In early 1986 Seaga’s government signed a ten-year contract with Clarendon for the Alcoa facility’s entire annual yield of 750,000 metric tons of aluminum oxide.13 It was risky for the company to commit itself to a long-term contract while prefinancing the facility’s yield in the midst of a crisis. Metals experts assumed that prices would continue to fall. It was a risk that might pay off only to those who could wait. Marc Rich was someone who knew how to wait.
Two years after Clarendon had signed the ten-year contract at fixed prices, the demand for aluminum began to increase rapidly, and prices began to skyrocket. In 1988 the price for a metric ton of aluminum was at 2,430—more than twice the price at the time of the contract. Rich made a fortune as a result of the simple fact that he had had the patience and the money to wait out the slump in the aluminum market. Jamaica also profited from the rise in prices because the price agreed with Rich was a mix of fixed prices, London Metals Exchange–linked prices, and barter of oil for alumina. Between 1980 and 1990 Rich advanced Jamaica’s government almost 320 million in order to secure annual yields of aluminum oxide. Critics bemoaned the exploitation of the nation’s natural resources by “assorted private individuals.”14 Rich’s employee in Kingston in those days is of a wholly different opinion: “The Jamaicans are eternally grateful to us,” he told me. “We gave them back their pride, the Alcoa facility was once more able to turn a profit, jobs were saved, and we made a really good deal.” You give a value and you receive a value.
South African Stratagems
It seemed to be a normal transport like any other. The Dagli, a Norwegian tanker, docked in Odessa on September 21, 1988, where she took on a cargo of Soviet oil. The shipping documents listed the destination as the Italian harbor of Genoa. The Dagli sailed across the Black Sea and through the Bosporus Strait past Istanbul. The tanker had just reached the Mediterranean when her captain received a telex advising him of a change of plans. According to telexes in the author’s possession, the ship’s charterer ordered him to set course for Cape Town in South Africa. From that moment onward, the captain was only allowed to identify the Dagli on the radio as “MFI,” and all further communications were to be carried out using secret code. He was prohibited from disclosing the ship’s cargo or the destination. The telex’s wording was quite clear: “Any all communications are to refer only to bunkering operation with no reference whatsoever to cargo discharge, vessels [sic] name or loadport. Under no circumstances should vessel use usual call sign.” Three weeks later, on October 15, 1988, the Dagli sailed into harbor at Cape Town. She was virtually a ghost ship—her name was covered with a tarp, and her Norwegian flag had been taken down. She secretly discharged her cargo of oil in Cape Town before disappearing nearly as soon as she had arrived.
There was a reason, of course, for all of this secrecy. The oil’s true owner was Marc Rich, and the arranged purchaser was the government of South Africa. The oil itself came from the Soviet Union, which officially boycotted the racist apartheid regime and had broken off diplomatic relations with the country as of 1956. It was a typical state of affairs in which Rich again served as a sort of “crude middleman” who bought sensitive commodities from sensitive sellers and sold them to sensitive buyers. He was able to bring together countries that no longer maintained an official relationship with one another.
South Africa’s survival depended on middlemen such as Rich. The Iranian revolution was a catastrophe for the South Africans. In February, 1979, the mullahs in Tehran broke off all diplomatic and economic contacts with South Africa. The National Iranian Oil Company contractually forbade its customers from delivering a single drop of oil to the apartheid state. In the years before the revolution, South Africa had obtained 90 percent of its oil from Iran.15 The shah had continually refused to take part in the Arab nations’ sanctions against South Africa, such as the 1973 boycott. The shah had wanted to become a powerhouse of the oil trade and was happy to sign large (and independent) contracts with new customers. Furthermore, Mohammad Reza Pahlavi’s position could be explained by the special relationship he maintained with the government in Pretoria. His father, Reza Shah, was forced to step down by Great Britain and the Soviet Union in 1941 before being forced into exile. Reza Shah spent his final days in Johannesburg, where he died in 1944. As strange as it might sound, Iranians were granted special status as “honorary whites” under the racist laws of the apartheid regime.
Few countries were willing to continue supplying South Africa with oil. In addition to the Arab boycott, the United Nations General Assembly also enacted an oil embargo against South Africa in a series of resolutions in 1977. In truth it remained a voluntary boycott, and the UN Security Council never made it a binding resolution.16 Nevertheless, most oil-producing nations enacted embargoes—at least officially—and the larger oil companies stopped dealing with South Africa. In 1986 the United States enacted the Comprehensive Anti-Apartheid Act, which prohibited U.S. companies from supplying South Africa with oil.17
South Africa’s salvation came in the form of Marc Rich—with a hefty surcharge, of course. Rich’s companies had very good contacts in South Africa, and a young Briton living in the former Commonwealth country was in charge of company affairs: Alan Fenton, who had changed his name from Felsenstein. Fenton took care of the company’s South African business, mainly in the manganese and chrome trade, in the late 1970s. Alec Hackel, one of the founders of Marc Rich + Co., was in charge of South African affairs back at company headquarters in Zug. Shortly after the Iranian revolution, the apartheid government secretly approached Fenton in order to discuss oil deliveries, and the two parties soon came to an agreement.
