Money, Power and the Traders who Barter the Earth’s Resources

Book Review: The World for Sale

The one-handed economist

Javier Blas and Jack Farchy (B&F) published this book in 2022, and I decided to read it after hearing them discuss it on a podcast.

The book focuses on commodity traders “who barter the Earth’s resources” as it says in the subtitle.

On the one hand, these guys (mostly men) have done a lot to improve market efficiency, by matching buyers with sellers, taking risks to help both side close complex deals, and by opening or expanding commodity markets. On the other — and yes, I’ll get One-Handed in a bit — they care more about profit than morality — and often laws — as they seek to squeeze every transaction and every market for as much volume and profit as possible.

Traders have had a bad reputation for ages. Jesus condemned the money changers (traders). Marx and others condemned them as parasites making profits off the backs of the working classes. Politicians grandstand every so often against them while wearing hard hats. But traders provide useful services by moving goods from where they are abundant to scarce, so we should not throw the baby out with the bathwater. (Read my review of the Hanseatic League.)

Traders need to follow rules, but plenty of rules “get in the way” — for good and bad reasons. Within political jurisdictions, rules and traders come to some understanding, but all bets are off when trades cross borders, as they do in this book.

I will give a number of excerpts below, but let me state my one-handed conclusion now: Traders — even these traders — are a net positive influence on the world. First, because they do maximize the value of resources. Second, because they risk their own funds — and sometimes lives — in deals, unlike politicians playing with the People’s money. Third, because all their shenanigans (bribery, environmental destruction, harming locals, etc.) are “normal” in the places they operate. This last bit is hard to stomach. I know, but it’s a case of “if not these guys, then who?” Deals will be done in sketchy jurisdictions with the corrupt politicians and bureaucrats who are the real problem. (It’s ironic that the biggest trading firms are based on Switzerland, where many of their deals would be illegal.) Traders can change for every deal; in a way, they are themselves commodities.

Right now, we see this with traders helping Russia avoid sanctions by moving oil and minerals to China, India, et al. If those traders go away, then others will arrive, since buyers do not care about the sanctions. The real solution to isolating Russia is political, and the West (such as it is) hasn’t convinced the world that Russia’s invasion is any different than past imperialist adventures — let alone Iraq or Afghanistan.

I can say the same for the trade and use of fossil fuels that is driving the climate chaos that is coming for humanity. It’s like cocaine — smugglers gonna smuggle, as long as demand is buying.

So, some excerpts:

1. A large share of the world’s trade resources is handled by just a few companies. Many of them owned by just a few people. The five largest oil trading houses handle … almost a quarter of the world’s petroleum demand.  The seven leading agricultural traders handle just under half of the world’s grains and oilseeds. Glencore, the largest metals trader, accounts for a third of the world’s supply of cobalt, a crucial raw material for electric vehicles. But even those numbers understate the traders’ role: as the fastest and most aggressive participants in the market, it is often their trades that set the price.
2. Because they’re doing deals to buy and to sell all the time, they are often indifferent to whether commodity prices overall go up or down. What matters to them is the price disparity – between different locations, different qualities or forms of a product, and different delivery dates. By exploiting these price differences, they help to make markets more efficient, directing resources to their highest value uses in response to price signals. They are, in the words of one academic, the visible manifestation of Adam Smith’s invisible hand.
3. In dollar terms, the world’s trade in manufactured goods and natural resources rose from less than $60 billion just after the Second World War to more than $17 trillion in 2017. A quarter of which was made up by commodities. [Traders (a) play a big role and (b) make big profits. Thus…] In the decade of the China-led commodities boom leading up to 2011, the combined profits of the three largest commodity traders were bigger than those of better-known giants of global commerce, such as Apple and Coca-Cola.
4. They were among the first Western companies to open offices in countries such as India, Russia, China and Indonesia, many years before other investors discovered the concept of ‘emerging markets’. ‘It’s not for the faint of heart,’ says David MacLennan, chief executive of Cargill. ‘The history of Cargill has been to go into places where other people won’t. That’s where opportunity is. Whether there’s crisis, or threat, or things that are high risk, that means there’s opportunity.’ [As early “globalists” — ignoring the many ups and downs of trade over the centuries — traders were diplomats, friends, risk-takers and innovators all-in-one. We laud explorers for reaching the South Pole, but not the traders who brought oil or diamonds out of a new location. Even after accounting for the costs to the environment and humans of those trades, it’s hard to argue that they were less important than a guy planting  flag in the ice. I’m very much aware of the impact of our greed on the planet’s ecosystems and our corruption on powerless citizens, but traders are not the causes of our demand for those resources nor the corrupt “leaders” who value themselves above all. I’ve written about these dynamics [pdf], of course.]
5. Cargill was … exporting American agricultural surpluses to the world – including to countries behind the Iron Curtain. The trade was encouraged by generous subsidies from the US government, seeking to support farmers whose ever-larger harvests couldn’t all be absorbed at home. Washington financed billions of dollars of exports, helping to spread the American diet around the world. [Thus, we see the roots of today’s obesity crisis, some of which is caused by ultraprocessed commodity inputs.]
6. As a result, the traders became the pioneers of a shift that was happening across the world, from a carefully controlled economy under the stewardship of a largely American oligopoly to a free-for-all in which the market was God. Over the course of the next decade, the oil price would fluctuate wildly, redrawing the contours of the global economy amid political upheaval everywhere from the US to Iran. [This section made me sit up: Oil prices were low and stable for decades between WWII and the “crises” in the early 1970s. Oil-importing countries — including the US — used it everywhere, to the point of dependency, so I now understand how the massive prices spikes and supply uncertainties that began with the crises (a) led to serious efforts to reduce risk (domestic supply, nuclear, the creation of the IEA) but also (b) numerous, dangerous and morally-dubious policies aimed at “ensuring” cheap and easy oil. Even the “embargo” against Russia right now is aimed at keeping the flow going while trying to reduce revenues to Russia. No Western leaders are actually trying to shut down Russian production, since that would upset citizens and businesses used to cheap energy. (Ukraine is actively and effectively knocking oil production, storage and supply — thereby doing more to reduce emissions than a gaggle of COP-summiteers!)]
7. Or, as B&F put it: For the global economy and for world politics it was a seismic shift. Over the course of a few decades, oil had quietly become the critical commodity for the world’s economic health. The market had been stable and predictable for many years. But now the oil price was unleashed, tripling or quadrupling overnight, and ushering in an era of unprecedented volatility. The global economic boom that had lasted since the Second World War came to an abrupt halt. Economists started to talk gloomily about ‘stagflation’ – a combination of economic recession and high inflation that scarred an entire generation. The shock was particularly profound in America, which more than anywhere else had embraced the cult of the automobile. Suddenly, American drivers had to wait in line to fill up their cars. The nationalisation of Middle Eastern oilfields had cracked open the oligopolistic system that had been carefully built and nurtured by the Seven Sisters [based in the US and Europe] for decades. As OPEC nations seized control of their oil resources, they diverted the flow of petrodollars from the companies’ coffers to their own. Western countries began to worry about their dependence on Middle Eastern oil, a concern that would be a major driver of foreign policy for the next half century.
