Commodity the time, Glencore controlled 3 percent of the world’s oil market, 50 percent of the Kings global copper market, 60 percent of zinc, and 9 percent of the world’s grain. “Think about the effect that would have on food By Carlos Roa prices,” Kamahl cautions, “the absolute ba- sics for so many people around the world.” Javier Blas and Jack Farchy, The World If controlling the food supply of entire na- for Sale: Money, Power and the Traders Who tions isn’t a significant form of power, then Barter the Earth’s Resources (Oxford: Oxford what is? University Press). 416 pp., $29.95. Glencore, and other commodity traders W like it, are the focus of The World for Sale: hen I was an undergradu- Money, Power and the Traders Who Barter ate studying at George- the Earth’s Resources, a recent and rather town University, I used to instructional book by journalists Javier listen to Al Jazeera Eng- Blas and Jack Farchy. Blas and Farchy’s lish’s (aje) coverage of global events—the thesis is straightforward: far from being Arab Spring was still in full swing at the ordinary merchants, commodity traders time, and aje’s reporting was second to are key players in the contemporary in- none. On a May afternoon in 2011, one ternational economy—actors whose “con- particular segment on Kamahl Santama- trol over the flow of the world’s strategic ria’s show, Counting the Cost, stood out. resources has also made them powerful Kamahl introduced a company that I had political actors.” Yet despite wielding this never heard of before: Glencore. immense wealth, influence, and structural The company is a commodity trader—a power, this industry remains a relative- business that focuses on the buying and ly unknown force to most people—even selling of physical commodities, like grain, fewer know its history, evolution, adap- oil, copper, and so on. Most would dismiss tion to changing markets and technology, this as relatively inconsequential; buy- and modus operandi. ing and selling commodities is one of the Drawing on over a hundred interviews oldest kinds of trade in the world. What with current and retired commodity trad- made Glencore stand out, Kamahl em- ers, Blas and Farchy deliver an informed phasized, was that “when one company and eye-opening dive into the field of has this much influence, through its size, commodity trading—a world of swash- and some say even its practices, then there buckling merchant-adventurers, African is a concern.” He laid out the numbers: at dictators, Swiss bankers, and the suave yet ruthless empire-builders who may yet hold Carlos Roa is the Managing Editor of The the future of global geopolitics in their National Interest. hands. 82 The National Interest Reviews & Essays T he World for Sale opens up at the exists to this day. These three men created twilight of the Second World War, the business model and professional culture when an age of peace, combined that has guided the commodity traders over with ruined cities and nations needing re- the past eighty-plus years. building, opened the door to a hitherto The reader is taken on a whirlwind unprecedented bonanza for raw materials. tour of significant events in the industry. The reader is introduced to the pioneers of For instance, the Great Grain Robbery— the modern commodity trading business: probably the first time that both govern- the Hamburg-born Theodor Weisser, who ments and the public at large were exposed crossed the Soviet border (despite having to the importance of the commodity trad- been a former Soviet war prisoner) seek- ing business—is retold in delicious detail. ing a deal to export Communist diesel and Suffering from crop shortfalls in 1971–2, oil to the West; American John H. Mac- the ussr dispatched Nikolai Belousov—the Millan, who went from learning the fam- head of the Soviet grain trading agency—to ily grain business (Cargill) on the floor of the West with a single mission: secure a the Minneapolis Chamber of Commerce food supply. Belousov met with John Mac- to unleashing America’s grain upon the Millan’s successor at Cargill and negotiated world, including to the Communist Bloc; an agreement to buy 2 million tons of grain and Ludwig Jesselson, who fled to America over the next year. Blas and Farchy suc- from Nazi Germany’s genocidal campaign cinctly summarize the mood: “It seemed, at against Jews and went from trading scrap the time, like a good deal all round.” in New York to being the veritable found- Not quite. What Cargill didn’t know was ing father of a dynasty of commodity trad- that Belousov had already met with Conti- ing companies—including Glencore—that nental Grain Company—completing a deal Image: A combine harvester stops during the wheat harvest in Shelbyville, Kentucky, United States. June 29, 2021. Amira Karaoud/Reuters. Reviews & Essays May/June 2022 83 Massive deals that could influence the price of crucial commodities, especially food, were being conducted by relatively unknown companies, and there was little that even the mighty U.S. government could do about it. for $460 