Crude Deception

by Gordon Zuckerman

  “If you already know all this,” said Jacques, “why are you waiting to write your articles?”

  “Writing an article is one thing; making people believe it and motivating them to take action is another. If my articles could be associated with some newsworthy event, they would have a much greater impact.”

  “Like the disclosure of premeditated fraud in Venezuela?”

  “Exactly,” said Walt. “If there is any way we can get our hands on those Perez files, it would be very helpful. Blow the cover off that can of worms, and we have a whole new ball game.”

  Chapter 6

  MEETING IN WASHINGTON

  Without the input of Roger Malone, the Federal Reserve chairman, Mike and Jacques recognized that it would be extremely difficult for the Sentinels to organize any kind of a plan to oppose the plans of the Oil Club. On June 13, 1946, they arrived at the nation’s capital to consult with the Fed chairman, knowing full well how crucial his support was.

  When Chairman Malone’s secretary announced Jacques and Mike’s arrival, the chairman rose from behind his desk and walked forward to greet the two young men. The four other men who had been sitting with the chairman rose to greet them as well.

  “Jacques, Mike, it’s so good to see you,” said the chairman. “And if you’ll excuse me, I’ve taken the liberty of inviting some of your old friends to join us. I’m sure you remember the Secretary of the Treasury, Henry Ainsworth, and Senator John Hess of Pennsylvania. And this is Senator William Armstrong of Indiana—we just call him Bill—and Senator Jordan Lucas of California. Knowing how helpful they were in leading the congressional charge the last time around, when you needed to obtain their support to create the gold bearer bonds, I thought it would be good to have them here.”

  “Thank you, Mr. Chairman,” said Jacques. “We believe the significance of what we are planning has some very serious implications for the future of the oil industry and could represent the start of the next great power cycle. If you don’t mind, I would prefer that Mike explain our problem with the Oil Club and our concerns about the safety of Señor Perez in Venezuela.”

  “Certainly,” said Roger. “Go right ahead, Mike.”

  “Thank you, Mr. Chairman,” said Mike. “We began to suspect the intentions of the seven major oil companies as we were preparing for the most recent annual ABA meeting. And, as my father has informed you, the explosive exchanges during that meeting with bankers—whose clients are the members of the Oil Club—confirmed our suspicions. It seems evident that a new power cycle is in the making.”

  While Mike was speaking, Jacques had reached into his briefcase and extracted a file, which he handed to Roger. “Inside that file,” Jacques explained, “are affidavits from the FAA certifying the attendance of the executives of each of the seven major oil companies at a secret meeting in Wyoming. And as I collected data on the meeting for the FAA, I was pursued by four men, who I suspect were Samson operatives.”

  Noticeably shaken, Senator Hess said, “Okay, I understand the first part, but why do you believe a ruthless paramilitary company such as Samson was hired to provide security at that meeting? I thought we got rid of them after they caused you so much trouble during the war.”

  “Apparently not,” Jacques answered immediately. “I spent the better part of one afternoon escaping them, and I purposely took three days to cross the country via a circuitous route to make certain I wasn’t followed.”

  “Secret meetings, Samson, power cycles, controlling of the world’s oil supply—this is all pretty wild stuff,” Senator Lucas said. “What exactly are you asking us to do?”

  “Nothing, for the moment,” Mike said. “We just wanted you to know about the possibility of a new pocket of corruption that, left unattended, could cause a lot of trouble. We also wanted to make you aware that we are working on it.

  “In addition, there is the problem of the Venezuelan minister of oil. My father had requested that I invite Juan Pablo Perez to the ABA’s April meeting. I called Señor Perez to explain the importance of our invitation, and he seemed flattered by our interest in him and his negotiations. He asked me some pertinent questions, and he verbally accepted my invitation. Then, as a matter of protocol, we sent him an official invitation. Three days before the meeting, we received his handwritten response, declining our invitation.”

  Handing the note to the chairman, Mike added, “I think you will agree, upon close examination, that his response is confusing, and perhaps alarming.”

  Roger Malone read the letter aloud for the benefit of the senators.

  Mike,

  I regret that I cannot accept your kind invitation. Our oil concessionaires believe that the sensitivity of our current negotiations prohibits any interruption caused by my absence at this time. I have also received similar suggestions from the banks that support the opinion of the oil companies.

  Respectfully,

  J.P. Perez

  “What is it that you find so unusual about his letter?” asked the chairman. “His role in those sensitive oil-rate negotiations is well known.”

  “That was my first impression too,” Mike said. “Upon more careful examination, however, I became convinced that the minister may have been trying to send us a message within his message. The first thing I found curious was his failure to mention our former discussion and his initial agreement to attend the meeting. The second thing is that he works for the Venezuelan government, so if his temporary absence were problematic, why wouldn’t the government, not the oil companies, be the ones announcing their concern?”

  “He could be trying to tell us that he is being watched and can’t leave the country,” volunteered Jacques. “Walt Matthews of the New York Times recently informed me that Señor Perez is assembling a file, the contents of which could prove that British and American oil companies have been fraudulently overcharging their sovereign oil partners.”