On April 12, 1979, South Africa signed a long-term contract with Rich for the delivery of large sums of oil. In order to keep their business relationship as discreet as possible, an unknown Swiss company was named in the contract. Minoil was located only a few hundred feet from Rich’s headquarters in Zug. No one knew that Minoil also just happened to be a part of Rich’s trading empire. Switzerland again proved to be a clever choice for the headquarters of Marc Rich + Co. In those days the neutral country was not a member of the United Nations and did not generally participate in economic or political sanctions.
Under the terms of the contract, Rich was obliged to deliver oil to South Africa for a period of at least one year. The contract stated that Minoil would deliver 2.4 million metric tons of oil in the first six months followed by 1.6 million metric tons in the second half of the year. Together these deliveries amounted to around one-third of South Africa’s yearly oil needs. South Africa paid Rich an average of 32.80 per barrel—8 higher than spot market prices.18 This contract for approximately 4 million metric tons—nearly 30 million barrels—was worth almost 1 billion. Rich was able to make an estimated profit of around 230 million.
South Africa was in a desperate situation and was forced to resort to “unconventional means” in order to secure its oil supply. These were the words that appeared in a report from June 27, 1984, by the advocate general of South Africa, Piet van der Walt, who was investigating rumors of massive corruption surrounding the oil deliveries. One of the most important of the “unconventional means” involved government risk premiums of 8 per barrel—the same 8 that Rich made above the spot market price. Van der Walt’s report stated, “As a further incentive to international oil companies to supply . . . South Africa with crude oil, 8 per barrel of crude oil was paid under a subsidy scheme during 1980. For each barrel of crude oil imported by a company 8 per barrel, adjusted in terms of oil quality, was repaid to the company.”19 South African president Pieter W. Botha later admitted that South Africa, to be able to get oil supplies, had paid between 1 billion and 2 billion each year above the normal price as a result of the boycott.20
South Africa under apartheid is the best example of the double moral standards that are still prevalent in the discussions about ethics in the commodities trade. The list of countries from which the oil for the apartheid regime was obtained read
s like a complete list of all oil-producing nations. The oil came mainly from Iran, Saudi Arabia, the United Arab Emirates, and Oman.21 Oil deliveries also came from Dubai, Angola, Nigeria, Ecuador, Brunei, and the Soviet Union. All of these countries were vocal opponents of the apartheid regime and had loudly proclaimed that they would maintain the boycott against South Africa.
In reality, however, profit triumphed over principles in these countries. Islamic Iran, the Communist Soviet Union, and capitalist Ecuador were all looking for hard currency. They all made, via Marc Rich, lucrative secret deals with the apartheid regime in South Africa. Rich was used in order to conceal the contradictions between these nations’ political rhetoric and economic deeds, and they were content to let him take the political heat. Today there is absolutely no doubt that Rich was the ostracized regime’s most important oil supplier from 1979 to 1994 (when Rich sold his company). His company was responsible for at least 15 percent of the identified oil deliveries, according to the Dutch Shipping Research Bureau’s conservative estimates. These deliveries consisted of 149 tanker loads—a total of 26.2 million metric tons, or around 200 million barrels, of oil.22 From information gathered during the extensive interviews that I conducted for this book, I have come to the conclusion that the true sum was actually more in the region of 400 million barrels.
Rich made a lot of money in those years. “Believe me, we made huge business with South Africa. Huge business,” one of Rich’s close cadres with access to the company’s books admitted to me. At first he did not wish to tell me the exact sum, so I wooed him with numbers. “A billion?” I asked him. He shook his head and laughed. “One and a half billion?” I asked. Without uttering a noise he mouthed the word “more.” I shook my head in disbelief, whereupon he nodded and said: “Two billion dollars. We made a profit of over two billion dollars in South Africa.” Two billion dollars was an unbelievable sum in those days. Proof that this sum is no mere overestimation can be found in the debates that took place before the South African parliament in April 1984. During these debates it was discovered that the state Strategic Fuel Fund had paid Marc Rich 306 million above the spot market price for one large oil delivery alone.23
“I don’t know,” Rich said when I asked him about the 2 billion. It seemed as if he were trying to avoid the question. I asked him if he no longer wanted to remember, whereupon he finally answered that he had never calculated how much money he had earned in South Africa over the course of those fifteen years. He did confirm, however, that the trade with South Africa had been his “most important and most profitable” business.
There are good reasons for viewing Rich as something of a Karl Marx figure, “who made all of the oil countries aware of their interests,” as Rich’s business partner and friend Isaac Querub commented. One can see him as someone who provided third world countries with their “first opportunity to play a role in the global market,” as the trader in Jamaica put it. One can view Rich’s traders as profit-oriented development workers “who gave the key of knowledge,” as the expert on Angola believes. Angola and Jamaica are good examples of this thesis, whereas apartheid South Africa is the exact opposite. Angola and Jamaica were able to assert themselves and develop, but the opposite was true in South Africa, for in the end Rich’s services helped to support a regime that oppressed its black citizens.
