The Anarchy of Raw Materials

Commodity traders and the rise of Putin’s Russia

Aluminium ingots made by Russal, Russia’s largest producer of the metal. (Source)

In June 2020, Oxford University announced the name of its first new college to open in three decades. It was called Reuben College, after the brothers David and Simon Reuben, who had recently donated £80 million to the university through their family foundation. The wealth of the Reuben brothers, who arrived in London from India in the 1950s, was amassed in various ways. But much of it derives from the chaos that engulfed Russia after the collapse of the Soviet Union in 1991.

As journalists Javier Blas and Jack Farchy describe in their book The World for Sale: Money, Power, and the Traders Who Barter the Earth’s Resources, ’90s Russia was a goldrush for commodity traders, the companies that buy and sell oil, metals, and agricultural produce around the world. It was a murderous environment, with business and organised crime all but indistinguishable, yet the rewards were enormous. Russia has some of the planet’s richest reserves of natural resources, and after the disintegration of the centralised Soviet state, its industries had no way of getting these goods onto the global market. Into this gap stepped the commodity traders, securing valuable materials for a fraction of their market price. Among them was the metals trading operation Trans-World, run by the Reuben brothers.

In 1992, Trans-World began to strike “tolling” deals with Russian aluminium smelters, providing credit and raw materials in exchange for aluminium. According to Blas and Farchy, the company came to control around half of Russia’s aluminium output, achieving profit margins up to forty times higher than the industry standard. When president Boris Yeltsin began selling off Russia’s publicly owned assets, creating the oligarchs for which the country is now famous, Trans-World bought shares in aluminium smelters. It also built infrastructure to facilitate its metals trade.

How many billions were made in this way remains a matter of estimates, since Trans-World was in fact “a collection of dozens or even hundreds of entities in jurisdictions from Monte Carlo to Samoa,” and “never published any financial information.” At any rate, the Reuben brothers made enough that, when they eventually sold their aluminium assets to rising oligarch Roman Abramovich (soon to be owner of Chelsea Football Club), they were able to assemble a large portfolio of prime London real estate. They became donors to Britain’s Conservative Party, as well as patrons of their eponymous Oxford college.

This story contains a useful parable about our material world. We don’t normally imagine that the mundane objects surrounding us, products of design like furniture, clothes, cars and electronic devices, have much relation to the chaotic drama of world history. This is to some extent an illusion, encouraged by design itself. Design gives form; it creates order, by means of mass-produced objects neatly presented in shop displays and search results. But these are actually the end products of an anarchic system that thrives on audacity, opportunism and risk.

Nothing better illustrates this unnerving reality, or its importance to history, than the trade in energy and materials which underpins our orderly world of things. The aluminium that companies like Trans-World exported from Russia is used in everything from aeroplanes to Coke cans. The transformation of that metal into designed objects is a manufacturing of normality which mirrors the Reuben brothers’ own journey from hard-nosed wheeler-dealers to respectable establishment figures. Meanwhile, the value of such resources has contributed to Russia’s own evolution into the aggressive force that is wreaking havoc on the world today; a situation which, incidentally, has created more golden opportunities for the commodity traders.

The newly established Reuben College at Oxford University.

As Blas and Farchy make clear in their history of the business going back to the mid-20^th century, success depends on a willingness to go places and makes deals that no one else will. For the most part, the world’s biggest commodity traders are opaque, privately-owned companies based in the low-tax precincts of Switzerland. They traffic in (and speculate on) oil and coal, grain and cotton, zinc, nickel, tin, copper, iron ore, aluminium and cobalt. They squeeze profits from their ownership of mines and logistical infrastructure. They thrive on secrecy, connections, and commercial projects that more conventional, public-facing businesses cannot stomach – because they are politically contentious, ethically dubious, or outright dangerous.

In the words of David MacLennan, CEO of Cargill, the world’s biggest trader of food products, “That’s where opportunity is. Whether there’s crisis, or threat, or things that are high risk, that means there’s opportunity.”