million in wheat and staple foods, lost $300 million due to the whole affair, a record for the time period—and would without counting how much was spent by subsequently conclude similar trades with consumers on inflated food prices. commodity traders Louis Dreyfus, Bunge By the time he was finished, the com- Corporation, Cook Industries, and André munist Belousov had effectively pulled a fast & Cie. By quietly negotiating separate one on the rapacious capitalists. Or did he? deals with the commodity traders, Belousov The commodity traders, taking advantage of created a perfect storm for the markets: their superior information network, placed significant wagers on rising food prices. Car- Each trading house thought it was alone gill, for example, “made millions through in cutting a big deal with the Russians, largely speculative bets on the market.” Despite los- unaware of how much others had sold. When it ing $661,000 on the deal with Belousov, the became clear how much Belousov had bought, company “reported net income of $107.8 traders realized there wouldn’t be enough million in its 1972–73 fiscal year, up nearly American grain to go around. In total, Be- 107% from the previous year.” lousov … bought almost 20 million tonnes of Still, the episode was instructive: mas- grains and oilseeds from the grain traders. The sive deals that could influence the price of size of the wheat purchases was extraordinary: crucial commodities, especially food, were 11.8 million tonnes – equal to almost 30% of being conducted by relatively unknown the US wheat harvest. … it was clear the US companies, and there was little that even wouldn’t have enough grain to meet the com- the mighty U.S. government could do bination of its own domestic consumption, the about it. The U.S. Department of Agricul- demand from traditional importers, and the ture and the International Energy Agen- extra purchases from the Soviet Union. cy began publishing regular supply and demand estimates for global markets as a With contracts to fill, the commodity result—these estimates are essential to any traders began buying, setting off a storm market participant today. Nonetheless, the in food prices: over the next year, wheat small world of commodity trading attracted prices tripled (which triggered a corre- attention. That attention would only grow, sponding rise in meat prices) while corn especially over the next decade, thanks to and soybean prices also spiked. The public the antics of one individual: Marc Rich. furor only worsened as more details came B to be known: the U.S. government had orn to a Jewish family in Belgium little knowledge about such trading deals circa 1934, Marcell David Rich— until after the fact, even less ability at the like many traders in Lugwig Jessel- time to regulate such deals, and, to top it son’s company, Phillip Brothers—fled Eu- all off, the Soviet purchases had effectively rope when the Nazis began their march to been subsidized thanks to lavish U.S. ex- continental domination. By the age of nine- port credits. The American taxpayer had teen, he began to work in Phillip Brothers’ 84 The National Interest Reviews & Essays mailroom. His hard work ethic got him cost the firm a potential $50 million in noticed: he was “always arriving first in the profits from a single deal—more than the morning, greeting the other juniors with a company “had ever earned in a year.” Rich sarcastic ‘good afternoon’ as they tramped wasn’t happy being constrained. By 1974, in at 8:30 a.m.” After successfully predict- he and a number of other senior traders de- ing in 1954 that the price of mercury would parted to start their own shop, Marc Rich + rise due to demand—mercury was being Co ag. Coincidentally, this may have been used as a key component in batteries, par- the height of Phillip Brothers. Later years ticularly in military gear—Rich’s career took would not be as kind, as it was renamed off. He became a modern-day swashbuck- Phibro and has spent the past two decades ling merchant-adventurer, flying to Cuba or so being traded back and forth by larger to negotiate with the then newly formed companies—a shell of its former self. Castro government; jaunting off to India, Marc Rich, by contrast, surpassed his the Netherlands, and South Africa to secure former employer in profitably within a few more deals; and by 1964 was promoted to years. His future (mis)adventures, through be the company’s office manager in Madrid. his firm, would become legendary. He It was in 1970 though that he began saved Jamaica’s government from assured going down the path that would earn him collapse by serving as a bank of last resort his claim to fame: the oil trading business. and one time delivering 300,000 barrels of As Rich himself recounted to his biogra- oil within twenty-four hours, generating pher, Daniel Ammann: “goodwill” that translated into lucrative deals. This included a ten-year contract for ...the oligopoly of the [then-major transna- the island’s alumina (an intermediary step tional oil companies] Seven