequences, impacting the countries engaged in oil extraction and the global economic environment alike.

The traders were instrumental in lessening the impact of the crisis, while the pandemic persisted in causing disruptions to economic and financial stability deep into the later part of 2020. The often overlooked yet substantial influence of politicians and regulators in averting a more severe collapse of oil prices, particularly through private discussions, cannot be overstated. Commodity traders, despite their market acumen, frequently come under scrutiny for their contentious methods.

Other Perspectives

• Commodity traders, while influential, may not always have a positive impact on global markets, as their profit-driven motives can sometimes exacerbate economic disparities and contribute to market volatility.
• The role of traders as middlemen can sometimes obscure the true value of commodities and lead to inefficiencies or distortions in pricing mechanisms within global markets.
• The capital provided by traders to governments and companies in emerging markets can come with strings attached, potentially leading to issues of dependency or interference with national sovereignty.
• The opportunities for profit that arose after the Soviet Union's collapse also led to instances of corruption, asset stripping, and exploitation of legal grey areas, which can have long-term negative effects on the economies of the countries involved.
• The building of empires in natural resources trading by individuals like the Reuben siblings can lead to monopolistic practices and reduce competition, which may not be beneficial for the host countries or the global market.
• The economic partnerships formed between former Communist Bloc countries and emerging markets can sometimes be unequal, with the benefits skewed towards the traders or their home countries rather than the local economies.
• The privatization of the Soviet aluminum industry and similar initiatives often resulted in a concentration of wealth and power in the hands of a few, rather than widespread economic development.
• Cargill's issuance of currency in Zimbabwe, while innovative, could be seen as a form of neo-colonialism, with a private company assuming the role of a central bank in a sovereign nation.
• The reshaping of global commodity trade due to China's emergence has led to concerns about resource depletion, environmental degradation, and the sustainability of such rapid industrial expansion.
• The benefits accrued by commodity traders from China's economic expansion may not be equitably distributed, and the environmental and social costs of raw material extraction are often borne by the local populations.
• Strategic visions like that of Mick Davis at Xstrata, while financially successful, can be criticized for prioritizing short-term gains over long-term sustainability and for potentially contributing to resource exploitation.
• Ivan Glasenberg's move into coal mining with Glencore, despite its economic success, can be criticized from an environmental standpoint, given coal's role in climate change.
• The rise of new oil traders and the heightened reliance on unstable partnerships can lead to geopolitical risks and contribute to the perpetuation of authoritarian regimes, particularly in cases where traders engage with countries that have questionable human rights records.
• The crucial role played by commodity traders during the 2020 downturn can be seen as profiteering from a global crisis, with the potential for creating artificial scarcities or manipulating markets for private gain.
• The stabilization of markets by traders is sometimes achieved through speculative practices that can lead to bubbles and subsequent crashes, questioning the long-term stability of such interventions.

Traders dealing in commodities often exert considerable influence within political realms, engage in corruption, and capitalize on crises and regimes that are authoritarian.

Traders typically describe their operations as simple business transactions, involving the acquisition of commodities in one location and their subsequent sale in a different one to secure economic profits; yet, Blas and Farchy argue that these traders are intricately involved in political affairs due to their dominance over the distribution of essential global resources. The collapse of the Soviet Union led to a situation where many areas worldwide were in dire need of economic support, and the rise of nations rich in oil, whose leaders often saw transactions with firms specializing in the trade of natural resources as a quick way to secure capital, strengthened the relationships between traders and government officials.

Venturing into the often volatile territories known as emerging markets.

The writers provide examples showing that traders were able to wield considerable influence in emerging markets because these regions had few other investment options and the traders were willing to engage in profitable activities that, although legal, were decidedly immoral. The book describes the actions of Marc Rich + Co in stepping in to avert a financial emergency in Jamaica, capitalizing on the nation's immediate requirement for help by securing alumina at discounted rates and steering oil contracts to companies linked with Rich's network, thereby earning significant gains. They narrate how Rich and his competitor, John Deuss, set aside moral scruples to orchestrate oil transactions worth billions of dollars with the South African apartheid government, actions which prolonged its existence and yielded substantial gains amidst the sanctions. In their book, the authors describe how Rich's Cobuco scheme masked his oil dealings with sanctioned countries by creating the illusion that the oil was headed to Burundi, a diminutive, landlocked nation grappling with economic challenges.

Marc Rich + Co's significant impact in Jamaica was evident as they not only prevented a financial emergency for the nation but also secured ownership of an alumina refinery at a lower price, demonstrating their influence on Jamaica's policy choices.

The book depicts the manner in which Marc Rich + Co exploited the weaknesses of the Jamaican government in the 1980s for their own benefit. The economic struggles of the island cannot solely be ascribed to the energy crises of the 1970s, which dampened tourism and increased the expense of imported fuel, but must also consider the US government's disapproval of Michael Manley's socialist governance. In the early 1980s, facing a dire shortage of funds and in urgent need of fuel and other commodities, with no other lenders willing to extend credit, the government sought assistance from Rich.

Marc Rich and his group of commodity traders established a substantial and enduring partnership with Jamaica, providing essential assistance during a period when the country had few options. Marc Rich successfully secured bauxite contracts at prices well below the market norm, facilitated deals for processing alumina that were once monopolized by companies like Alcoa, and ultimately became the top trader in aluminum, challenging the production levels of established industry giants in Russia.