8. No doubt brown envelopes or ‘commissions’ had always been part of doing business in far-flung parts of the world. But the oil crises of the 1970s created a new economy of corruption: the global oil industry was newly nationalised, and the people in charge of deciding who could secure a contract were no longer executives of large oil companies but badly paid government officials. And suddenly, thanks to the soaring oil price, they had the power to allot contracts that were worth many millions of dollars to a shrewd oil trader… While the US had introduced anti-corruption laws, some European nations hadn’t. In Switzerland it was even possible to account for the ‘facilitation fees’, as the bribes were often called in corporate-speak, as tax deductible expenses.
9. Politicians had begun to realise in the 1970s how little they knew about the commodity traders, who one year had sold a billion dollars’ worth of grain to the Soviet Union and now seemed to control the oil price. But they did not know what to do about it. The first response was to increase transparency. The US Department of Agriculture started publishing supply and demand estimates for global grain markets; the International Energy Agency did the same for oil. Their reports are still closely watched by traders today. But when it came to actually controlling the traders, regulators drew a blank. At a meeting of the G7 in 1979, the leaders of France, West Germany, Italy, Japan, the United Kingdom, Canada and the United States urged oil companies and OPEC nations to ‘moderate spot market transactions’ and considered setting up a ‘register of international oil transactions’. It was a recognition, for the first time in history, of the commodity traders as a force to be reckoned with. But the push to regulate the market went nowhere, and the casino of Rotterdam continued to operate with glorious opacity.
10. Another kind of de-colonialization? Now, governments across the Middle East, Africa and Latin America had been seizing control of the commodities they produced in a wave of nationalisations. The shift in power from large American and European oil and mining companies to governments in what was known as the Third World opened a window of opportunity for the commodity traders that they exploited with gusto. In the process they became the connection between many newly assertive countries and the global financial system, helping to channel dollars to governments and leaders that had no other source of funding.
11. Traders expanded into merchant banking and private equity, one day lending money to the government of Nigeria, the next investing in Peruvian anchovy factories. The commodity traders were, effectively, engaging in capital arbitrage: raising funds in the industrialised world, and investing them in emerging markets, where they enjoyed fatter returns. It was a risky world, however, besieged by political crisis, encumbered by foreign exchange controls, and handicapped by red tape. But if they got the timing right, the traders could hit the jackpot. In Brazil and Argentina, for example, investments paid for themselves in as little as two or three years, compared with ten years or longer in developed nations. 38 The trading houses were confident they would get paid: without them, countries couldn’t export their goods and earn precious hard currencies.
12. The traders weren’t making money through a brilliant understanding of the market. They were simply willing to put aside any ethical principles to make more money. When challenged on their dealings with South Africa, the traders would reply that everything they were doing was legal. [Debatable if “legal,” but they got away with it in the same way as the rich get away with “it” all over the world today — via shell corporations and other shenanigans set up in the US, UK, et al.]
13. The collapsing Soviet Union was like a closing-down sale for commodities. Valuable resources, such as oil, aluminium and chrome, could be bought for as little as a quarter of their international market price. 11 For the traders, it was a prize too mouth-watering to turn down. As they dived in, they also helped to forge a new economic system. Where once Soviet economic planners had determined how resources and cash would flow around the country, now it was Western commodity traders who played that role.
14. This partnering-up of the commodity traders and the men who would become Russia’s new elite had wide-ranging consequences. The commodity traders were on hand to show the early oligarchs how to export their goods, helping them earn the seed capital that allowed them to buy up large swathes of the Russian economy as it was privatised. They linked the Russians to the world of Western finance, helping in some cases to teach them the tricks of tax havens and offshore shells that commodity traders had been employing for decades.