Sisters was coming from transforming bauxite into commercial to a halt. Suddenly, the world needed a new aluminum) at an effective 25 percent below system of bringing the oil from the producing typical contract terms, just as his firm ef- countries to the consuming countries, so that’s fectively cornered the market, delivering exactly what I did. I just thought it should be fantastical returns. (Rich + Co’s successor, possible to trade oil despite the Seven Sisters. Glencore, found similar success in Jamaica in later years via clever contract dealing: Rich succeeded spectacularly, quietly between 2004 and 2006, Kingston “would taking advantage of the Eilat-Ashkelon have received $370 million in additional Pipe (created to move Iranian oil to Is- revenue if it had been selling its alumina rael after the 1967 Six-Day War) to sell on the spot market and not to Glencore.”) Iranian crude to Europe. His appetite for He supplied South Africa’s apartheid gov- high-return risk, a novelty in conservative ernment with oil, at one point indirectly Phillip Brothers, was so great that he was instructing the captain of an oil tanker to dressed down by Lugwig Jesselson himself. simply erase the name of the vessel so it This, as it turned out, was an error that could bypass an embargo. Rich even bribed Reviews & Essays May/June 2022 85 86 The National Interest Reviews & Essays Why would a small, dirt-poor, landlocked country—only slightly larger than the state of Maryland, with so little oil consumption that “even one tanker of crude would be enough to meet its needs for more than six years”—need a wholly dedicated oil trading company to begin with? a number of officials from the African na- sold at a markup, securing Marc Rich + Co tion of Burundi so he could set up one of somewhere between $40 to $70 million in his most profitable ventures: the Compagnie profits (“Monsieur Ndolo” isn’t as sure of the Burundaise de Commerce, or Cobuco for figure any more), with the deferred payment short. (i.e., the interest-free two-year loan) being The plot surrounding the compagnie was invested in the money market for interest classic Rich. Cobuco was nominally a trad- rates close to 20 percent, netting an addi- ing company based in Brussels with a single tional $42 million (“Monsieur Ndolo” was mission: keeping Burundi supplied with oil. very sure about this figure). As for Burundi? If one looked into the company, everything They were paid only twenty cents per barrel seemed above board: it was a 50-50 joint for their service, though “Ndolo” won’t dis- venture between Marc Rich + Co and the close whether this money went to the state Burundian government, with the company’s treasury or, more likely, into the pockets of constitution having been approved by the various officials. Stoked by this success, Rich country’s parliament. If you called its of- doubled down; by the end of the 1980s, his fices, a “Monsieur Ndolo” would answer company had another four or five similar the phone. All this seems clean, except for a ventures across the African continent. small detail: why would a small, dirt-poor, Eventually though, Rich’s luck ran out. landlocked country—only slightly larger The U.S. government came at him with a than the state of Maryland, with so little oil vengeance—the consequence for defying consumption that “even one tanker of crude oil embargos, not to mention engaging in would be enough to meet its needs for more tax evasion, wire fraud, racketeering, etc.— than six years”—need a wholly dedicated oil prompting him to flee to Switzerland. With trading company to begin with? his partners retired, Rich ended up firmly As Blas and Farchy detail, after securing in charge of his firm. He was subsequently the real story from “Ndolo” himself, the en- remiss in his management and—irony of tire venture was essentially a money-printing ironies, given the context for his original scheme for the benefit of Marc Rich and departure from Phillip Brothers—the com- Co. Cobuco, nominally representing Bu- pensation of his subordinates. By 1993, the rundi, secured a contract for crude opec oil situation became untenable. The company’s (around $27 to $28 a barrel, well below the former head of oil trading, a Frenchman market price of between $30 to $35) from by the name of Claude Dauphin, executed Iran, with payment deferred for two years a rather Rich-like move, leading a num- (essentially amounting to an interest-free ber of traders into exile. The group would loan). Officially, the oil would be delivered form a new commodity trading company by Marc Rich + Co tankers to Mombasa, called Trafigura, which exists to this day Kenya, where it would be refined and then (and has developed a reputation as colorful trucked into Burundi. In practice, the oil as Rich’s). For those who remained, another was diverted to the international market and few months of office politics yielded fruit: Image: Marc Rich at his home in Marbella, Spain. Jim Berry/Camera Press. Reviews & Essays May/June 2022 87 Behind the scenes of the ongoing