Blas and Farchy depict Jamaica's circumstances, showing how Rich's close financial interactions with the government, being nearly the sole monetary avenue, laid the potential for corrupt practices. Officials in Jamaica began investigating his business activities, and in retaliation, he ceased his financial contributions to the government until they halted their probe. After taking over from Rich's business, Glencore maintained its financial clout to lessen the impact of political examination.

Merchants exploited the restrictions on oil trade with South Africa during apartheid, accumulating significant gains, a process that highlighted their controversial engagement in the nation's policies of segregation.

The book characterizes the trade blockade on South African oil during the 1980s as a critical incident that profoundly influenced the development of the market for various commodities. In response to a series of severe conflicts that resulted in the country's fragmentation, the United Nations imposed restrictions on the ruling power. Despite encountering worldwide condemnation, South Africa was able to secure petroleum resources, initially from the group referred to as the 'Seven Sisters' and later on from Iran. Following the Shah of Iran's ouster in 1979, South Africa faced constrained choices for obtaining crude oil: the country could either opt for the costly process of transforming coal into fuel, concentrate on the extended endeavor of developing domestic oil sources, or turn to intermediaries skilled in the trade of raw materials.

Marc Rich and John Deuss played a pivotal role in maintaining the steady flow of petroleum to South Africa. Rich himself publicly opposed apartheid, yet he also held the view that there were no legal grounds to halt trade engagements with the nation of South Africa. The business venture, in truth, generated substantial profits. The South African government eventually recognized that, due to sanctions, the cost incurred from purchasing crude oil via intermediaries over a decade exceeded $10 billion. In the 1980s, Deuss was the principal intermediary in procuring petroleum for South Africa's government. The episode starkly demonstrated how individuals engaged in the buying and selling of raw materials, motivated purely by the pursuit of financial gain, might unintentionally bolster some of the world's most repressive regimes.

The Cobuco scheme demonstrated Rich's skill in evading sanctions through the use of intermediary companies based in countries with struggling economies, like Burundi, to disguise his involvement in oil transactions.

Blas and Farchy use the Cobuco scheme, a series of deals through which Marc Rich used shell companies in developing countries such as Burundi to sell oil to South Africa at a high mark up, to show how the commodity traders could take advantage of a complex web of political and economic relationships for enormous profits.

During the early 1980s, OPEC assisted several African countries by supplying them with crude oil at discounted rates, enabling these countries to acquire oil at more affordable prices. Marc Rich, known for his skill in circumventing restrictions, spotted an opportunity and seized it. He collaborated with a junior trader to establish several trading entities that were officially under the ownership of various African or Latin American governments, which allowed them to purchase oil at reduced prices from OPEC. The firm purchased a surplus of oil beyond the needs of its member countries, which allowed Rich to capitalize on transactions within the South African market.

The planners executed intricate tactics to maintain the illusion. The Cobuco chief made certain that all his calls were rerouted to Brussels, the company's formal headquarters, giving the illusion that he was perpetually operating from the main office regardless of his actual location globally. The real victory was achieved by capitalizing on the exceptionally favorable payment terms offered by OPEC, rather than by evading the limitations imposed on South African oil. Burundi, being an independent country not affiliated with significant blocs, managed to defer its oil payments for two more years. Rich demanded upfront payment from his buyers, which gave him a significant financial edge without the burden of interest, potentially reaching into the hundreds of millions of dollars, and this enabled him to realize close to 20% in yearly returns by engaging in short-term financial instruments. It was, by any measure, an extraordinary deal: a Swiss commodity trader using African shell companies to buy Iranian oil with an interest-free, two-year loan from OPEC to sell to South Africa.

United States intensified its efforts to combat corruption and enforce sanctions.

The authors argue that the period characterized by the unbridled trading of commodities, which enabled the prosperity of individuals like Marc Rich and John Deuss, started to decline by the mid-2010s as a result of heightened oversight and actions taken by the US government against activities it found unacceptable, irrespective of their legality or where they took place.

Other Perspectives

• Traders may argue that their influence in political realms is overstated and that they are simply responding to market demands and opportunities.
• It could be argued that the involvement of traders in political affairs is a byproduct of the globalized economy and not necessarily indicative of an intent to manipulate political outcomes.
• Some may contend that the economic support provided by traders to areas affected by the collapse of the Soviet Union was a form of necessary economic engagement rather than exploitation.
• The assertion that traders engage in immoral activities could be challenged by the view that they operate within the legal frameworks of the countries in which they do business.
• The influence of Marc Rich + Co in Jamaica could be seen as a mutually beneficial relationship, where the company provided much-needed financial assistance in exchange for business opportunities.
• The engagement of merchants with South Africa during apartheid could be defended by some as a non-political act of commerce that was legally permissible at the time.
• The Cobuco scheme and similar operations might be justified as innovative business strategies that were legal and provided necessary commodities to markets in need.
• The role of OPEC in supplying discounted oil could be seen as a separate issue from the actions of traders, who were simply acting as intermediaries in a complex global market.
• The efforts of the United States to combat corruption and enforce sanctions could be criticized for potentially overreaching and imposing American legal standards on international commerce.