Marc Rich, Part I: Riches in Regime Change
“I trade wherever it is legal to trade."
This is my take on a famous commodities trader and fugitive, Marc Rich. I decided to divide the piece into two parts, the second of which will go out to premium subscribers. I wish there was a better solution since I’d like to have the entire piece in one spot. For the time being, this compromise will have to do. I hope you will enjoy the story and glean some valuable insights from Rich’s life. I plan on sending the second part tomorrow.
Fortunes are made when markets open up and old power structures crumble. This could be political (Russian oligarchs), technological (the internet and software eating the world), or geopolitical — such as when Western dominance of the oil trade ended and a free market emerged.
One of the biggest winners of the oil market’s sea change was an enterprising trader named Marc Rich. He and his family had fled Nazi persecution to America. He started as a trader at commodity trading firm Philipp Brothers before building his own trading house (today’s Glencore). Rich’s web of relationships allowed him to spot the breakdown of the oil market’s oligopoly early and he bet aggressively on higher prices. He entered long-term supply contracts, organized logistics through tankers and pipelines, and in some cases had exclusive buyers. As Byrne Hobart correctly pointed out, he was able to replicate the value creation of an integrated oil company in a synthetic and more flexible way. This way he was able to take advantage of the more volatile market and poorly positioned players.
Rich acted as the discreet middleman, dominating the crude oil trade and making a market for pariah countries including Cuban communists, Spanish fascists, Iranian islamists, and the apartheid regime in South Africa. But his greed and willingness to put profits over politics became his downfall when he was indicted by Rudy Giuliani for tax evasion and violating the Iranian boycott. While his companies settled for $200 million, at the time the largest amount in a criminal tax evasion case, Rich remained in exile in Switzerland for the rest of his life.