Russo-Ukrainian War, at least at the time of this writing, commodity traders are dealing with the Kremlin and providing Moscow with an invaluable economic lifeline. by 1994, Marc Rich was overthrown and reaches of the Russian government—and ejected, forced into a relatively quiet retire- the commodity traders that keeps Russia in ment save for his shocking pardon by Presi- business. Behind the scenes of the ongoing dent Bill Clinton on the latter’s last day in Russo-Ukrainian War, at least at the time of office. this writing, commodity traders are dealing As for Rich’s former trading house, its with the Kremlin and providing Moscow members sought a new name. An unnamed with an invaluable economic lifeline. consultant eventually proposed one: a con- The collapse of the centralized Soviet sys- traction of the word global, energy, com- tem meant that commodity producers and modities, and resources. And so, Marc Rich refiners were left without orders from Mos- + Co became Glencore International. A cow: how much of so-and-so material should new generation of commodity traders had be extracted or produced, where should it be come to power, and their timing could not shipped, for how much money, etc. Some have possibly been better. individuals though, taking advantage of Mikhail Gorbachev’s perestroika reforms— T he second half of The World for primarily, the Law on Socialist Enterprises Sale covers events from Marc Rich’s of 1987—had already built the foundations downfall to roughly around 2021. for future success: they had created “coop- There are plenty of tales of the exploits of eratives” (essentially, small businesses) that traders, Glencore in particular, that make could buy and sell goods without going for interesting, compelling, and one could through the Soviet state. Commodity trad- even say scandalous reading. The insights ers leaped at this chance to bypass Moscow. provided are informative to all who hold Consider David Reuben, co-founder of com- any level of interest in contemporary geo- modity trader Trans-World: in May 1992, politics, economic developments, the use of acting on the word of a visitor to his office, power, and so forth. he would fly to distant Krasnoyarsk in Si- The backdrop upon which all these take beria to visit the largest aluminum smelter place, however, is arguably the more in- on Earth. There, he found that the plant’s teresting story—and is more relevant for manager “was worried because he didn’t have ongoing events. Two momentous changes enough money to pay for the town’s food in international affairs dominate the rest of supply. On the spot, Reuben agreed to ad- the book. vance him money, to be repaid in alumi- The first is the fall of the ussr, described num.” Within a short time, Trans-World by Blas and Farchy as “the biggest closing- would take full advantage of the Russian down sale in history,” with lasting con- government’s privatization, buying stakes in sequences that matter now, at this very the country’s three largest aluminum smelt- moment, more than ever before. After all, ers, becoming a “dominant player” in the it is the connections made between Rus- country’s aluminum industry. By the end sian oligarchs—and later on, the highest of their adventures in Russia, the Reuben 88 The National Interest Reviews & Essays brothers would become filthy rich; as of Rosneft, the state oil giant. Sechin gave 2021, they are, separately, among the top- Glasenberg and Ian Taylor of Vitol a call, five richest individuals in the uk. and the two of them put together a whop- As Blas and Farchy note, the lessons im- ping $10 billion in financing in exchange parted by commodity traders (to say noth- for future oil supplies. Since then, Glen- ing of the profits made possible via the core has constantly come to the rescue of trading they enabled) gave rise to the Rus- Putin’s government, most notably in 2016, sian oligarchs. when the company convinced Qatar’s sov- ereign wealth fund to partake in an $11 The partnering-up of the commodity trad- billion deal to acquire part of the Russian ers and the men who would become Russia’s government’s stake in Rosneft. For his ser- new elite had wide-ranging consequences. The vice, Glasenberg, along with six others, commodity traders were on hand to show the was awarded Russia’s Order of Friendship early oligarchs how to export their goods, help- by Putin himself. ing them earn seed capital that allowed them to T buy up large swathes of the Russian economy he other momentous change in the as it was privatised. They linked the Russians to international order that has rocked the world of Western finance, helping in some the commodities world has been cases teach them the tricks of the tax havens the rise of the People’s Republic of China. and offshore shells that commodity traders had China’s raw and relentless hunger for been employing for decades. commodities to feed its specular growth from around the mid-2000s unleashed These ties are enduring. For example, what is known in the industry as a Oleg Deripaska, an