15. The Chinese economic boom started almost immediately after Deng unveiled his reforms in 1978, but it didn’t make a significant impact on commodity markets until much later. To understand why, it’s necessary to examine the relationship between a nation’s wealth and its consumption of natural resources… The amount of commodities that a country consumes is, for the most part, a function of two factors: the number of people in the country, and their income. The relationship with commodity demand isn’t a straight line, however. As long as a country remains relatively poor, with annual per capita income below about $4,000, people spend most of their income on the basics they need to survive: food, clothes and housing. What’s more, the governments of poor countries don’t have the money to make major investments in commodity-intensive public infrastructure, such as power plants and railways. Even if a very poor country grows rapidly, it doesn’t translate into much extra demand for commodities. The same is true for a very rich country. Once a nation’s income rises above roughly $18,000–$20,000 per capita, households spend any extra income on services that require relatively small amounts of commodities: better education and health, recreation and entertainment. Governments of such wealthy countries have usually already built the bulk of the public infrastructure they need. In between the two extremes, there’s a sweet spot for commodities demand. After per capita income rises above $4,000, countries typically industrialise and urbanise, creating a strong, and sometimes disproportionate, relationship between further economic growth and extra commodity demand.
16. Until 1993, China had been a net exporter, selling more oil on the world market than some members of the OPEC cartel. But China’s oilfields were soon unable to meet its domestic demand. From 1993, the country became a net importer. Then, as it entered the commodity sweet spot, demand skyrocketed. In 2001, China’s imports were 1.5 million barrels a day. By 2009, they were triple that level, and by 2018, China had become the world’s largest oil importer, buying nearly 10 million barrels a day on the international market, equivalent to the entire production of Saudi Arabia. In just a few years, China had become the world’s biggest consumer of commodities by far.
17. The first modern commodity supercycle, for example, was triggered by the industrial revolution in the nineteenth century in Europe and America; the second, by the global rearmament before the Second World War; the third, by the economic boom of the Pax Americana and the reconstruction of Europe and Japan in the late 1950s and early 1960s. The fourth began around the turn of the millennium, as China and other emerging economies entered the commodity sweet spot.
18. How did a previously unknown trading house make so much money? Were Gunvor’s profits made at the expense of the Russian state oil company? ‘Rosneft was all of a sudden owning the biggest oil company there … They had no organisation, they had nothing. Clearly as a trader that’s where you want to be. So do you take advantage of the situation? Of course you do,’ Törnqvist [of Gunvor] says. ‘That’s how traders are. Trying to be there, to take advantage of the situation. So I don’t say we took advantage of Rosneft. Yes, we clearly saw the opportunity for us during that situation.’ But questions remained over how Gunvor had risen to such a position of prominence in the Russian oil sector – a key lever of the state’s power – so rapidly. Timchenko himself repeatedly denied that he had received any special favours thanks to his relationship with the Russian president. But suspicions about the connection would haunt Gunvor for years to come. [On 2 Nov 2025, Gunvor bought Lukoil’s international assets for maybe $20 billion.]
19. One reason why so many African countries were an attractive destination business was that quality regulations were often far less strict than in the developed world, allowing the traders to supply products that would be considered substandard in the West. In Europe, oil traders can’t legally sell diesel with more than 10 parts per million of sulphur, a cause of acid rain. In some African nations, however, they can sell the same diesel with sulphur content as high as 10,000 ppm without breaking local rules. As such, commodity traders can buy cheap cargoes of low-quality refined products from unsophisticated refineries in Latin America and Russia, and ship them to Africa.
20. Or take copper. Much of the world’s copper ore contains a small amount of arsenic, a toxic substance known for its use as a rat poison. Many governments have attempted to address the risks posed by arsenic in the copper industry with ever stricter regulations. The government of China, for example, has banned traders and smelters from importing copper ore with an arsenic content of more than 0.5%. But Namibia has no restrictions on the arsenic content of its copper ore imports, making it a useful destination for a savvy trader.
21. Sometimes, these “clever” arbitrages of weak/missing regulation backfire: Where the Amsterdam waste disposal company had asked for nearly $700,000 [to dispose of some toxic liquids in Côte d’Ivoire], Compagnie Tommy was willing to dispose of the very same waste for just $20,000… The scandal soon exploded into an existential issue for Trafigura. The Ivorian government asked for international help to deal with the toxic waste. Dauphin [CEO of Trafigura, a Singapore-based spinoff of the scandal-plagued Marc Rich & Cie.], sensing the magnitude of the threat, flew in to Abidjan to try to smooth things over. But instead, he was thrown into jail, where he would spend the next five months in pre-trial detention. The next year, to secure Dauphin’s release, Trafigura paid $198 million to the Ivorian government for clean-up costs and compensation to more than 95,000 victims who said they had fallen ill. Later, the company would pay another £30 million to settle a case against it in the UK. [All to save $700,000.]