Dealing with Dictators
How does one do business with racist, dictatorial, and corrupt governments? Is it possible to do so without becoming an accessory to these governments’ crimes? I spoke with Rich about these questions in his office in Zug. The rain ran in streaks down the widowpanes and lent a fitting atmosphere to our discussion. Rich’s desk, which was usually quite orderly, was covered in open medicine packages. He sneezed continuously throughout our discussion.
Is it possible to remain neutral when doing business in such countries?
Yes, business is neutral. You can’t run a trading company based on sympathies.
Iran, Cuba, South Africa. You were always a crisis profiteer.
Whatever we did, we did legally. We were doing business with Iran, Cuba, and South Africa as a Swiss company. These businesses were completely legal according to Swiss law.
The law is the only criterion?
The law is the only objective standard.
In the case of South Africa you indirectly supported apartheid. Your critics maintain that, thanks to you, apartheid was able to survive longer.
I don’t know if this is true. I doubt it. I was fundamentally against apartheid. We were all against apartheid. I just was doing normal business with South Africa.
How do the two fit together?
I’m not a political person. We were not a political company. We just wanted to be an excellent trading company for our customers. The South Africans needed oil, and people were reluctant to sell it to them because of the embargo. We agreed to do it because we felt it was nothing illegal.
Many people—including some businesspeople—would cite ethical reasons for not making some of the deals that you have made. Is that naive?
I think so.
Why?
Because it was perfectly legal to do the business we did do.
Can you understand some of your critics’ arguments?
They like to pick on me. By making dramatic statements they have a better chance to sell their newspapers or to create publicity for themselves. The politicians always want to be in the media.
You feel absolutely no remorse whatsoever?
No, no.
It is not as if Rich does not see or does not wish to see the dictators’ crimes or the racism of apartheid. He does not ignore them. He was appalled by the fact that the Cuban people allowed the Communists into power. He was disgusted by the rampant corruption in Nigeria and was aware of the fact that the people have in no way benefited from the nation’s oil wealth. Although Rich believed the system of apartheid in South Africa was fundamentally wrong, he also believes that business had nothing to do with politics. He does not understand that his business strategy of making profits in crisis regions and his willingness to do business anywhere that such business is legal can cause offense among others.
In the United States, Marc Rich was branded a traitor primarily because of his dealings with Iran and Cuba. Other countries took a more pragmatic view. Remarkably, a striking example of this pragmatism was the new democratic government in South Africa. Rich continued to do business with South Africa after the end of apartheid despite all of the anti-Rich rhetoric from the African National Congress, which won the first democratic elections. The new government under Nelson Mandela relied on Rich’s services. “We continued to do oil business with the new government,” Rich told me. “It was completely normal for us to continue the business. We think in the long term.”
SURPRISING SERVICES
How Rich Helped Israel and the USA
I
sraeli tourist Anita Griffel was spending the weekend of October 5–6, 1985, in the Sinai Peninsula together with her five-year-old daughter and a couple of friends. On Saturday afternoon the group climbed up a sand dune near the resort town of Ras Burqa just before 4:00 P.M. to watch the sunset. The mountains of the Sinai threw their long, violet-colored shadows across the valley. At 4:20 P.M. they suddenly spotted a uniformed man running toward them. He was an Egyptian policeman. Without warning he began wildly firing his rifle at the group of Israeli tourists.
Griffel immediately threw herself on top of her daughter, Tali, in order to protect her from the hail of bullets. “She whispered to me, keeping me calm,” Tali Griffel explained years later. “I can still recall the feeling of the jolt as she got shot. Yet she continued to hold me and talk to me.”1 Her mother was struck by two bullets and bled to death. Hidden under the lifeless body of her mother, Tali was the only member of the group to survive the attack, but she was seriously injured, hit in the back by a ricocheting bullet. All told, seven people died that day in Ras Burqa.
The terror attack
put a serious strain on the fragile relationship between Egypt and Israel. Only six years earlier, in March 1979, Egypt and Israel had signed the Camp David Accords, which had finally put an end to the state of war that had existed between the two countries since 1948. In 1982 Israel had returned nearly all of the parts of the Sinai Peninsula that it had occupied during the Six-Day War of 1967. Only the border town of Taba remained as a point of contention. However, the attack at Ras Burqa soon led to a grave diplomatic crisis. The families of the Israeli victims sought financial compensation from the Egyptian government as a symbol of its willingness to set an example against the spread of terror. Egypt was not prepared to meet what it saw as excessive demands. The negotiations over Taba were soon put on hold.
Tali Griffel, the sole survivor of the attack, was also a United States citizen, and this meant that the U.S. State Department had become involved in the delicate and discreet settlement negotiations. The United States was particularly interested in finding a quick solution to tensions between Egypt and Israel, as the two nations were the United States’ most important partners in the Middle East. Both countries received billions of dollars in U.S. aid.
The King of Oil: The Secret Lives of Marc Rich Page 21