aluminum tycoon who supercycle—“decades long, above trend started off working with Trans-World, movements in a wide range of base mate- teamed up with Glencore—the latter rial prices.” In other words, China was con- provided $100 million in financing and suming so much so fast that supply barely resources for Deripaska to put together kept up with demand, sending prices—and his aluminum empire (and eventually, profits—to the sky, with substantial and monopoly), Rusal. Glencore’s ceo, Ivan grave implications for both the commod- Glasenberg, courted Deripaska as a per- ity trading business and global geopolitics. sonal friend, going to football matches Even now, to this day, China’s demand is with him at Stamford Bridge (in Lon- jaw-dropping. A recent February 2022 re- don) along with fellow oligarch Roman port by the bank JP Morgan—which came Abramovich. These connections paid off out before Russia’s invasion of Ukraine—is in 2012 when Igor Sechin, one of Rus- blunt on the matter: sian president Vladimir Putin’s closest con- fidants, pushed for the consolidation of While tradable commodity stocks are criti- Russian oil assets under the control of cally low, it is important to acknowledge the Reviews & Essays May/June 2022 89 abundance of available inventories in leading income went from $1 billion in 2003 to commodity consumer and importer China, to $6.1 billion in 2007. draw upon as required, which can influence Glencore wasn’t alone. Andy Hall from import demand. China currently holds an es- Phibro placed an enormous (and correct) timated 84% of global copper, 70% of corn, bet on the future of oil demand. Metal 51% of wheat, 40% of soybeans, 26% of crude traders Michael Farmer and David Lilley, oil, and 22% of aluminum inventories, accord- creating a new trading shop called Red ing to our sources. Kite, made a fortune on rising copper pric- es. The list goes on for entire pages; dozens For commodity traders, this surge in of billionaires were created from China’s prices made them filthy stinking rich. sheer demand, and many still are even as Glencore, for example, correctly anticipat- these words are being written. ed growing energy demand and acquired T numerous coal mines. By the end of the hough The World for Sale is master- 1990s, the company was “the world’s larg- ful in its story-telling, there are a est shipper of thermal coal, trading 48.5 few bits worth grumbling over. million tonnes in 2000 – one in every six In writing the book, Blas and Farchy traded on the seaborne market.” The bet seem to center their narrative on Lugwig paid off immediately; by the middle of Jesselson’s corporate dynasty: from Phillip 2001, prices had risen 35 percent. The Brothers to Marc Rich to Glencore. That value of the coal assets acquired, put in is not to say that other traders aren’t men- a separate company called Xstrata, grew tioned; the book is replete with accounts of from being worth $450 million in 2001 to many commodity traders’ activities, includ- a high of $84.2 billion in 2008. Glencore’s ing (and especially) John H. MacMillan’s Image: Russian president Vladimir Putin greets Glencore ceo Ivan Glasenberg during a meeting with participants of the Rosneft privatization deal at the Kremlin in Moscow, Russia. January 25, 2017. Alexander Nemenov/Reuters. 90 The National Interest Reviews & Essays Cargill. However, these more often than budgets.” This sounds rather kind, with not play second fiddle to the Jesselson dy- the youth descriptor evocative of American nasty’s first fiddle, at least in Blas and Far- Silicon Valley tech startup types: just a few chy’s account. This can be forgiven though college-aged lads who notice an inefficiency for two reasons. First, the continuity pro- in the market and build a successful, honest vided by the Jesselson line makes for bet- (enough) business by addressing it. Alter- ter and more straightforward storytelling natively, were these “young entrepreneurs” to the benefit of both the authors and the actually glorified thieves? As Vladislav M. reader—heaven forbid a play have far too Zubok notes in his recent book, Collapse: many protagonists. Second, while there are The Fall of the Soviet Union, they essentially books that regale on specific business seg- sold state assets (including commodities) to ments or individuals involved in the com- themselves at fixed, artificially low prices modity trading business—Dan Morgan’s and then passed these off to foreign par- magisterial account of the grain traders in ties, ultimately stashing away their prof- Merchants of Grain, for example, or Daniel its—which should have been reinvested at Ammann’s authoritative biography of Marc home to help Gorbachev’s well-intentioned Rich, The King of Oil—seemingly none up (if flawed) reforms, the Soviet economy, and until now have tackled the industry as a their fellow Soviet citizens—in Swiss banks, whole. The World for Sale, despite its afore- London properties, and so on. Depending mentioned inclination, accomplishes this on how one considers the matter, the com- rather