  “Knowing the oil companies, nothing they do would surprise me,” Chairman Malone said. “But why would Señor Perez fear his own government?”

  “It may not be the Venezuelan government that he fears,” said Secretary Ainsworth. “As we’ve just heard from Jacques, the Samson group is alive and well. They could be the real cause of the oil minister’s concern. As you may recall, Samson was originally organized in Venezuela to protect Big Oil’s interests in case the coup in the thirties resulted in the nationalization of the country’s oil.”

  Jacques nodded. “Exactly, Secretary Ainsworth. After hearing about these rumors, I asked Dr. Tom Burdick, our friend and professor at Berkeley, to see if he could find a secure way to communicate with Señor Perez. Tom has pen pals all over the world. It turns out that Señor Perez’s wife’s brother is a big sugar cane grower in Venezuela and one of Tom’s correspondents. According to Señor Perez’s brother-in-law’s most recent letter, our hunch about the minister’s motives may be accurate. To say that he is under house arrest would be a little too strong, but he is being watched very carefully.”

  Chairman Malone looked troubled. He was silent for a few moments before saying, “Gentlemen, it appears that any plan to thwart the Oil Club must involve securing the safety of the oil minister, his family, and his files. Does anybody have any suggestions?”

  Mike spoke first. “If Perez can’t come to see us, why can’t I go to see him?”

  Chapter 7

  DANCING WITH THE DEVIL

  Claudine was standing outside Sir David Marcus’s London office. She was early for the meeting. The sandbags placed in front of the old brownstone building during wartime were still there. The damaged nearby buildings were somber reminders of the bombings. Somehow, the building that housed David’s office had managed to escape unscathed.

  After carefully descending the seven steps leading to the building entrance, located a half a story below street level, she entered a no-frills office environment not unlike the spaces that housed Britain’s war rooms. The huge room was well lit, efficiently organized, and very clean. Secr
etaries and office administrators, heads down, were hard at work. It was only after Claudine had been standing patiently just inside the door for a few moments that one of the girls looked up and saw her.

  “Excuse me, ma’am, I didn’t see you at first. May I be of assistance?” she asked.

  At almost the same moment, a man matching Jacques’s description of his former classmate entered the room just behind where Claudine stood.

  “Hello, you must be Claudine,” he said as he extended his hand in greeting. “So you are the woman who tamed the rogue of two continents. I’ve always wondered who she would be. Ever since I heard Jacques got married, I’ve been looking forward to meeting you. You are more beautiful in person than you have been described. You can tell him for me he’s lucky he saw you first.”

  Claudine didn’t speak as David led her through the rows of workers to his small office. Once they were seated, she immediately expressed what had been bothering her: “Sir David, naturally, I am pleased by your compliment, but I need to warn you. Over the years, I’ve worked very hard to be recognized for my intelligence, creativity, and business accomplishments. I haven’t come all this way not to be treated as a person of professional skill and accomplishment!”

  Not offended by her directness, David smiled. “Not to worry, Claudine—if I may call you by your first name. For several years I’ve been following your career. I watched with great interest as you developed the gold bearer bond program. When you discovered the means for allowing the business community to transfer the ownership of gold instead of the physical gold, it changed international commerce. It was truly an outstanding piece of work. During the war, we and the Americans used your bonds to pay a lot of bills.”

  After smiling and settling a little deeper into her chair, Claudine said, “Thank you, David. You would be very pleased to hear how Jacques described you. Not only does he respect your intelligence and your work habits, but he believes you to be one of the most trustworthy men he has had the pleasure of knowing. In fact, he said we could learn a lot from you, and that he doubted there was anyone more trusted by the Middle Eastern governments.”

  “I’m flattered to have earned Jacques’s high opinion,” said David, looking momentarily embarrassed. “He may have told you that I am the grandson of one of the founders of English Oil, Limited. It was always assumed that I would be the third member of the lineage of Marcus to become president of English Oil.”

  “Yes, he did mention that,” said Claudine.

  “Ah, then he probably also told you that I resigned three years ago. Sold my shares and used the money to organize my own oil research and investment advisory firm. Perhaps that unexpected turn of events caught Jacques’s attention. You see, I’m sure that the center of the petroleum universe is going to shift from the Gulf of Mexico to the Middle East, and unless we earn the trust and respect of a small number of sovereign leaders there, it will become almost impossible to do business in that region.

  “If I had remained a high-profile executive for English Oil, I would have been expected to implement the policies of the company that employed me. Now that I’ve established my independence, I’m a far more effective businessman and leader. I practice the kinds of things that clearly suggest to Middle Easterners I am eager to win their trust and respect.

  “Claudine,” he continued, “it’s important we don’t underestimate the importance of trust, but without the money needed to complete the development of a new oil field, trust will never become an issue. It’s all about money. Any serious plan has to include reliable access to the kind of money required to develop new oil fields on a vertically integrated basis.”

  “Am I correct in assuming that the aggregate cost of all these elements is approximately a billion dollars per million barrels of added daily capacity?” asked Claudine.