In the midst of the Cold War, the traders sold Soviet oil and metals to the West, and American grain to the Soviet Union. They provided commercial lifelines to sanctioned regimes from apartheid South Africa to Fidel Castro’s Cuba. They facilitated cooperation between apparent enemies like Israel and Iran. They supplied huge loans to governments in Jamaica, Angola and Kazakhstan in return for special access to their natural resources. When crisis strikes the world economy, they buy up huge quantities of cheap goods to store and sell when demand returns. Thus in March 2020, when the Covid pandemic made the oil price plunge, the traders at Glencore hired the world’s largest tanker and moored it off Singapore, stocking it with millions of barrels of oil.

These activities should be seen as an integral part of global capitalism, not an aberration from it. By maintaining the flow of resources in just about any circumstances, the most intrepid and unscrupulous traders allow the market to function despite the political machinations of states – despite conflict, corruption and domestic repression. They likewise give states more leeway to pursue those agendas.

But commodity traders have also played a part in creating the world we inhabit today. They were important actors in the most recent commodity “supercycle,” a period of intense growth in the consumption of resources, which spanned the first decade or so of the 21^st century. This binge heralded the rise of emerging-market countries like Brazil, India, Russia and Turkey, who have redrawn the map of global power. Above all, the supercycle was driven by China’s ascent to superpower status, which has made that nation the world’s largest consumer of raw materials.

But the sections of The World For Sale that stand out most dramatically now (the book was published in 2021) are those dealing with Vladimir Putin’s Russia. The commodity traders were key players in the formation of Russia’s kleptocratic post-Soviet state in the 1990s. They studied the emergence of local businessmen with access to power and tradable resources, and established working relationships with them. As a Glencore operative in Moscow put it, “everybody tried to choose a partner.” Lev Chernoy, the man on the ground for the Reuben brothers’ Trans-World aluminium concern, later claimed that “almost half of the business elite of the country are my protégés.” Putin’s regime was unmistakably the product of this ruthless landscape. He rose to power by promising ordinary Russians a reprieve from the chaos and foreign exploitation, while assuring the oligarchic elite they could keep their ill-gotten wealth if they stayed out of politics.

In later years, commodity traders offered direct assistance to Putin, especially in their capacity as financial brokers. “Nowhere did they funnel more dollars to a state than in Russia,” write Blas and Farchy. “In the process, they probably did more to help Vladimir Putin remain in power than anyone else in the international business community.”

In 2012, Glencore and another big trader, Vitol, extended a $10 billion loan to Russian state oil company Rosneft, in exchange for future supplies. Such connections only deepened after 2014, when Russia was placed under US and European sanctions for its annexation of Crimea. In 2016, Glencore teamed up with the Qatari sovereign wealth fund to buy an $11 billion stake in Rosneft, thereby providing Putin’s government with desperately needed cash. The Russian president rewarded Glencore CEO Ivan Glasenberg, among others, with an Order of Friendship. 

Independent traders are estimated to be the biggest beneficiaries of the 2022 commodity boom. (Source)

Today, with a large army to supply in the Ukrainian warzone, the ability to trade resources is more important to Putin’s government than ever. Glencore has said that it will stop buying Russian aluminium when its current contract ends next year, but one of its rivals, Trafigura, is apparently poised to take over. Meanwhile a “shadow fleet” of sanctions-evading tankers ship Russian oil to India and China. Commodity traders have left their traditional Swiss headquarters for Dubai, so as to continue dealing in Russian fossil fuels and agricultural products. Goods appear to be flowing the other way too, with Western technology still being used in Russian military equipment.

Last week, it was estimated that the commodity industry made record profits of more than $115 billion in 2022, with traders like Glencore, Vitol and Trafigura the biggest beneficiaries.

We may well see this as grotesque war profiteering, but the fact remains that the resources traded by these companies are finely woven into the material fabric of our own lives. We are all their customers, as Blas and Farchy point out, using their services when we “fill up our cars, buy a new smartphone or order a cup of Columbian coffee.” The apparent order of our world depends on the agents of chaos.