well. modity traders were either brave enablers of That said, in some parts of the book the early Russian capitalism or collaborators in authors are just a tad overly charitable to a large-scale geopolitical heist. the commodity traders. Though much of The above critiques though are mere nit- the tome is written in a professional jour- picking compared to the authors’ gravely nalist’s manner—neutral, focused on the erroneous decision to condense the grow- facts, stating what was said by whom with- ing influence of Chinese companies in the out taking sides—there are one or two spots commodities trade into little more than a where eyebrow-raising is warranted. For page at the book’s conclusion. instance, consider the “young Soviet citi- Blas and Farchy correctly point out that zens” who took advantage of Gorbachev’s China has noticed the commodity trading economic reforms. Blas and Farchy char- industry’s enormous potential to secure acterize these individuals as “young entre- profits. This, combined with the country’s preneurs” who “cater[ed] to needs unmet enormous demand, has driven Beijing to by the organs of the Soviet government” build its own commodity trading capacity. via “exploiting[ing] the inefficiencies of the This important matter, however, is reduced Soviet system, buying surplus materials on to a handful of examples in just about two the cheap or offering services to bureaucrats paragraphs—one of which is about a single who needed to find a way to spend their trading house, Zhuhai Zhenrong, which Reviews & Essays May/June 2022 91 The above critiques though are mere nitpicking compared to the authors’ gravely erroneous decision to condense the growing influence of Chinese companies in the commodities trade into little more than a page at the book’s conclusion. has made itself into the largest trader of Ira- Virgin Island, the Caymans, and Bermuda, nian crude oil. Other traders in oil, such as thereby enabling cofco and China to dis- Unipec and ChinaOil, are mentioned once guise ultimate ownership of various assets; with no further details provided. and so on. Similar for agriculture, where China’s This is all important information about state agricultural trading agency, the China just one facet of China’s direct participation Oil & Foodstuffs Corporation (cofco), in the commodities trade that probably is mentioned in passing. All that Blas and deserved more than a few paragraphs in the Farchy have to say about it is that it “has book’s conclusion. spent $4 billion since 2014 to establish an T international food trading arm.” he World for Sale indirectly raises a This line, while providing a rather ex- number of uncomfortable but im- citable figure, vastly understates cofco’s portant questions that policymak- reach, influence, and significance. With ers, subject matter experts, and the broader around 18.5 percent of the world’s popula- public should consider carefully. Foremost tion but only 10 percent of global arable among them is this: in an age of multipo- land, China must import massive amounts lar geoeconomic competition, where the of food to feed its people. cofco exists to strength of great powers is directly tied to address this dilemma, and it is essentially maintaining ongoing access to key materi- China’s food supply chain. It is a massive als, should it be private companies or state- enterprise, with multiple listed subsidiar- controlled entities that are in charge of the ies specializing in everything from tea to supply of said materials? e-commerce. Its own website boasts that its Most modern multinational corpo- “annual sugar imports account for about rations, including commodity traders, 50% of China’s total imports.” It has a strive to avoid any ideological or politi- cargo fleet with over 200 ships, which is cal entanglements—profitability is a better more than even the East India Trading lodestar. There is no equivalent to the Brit- Company had at sea at any given time. A ish banking firm Baring Brothers—at one single contract farming operation in South point described by Cardinal Richelieu as Africa it runs is just a tad smaller than the “one of the six great powers of Europe”—a entire city of Detroit. The examples go firm both at once independent yet fiercely on. And cofco only keeps on growing; loyal to its mother country’s national in- by late last year, its “trade group clinched terest. The closest contemporaries to such agri-products purchase deals worth more instruments of national foreign policy are than $10 billion, representing nearly 100% the Japanese sogo sashi firms and Chinese increase from last year.” And all this is state-owned enterprises, the latter of which without diving into its other interests; its aren’t independent by definition. Corpo- ownership of foreign companies; its sub- rate entities not bound to any one flag may sidiaries that are legally based in the British make sense in a world of free trade with 92 The National Interest Reviews & Essays international security guaranteed by a mili- says Nicholas Beardsley