Free The King of Oil: The Secret Lives of Marc Rich by Daniel Ammann Page B

was proud of its successful son. There was great respect for the American who had snatched the commodities trade from the Europeans.
    European countries had dominated world trade in raw materials since the late Middle Ages. The northern Italian city-states of Venice and Genoa dominated trade before giving way to the Portuguese and Spanish from the fifteenth century onward. Beginning in the seventeenth century, it was the Dutch trading fleets that ruled the waves until the arrival of the British. Before World War I, over 60 percent of world trade was still in European hands. 5 Trade became increasingly American, not least thanks to companies such as Philipp Brothers and traders such as Marc Rich. Rich was soon deemed a historically significant figure and labeled “a genius in the formerly European dominated metals market.” 6
    The trade in metals was only the start. The real revolution began with crude oil.

 

     

The
CRUDE AWAKENING
     

    T
he revolution started as revolutions usually do—quietly and un-spectacularly. Alan Flacks, who directed a small office in Milan for Philipp Brothers, flew to Tunis in the summer of 1969. He had heard by chance that Tunisia was interested in selling its oil to an independent trader for the first time. Only five years had passed since oil had been discovered in Tunisia, which was one of the first of the African nations to achieve independence. Now the country was auctioning twenty-five thousand metric tons of crude oil for immediate delivery. Flacks purchased the oil and sold it to an Italian refinery. He had already found a willing buyer when he bought the oil, making the trade a risk-free, fast-profit deal. Traders call such deals “back-to-back trades.” The dealer purchases a commodity and immediately sells it on to a prearranged buyer.
    Although Marc Rich was thrilled when he got word of the deal in Madrid, he was at the same time deeply disappointed that it was Flacks who had managed to bring off the deal and not him. For quite some time, Rich had been trying to find a means of trading oil using Philipp Brothers’ worldwide organization. At that time oil was never traded on the open market, which meant that oil was not a commodity in theclassical sense. He first began thinking of openly trading oil during the Six-Day War in June 1967. Egypt’s President Nasser had disrupted Israeli shipping when he ordered the blockade of the Gulf of Aqaba in May 1967. This cut off the port of Eilat from the rest of the world. Most of Israel’s oil was imported through Eilat, which provided Israel’s sole access to the Red Sea. When Egypt, Jordan, and Syria began massing troops at the Israeli border, Israel launched a daring preemptive strike. On the morning of June 5, Israeli jets attacked the opposing air forces, successfully destroying all of the enemies’ planes. Thanks to Israel’s resulting air superiority, within only a few days its forces were able to occupy the Sinai Peninsula, the Golan Heights, the Gaza Strip, the West Bank, and East Jerusalem.
The World’s First Oil Embargo
     
    The Six-Day War produced the world’s first oil embargo. Analysts had been discussing the “oil weapon” for years, and this weapon was now primed and ready for use. The most important Arab oil-producing nations—Algeria, Iraq, Kuwait, Libya, and Saudi Arabia—pledged to stop supplying oil to countries that were friendly to Israel: the United States, Great Britain, and to a certain extent Germany, which had established diplomatic relations with Israel in May 1965. The embargo might have been effective, as three-fourths of Western European oil demand was met by imports from the Middle East and North Africa. 1
    Yet the embargo was an ineffective weapon. The United States, Great Britain, and Germany met their import shortages with oil from non-Arab sources. Venezuela increased production, as did Iran and Indonesia. The loss of income meant that the real losers were actually the boycott’s