  “You’ve done your homework, I see; that’s a fairly accurate number. The enormity of the amount of capital and the complexity of constructing all the facilities represents a big part of the reason why the major companies feel so secure in constructing an economic blockade around the independent oil companies.”

  David paused and asked Claudine if she would like a cup of tea. When she said yes, he called in his secretary and asked for two cups.

  “Economic blockade,” she said once the secretary had left. “I think that’s the phrase I remember reading in the reports from the ABA conference.”

  Noticing the strained look on Claudine’s face, David hastened to say, “I wouldn’t allow that threat to throw you off stride. No matter how much the Middle Eastern rulers distrust Big Oil, there are those of us who are allowed inside the ‘oil tent.’ One of the first things you learn is how much they resent having to do business with the British government and any of the major oil companies. In the Middle East they have a saying: becoming involved with the Oil Club is like dancing with the devil. Should the right kind of plan evolve, you might be surprised who will be motivated to help you break the Oil Club’s grip.

  “Suppose a Middle Eastern country has large, undeveloped oil reserves and is uncomfortable with the idea of having to dance with one of these seven oil companies. In addition to Iraq, Iran, Saudi Arabia, and Kuwait, think about the smaller countries that surround Saudi Arabia and comprise the balance of the Persian Peninsula. In addition, there are at least six large countries in North Africa where substantial reserves are believed to exist. Then there’s Southeast Asia. According to my people, the British and the Dutch haven’t scratched the surface there. Closer to home, you have to include Venezuela and Mexico.”

  David paused when the secretary returned and set down their cups of tea. When the door closed behind her, he continued his explanation. “Any analysis of future oil supplies must take into consideration offshore reserves that lie beneath the ocean. Deep-water drilling technology, while in its infancy, is developing rapidly. It’s only a question of time before they start drilling off the coasts of Texas, Louisiana, Florida, California, Mexico, Venezuela, and the north coast of Scotland. And that doesn’t count the suspected oil fields of Central Asia that are believed to lie between the Caucasus Mountains and the Caspian Sea.

  “My point being, there is a lot of oil waiting to be developed, in a lot of different places, with many different local governments, cultures, and economic issues in each area. Given the choice, do you really believe that these sovereign mineral rights–owners won’t prefer to form long-term relationships with someone other than these seven arrogant oil companies?”

  Listening to David reel off all this information reminded Claudine of watching Jacques at work. No wonder her husband felt so much admiration for his old friend.

  “David,” she said, “when I hear you talk about the future production side of the problem, I think of all the developed and emerging countries that don’t have a captive energy supply. When you realize they are going to be forced to purchase most, if not all, of their petroleum on the open market, you can’t help but appreciate how they have to worry about the oligopolistic tendencies of the major oil companies.

  “When you realize that the list of those dependent countries includes most of Western Europe, Japan, India, China, and the United States, how can one help but conclude that the day is coming when we must think of the global oil industry as if it were one big pot into which all developed oil is delivered and from which all consumptive needs are supplied? When viewed in those terms, it’s difficult to conclude why any net-importing nation would be relaxed about having to fulfill its requirements from a market controlled by the Oil Club.”

  Grinning, David said, “For a beginner, you catch on pretty fast!”

  Before she could say anything, he continued, “We still need to talk about the source of capital. I understand that we would have to raise about fifteen billion dollars. In a market made smaller by Big Oil’s domination, I’ve been wondering about what kind of a plan you and your friends have dreamed up. What will enable you to raise that kind of money?”

  “The h
onest answer is we’re not sure,” Claudine replied. “We have some ideas, but we’re a long way from having any concrete solutions.”

  “Well, tell me about your ideas,” said David. “Maybe I can be of some help.”

  “The solution, as we see it, involves the creation of a new source of capital that would replace the balance sheets of the big oil companies. To make matters more complicated, the American government’s sources of credit are already being stretched to the limit by postwar reconstruction commitments. The pervasive influence of the Oil Club will substantially reduce the availability of capital in the United States. All of which means we are left with no alternative other than appealing to private pools of equity capital. Fortunately, these pools of capital, for the most part, are independent of the long arm of the Oil Club.”

  “It seems that the problem facing us,” said David, “is how we produce the money necessary to bridge the gap between the start of the exploration process and the time when the reserves can be measured. Without proven production, how do you raise the money?”

  Claudine paused a moment and then smiled broadly. “You know how persistent Jacques can be. Once he puts his mind to it, everything seems to start and stop with those diagrams of sequential logic he’s so famous for drawing. Have you noticed how he sketches through the process by breaking each element into its component parts? And how he then breaks down each of the component parts into its own component parts, and continues the process until he is satisfied he has peeled enough skin off the onion?”

  “Yes, I’m quite familiar,” said David.

  “Well, when he began to assign estimated costs to each segment, he quickly realized that the really big dollars required to fund the total costs of a new, vertically integrated oil field are only required after the productivity of the new field is proven. That’s when he came up with the idea of the two-stage financial commitment.”