from the Silk Bridg- tary hegemon. However, as America’s power es Group, a mining company. wanes relative to China and other rising state actors, and it is becoming ever clearer Where there’s really an opportunity to build that—in myriad cases—supply chain se- supply quickly and effectively is in recycling curity is worth more than straightforward scrap [metal] and reprocessing minerals that profitability; a great rethinking of this topic come about as byproducts from mineral pro- is warranted. cessing. After all, there’s an abundance of both Signs of a rethink appear to be already globally. With the available supply and recent underway. U.S. president Joe Biden, for advancements in reprocessing methods and example, has signed an executive order on technology, this can be both more time- and America’s supply chains, specifying how a cost-effective—and in an environmentally- variety of possible disruptions “can reduce friendly manner—than traditional mining and critical manufacturing capacity and the ore processing. This is being done in Kazakh- availability and integrity of critical goods, stan and Turkey via my employer. There’s no products, and services.” Notably, the order reason it couldn't be done in the United States. calls for “a report identifying risks in the supply chain for critical minerals and other A second question is what happens when identified strategic materials.” commodity traders assume the same im- In the medium term, Washington is likely portance as major banks—systemically im- to support, fund, and back initiatives to portant financial institutions (i.e., “too big develop both domestic and some foreign to fail”)—but without the same regulatory (in nearby friendly countries) mining opera- oversight? Blas and Farchy note near the tions. “Investment and development of tra- end of their book that the traders are in- ditional mining opportunities is a necessary creasingly “acting as links to international strategy to employ if the U.S. wants to, at financial markets, channeling dollars from the very least, keep up with overseas rivals,” pension funds and other investors into Image: The company logo of China Oil and Foodstuffs Corporation (cofco) is seen at its headquarters in Beijing, China. November 3, 2016. Thomas Peter/Reuters. Reviews & Essays May/June 2022 93 It is evident that major structural reform by governments may be needed to curtail the risks posed by commodity traders’ sheer financial heft. far-flung countries,” ultimately resulting These losses from profitable positions will be in “the ability to finance entire nations – offset once the commodities are sold, but in the and to help others into being.” Chad, for intervening period margin calls can place strain example, turned to Glencore in 2013 as a on commodity traders, which are dependent on lender of last resort, in exchange for future short-term credit lines from banks to fund their oil supplies. When Chad couldn’t pay back activities. “This cash flow mismatch can cause the loans (due to falling oil prices) in 2016, major liquidity problems,” said Craig Pirrong, a Glencore was able to push for “punishing finance professor at the University of Houston. austerity” in the country. Even now, “when “And banks, for various reasons … may not be the [International Monetary Fund] publish- willing to extend credit sufficient to meet these es reviews of the country’s economy, [Glen- liquidity needs…” core] merits its own mention in the analysis of the African government’s finances.” Simi- In short, major commodity traders are larly, in Kazakhstan, the government (also currently short on cash due to massive fi- suffering from a lack of revenue due to fall- nancial market requirements. If one or ing oil prices) turned to Vitol, which, start- more firms suffer a 2008 Lehman Brothers- ing in 2016, “channeled a total more than like moment—the bank failed due to lack- $6 billion in loans to [state oil company] ing enough liquidity to meet its operating kmg in exchange for future oil supplies.” costs—the results could be catastrophic. This sheer amount of power and influ- Blas himself, in a Bloomberg column, is ence means that if some commodity traders skeptical but notes that significant caution were to go down, entire countries might is warranted: very well go down with them. Just this past March, the European Federation of Energy I have long argued that commodity traders Traders—essentially, the lobby for energy don’t matter to the global economy in the same trading houses—put out a four-page letter way that Lehman Brothers did: the collapse of calling on central banks to provide emer- one won’t trigger a global recession. And yet, gency financial liquidity to support com- they remain too big to be ignored — and a modity markets, which are in trouble due to possible source of big trouble if left unattended. the Russo-Ukrainian War. As the Financial Times explains using the gas markets as an It is evident that major structural reform example, by governments may be needed to cur- tail the risks posed by commodity traders’ Big commodity traders use derivatives to sheer financial heft. After all, the last time hedge contracts against price swings and lock- national central banks were called on to in margins. … As gas prices in Europe and provide a safety net for financial firms en- Asia have soared, the losses on these contracts gaging in highly-speculative and overlever- have increased, requiring … traders to make aged activity was in 2008. No one wants margin payments to brokers and exchanges. a repeat of that, both in terms of the crisis 94 The National Interest Reviews & Essays and the aftermath—political, geopolitical, The answer, which appears to be a social, economic, etc.