22. Agricultural commodity traders, on the other hand, buy from thousands of individual farmers. That makes the traders’ job harder, but it also provides an opportunity: dealing with so many farmers gives the largest traders valuable information. Long before the concept of ‘big data’ became popular, the agricultural traders were putting it to work, aggregating information from thousands of farmers to get a real-time insight into the state of the markets. Each month, when the US Department of Agriculture published its update on the world’s key crops, the agricultural houses’ traders were able to bet on what it would say with near-certainty that they were right. Within most trading houses, there was a group of traders whose sole job was to speculate profitably with the company’s money – they were known as the proprietary, or ‘prop’, traders. [Such “speculation” isn’t really bad, as long as it’s making markets more efficient. It does depend on market power, which governments are supposed to regulate, but as we can see with Trump’s lack of interest and the US government shut-down — these firms will make money when government doesn’t care about fair markets or good information.]
23. Indeed: But was speculation by the commodity traders really responsible for the super-spike in commodity prices? The answer is almost certainly not. There’s no doubt that the commodity traders could influence prices, and had done throughout history. As the market’s buyers and sellers of last resort, they were often involved in trades for the marginal barrel of oil or bushel of wheat that set the price. And, while big producers and consumers tended to use mainly long-term contracts, commodity traders were more active in the spot markets, where benchmark prices used by everyone else were set. It’s clear they could also manipulate prices – principally by buying physical stocks of a commodity and hoarding them, in that way attempting to push prices up… But it was a truth widely acknowledged that it would be a struggle for any trader, no matter how big, to push the price in one direction for long, if the fundamentals of supply and demand dictated it should move in the opposite direction.
24. It was tempting to blame commodity speculators for the food crises – throughout history, when commodity prices surged, politicians had found an easy scapegoat in the form of speculators. In AD 301 the Roman Emperor Diocletian imposed a cap on the prices of hundreds of goods in response to ‘greed’ which ‘raves and burns and sets no limit on itself’. In 1897, Germany’s Reichstag banned trading in wheat futures after a disastrous harvest sent prices soaring. And in the 1950s, US politicians outlawed the trading of onion futures – a ban that has remained in place to this day [snip] As commodity prices spiked, crashed and then spiked again in 2007–11, there was a heated discussion about the role of financial speculators in the markets. Scholars, researchers, traders and bankers offered arguments for and against. While most believed that financial speculators may have amplified short-term price swings, even helping to inflate some bubbles, for the most part they argued that supply and demand factors were the main reason for the moves in prices. Academics found some support for this conclusion in an obscure niche of the global economy: the price of some raw materials that weren’t traded on financial markets, including the likes of burlap, hides and tallow, rose in tandem with the price of those traded on exchanges, suggesting that financial investment had had little effect on commodity prices.
25. Traders always wanted to make money, and they encouraged governments to help them do that, even if it was bad for citizens, as with corn ethanol: As oil prices soared above $100 a barrel, a fresh set of US government regulations forced even greater use of ethanol on the energy industry. By 2011, as the Arab Spring engulfed the Middle East, the US ethanol industry was consuming one in every six bushels of corn on the planet…. Of course, ethanol wasn’t solely responsible for the rise in agricultural commodity prices, but there’s little doubt that it was a contributing factor. 
26. B&F end their book with some vignettes about how traders are finding it harder to make money, with laws against corruption, the rise of national (e.g., Chinese or Indian) traders, the importance of ethics and climate change, etc., but they wrote too soon: Russia expanded its invasion into Ukraine in 2022, Trump stopped enforcing corruption laws, anti-woke is now a thing, and climate chaos will only make it harder to produce and supply commodities around the world. The traders will be with us for a long time to come.
27. Whoops. B&F also said that: Predictions of the death of the commodity trading industry are almost certainly premature. As long as natural resources continue to be exported around the world, there will continue to be a role for the commodity traders. For all the attempts by producers and consumers to expand into trading, there is little hope that they will match the commodity traders’ combination of financial firepower and agility any time soon. And for all that climate change poses a threat to the commodities at the heart of the traders’ business, even the most ardent environmentalists recognize that oil is likely to be a critical part of the world’s energy supply for many years to come.

I give this book FIVE STARS.