—that followed. heavy “no,” carries broad implications for Finally, The World for Sale poses a third the international order. While the United and rather uncomfortable question: can States occupied its place in the sun, and geographic and resource inequalities really the globalized economic system worked ever be overcome? fine, this could be ignored. But with the Image: Shipping containers at the Port of Los Angeles, California, United States. Venti Views/Unsplash. Reviews & Essays May/June 2022 95 Russo-Ukrainian War, reality is reveal- repeat of the Arab Spring, which was partial- ing that the West has fallen into a state of ly set off due to high food prices. Elections wohlstandsverwahrlosung—affluent neglect between now and 2024 could potentially from having it too easy for far too long— bring down sitting governments, includ- opening the door for dramatic political re- ing the Biden administration in the United actions to changing material circumstances. States, should conditions deteriorate signifi- Coming months will likely show the con- cantly. What happens “elsewhere” will once sequences of this. After all, Russia alone again show that not all countries are cre- supplies around one-sixth of global com- ated equal, and the result may very well be modities. It produces around 40 percent of a populist political push—improbable as it the world’s palladium and is a top exporter may be—towards a state thought long van- of coal, steel, aluminum, nickel, and so quished from the dictionary of polite, cos- forth. Can entire economies, including and mopolitan, and globalized society: autarky. especially nearby European economies, con- U tinue functioning as normal without these ltimately, The World for Sale is, in necessary inputs? It is a doubtful prospect. its own way, an open invitation to And then there is the food issue: Russia discuss these issues. It is essential and Ukraine—the former sanctioned, the reading for all participants in contemporary latter now a war zone—together account global affairs and geopolitics. for nearly 30 percent of world wheat ex- As for the commodity traders themselves, ports, 15 percent of world trade in rapeseed as Blas and Farchy assert, the world’s natural oil, and 75 percent of all sunflower oil ex- resources “still need to be bought and sold. ports. Ukraine alone ships 15 percent of all And commodities are still a sure-fire path to exported corn. Compounding the situation money and power.” Even now, commodity is the fact that Russia, Ukraine, and Belarus prices are spiking from the Russo-Ukrainian make up a significant share of fertilizer War, creating unique opportunities for the production and export. All three countries adventurous and bold. Russian oil is being account for 36.7 percent of global produc- sold at a discount of 20 percent or more, tion and 39.6 percent of global exports of while exploding grain prices will mean a potash. Likewise, all three make up 22.9 mad rush to secure supplies in the Middle percent of global ammonia exports. These East and further abroad. Despite liquidity are all essential for modern agriculture, risks, fortunes are being made overnight, and a cut in supply—with a corresponding only further empowering the invisible king- spike in prices—has farmers around the makers who can affect the fates of nations world worried. and entire populations. It may be winter Over the next year, food prices everywhere for the markets, governments, and ordinary will probably shoot up, setting the stage for people, but as far as the commodity traders a repeat of what happened after the Great are concerned, they, like snow, always land Grain Robbery. Experts whisper about a on top. n 96 The National Interest Reviews & Essays Reviews & Essays May/June 2022 97 98 The National Interest Reviews & Essays Reviews & Essays May/June 2022 99 100 The National Interest Reviews & Essays Reviews & Essays May/June 2022 101 102 The National Interest Reviews & Essays Reviews & Essays May/June 2022 103 104 The National Interest Reviews & Essays Reviews & Essays May/June 2022 105 106 The National Interest Reviews & Essays Reviews & Essays May/June 2022 107 108 The National Interest Reviews & Essays Reviews & Essays May/June 2022 109 110 The National Interest Reviews & Essays Reviews & Essays May/June 2022 111
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