The oil price war - winners and losers

[David Guyatt]

Price manipulation in the oil market - like the manipulation of the price in precious metals market - seems to have a geopolitical backbone.

EUROPE

Fall in Oil Prices Poses a Problem for Russia, Iraq and Others

By DAVID M. HERSZENHORNOCT. 15, 2014

MOSCOW A steep decline in oil prices is straining the budgets of major petroleum-exporting countries around the globe, raising a specter of spending cuts in Russia, where the economy is under pressure from Western sanctions, and posing a potentially grave security challenge for Iraq, which is already struggling to finance its fight against the Islamic State.
From Moscow to Caracas, Riyadh to Baghdad, in Tehran, Algiers, Kuwait City and Lagos, political leaders, finance ministers and central bankers have been scrambling to confront the plunge in prices roughly 25 percent since a peak in June driven by increased production in the United States and by projections of sustained cuts in demand in many developed countries, as well as decelerating growth in China.

• [URL="http://www.nytimes.com/video/multimedia/100000003177075/winners-and-losers-of-low-oil-prices.html"]
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The price drop is mostly welcome news in the developed world, and particularly in Washington. Countries like Russia, Iran and Venezuela that in recent years have sought to thwart America's influence could begin to moderate their behavior, as they come under growing financial pressure.

The falling price of oil creates varying degrees of financial difficulties for countries that rely heavily on its export. According to research by Deutsche Bank, the point at which their national budgets break even varies from about $125 a barrel for Iran to less than $75 for Kuwait.

Break-even point for national budgets

A country above the price of oil predicts
a budget deficit, below it, a surplus.

While Russia maintains reserves of hundreds of billions of dollars as a cushion for precisely this sort of price drop, there are already signs of tensions here.
At a meeting in Moscow this week with a government human rights council, President Vladimir V. Putin pointedly rebuffed a request for increased financing, citing the pinch from declining oil revenues.
"You know that energy prices have fallen as well as for some of our other traditional products," Mr. Putin said. "Due to that, would we not, on the contrary, reconsider the budget toward reducing some spending?"
It was a notable departure from the bravado that Mr. Putin has shown in responding to Western economic sanctions over Ukraine, dismissing them as little more than an annoyance.
In another sign of mounting pressure, a spokesman for the Russian state-controlled oil company, Rosneft, accused Saudi Arabia of secretly manipulating prices an echo of conspiracy theories about American and Saudi collusion against the Soviet Union during the Cold War.
Last week, Venezuela, which depends on oil for 95 percent of its export revenues, called for an emergency meeting of the Organization of Petroleum Exporting Countries to address the steep slide in prices, a move that other members rebuffed in favor of a regular meeting next month.
The price of a barrel of Brent crude, a global benchmark, was $83.78 on Wednesday, down from about $115 per barrel since its high in June.
Experts on energy policy say that prices are nearly certain to rebound in response to normal market forces and continued strong demand, particularly in the developing world.
And some of the surplus that is dragging down oil markets is a result of production increases in Iraq and Libya, both struggling with instability that could shut down their oil fields at any time and send prices soaring.
But in the near term, the big producers will probably face budget problems in varying degrees of severity, with an array of economic, strategic and political ramifications.

"It depends how long and how sharp the decline, but if oil prices stay around 20 percent lower, that is going to be very challenging for countries that depend heavily on oil to meet their budget requirements," said Jason Bordoff, the director of the Center on Global Energy Policy at Columbia University in New York. "Many of these countries have implicitly high break-even numbers."
Professor Bordoff said that Russia and Iraq faced particularly difficult circumstances, partly because of broader geopolitical tensions in each region. Russia, already squeezed by inflation and a drastic decline in the ruble, has found its ability to borrow money severely constrained by the sanctions. Iraq is facing a costly, and potentially open-ended, military conflict against the Islamic State.
"If oil prices were to stay in the range they are in now, we'll see the Russian budget fall into deficit next year; that's on top of the economic challenges they are already facing from sanctions and the decline in the value of their currency," Professor Bordoff said. "Iraq has its own set of challenges with skyrocketing public expenditure requirements, large public payroll, food and energy subsidies. They need to rebuild a dilapidated armed forces."
Some major oil producers are already experiencing substantially more budgetary pain from the decline in prices, particularly Venezuela, because of underlying economic problems, and Iran, which has faced years of Western economic sanctions over its nuclear energy program. Nigeria faces particular political uncertainty because it has a presidential election coming up early next year.
Venezuela has limited options in responding to the price decline, which leaves less money for social spending, government payrolls and subsidized imports of vital goods. The government could scale back on subsidized oil that it supplies to allies in South America and the Caribbean, including Nicaragua, Bolivia and Cuba. There is also some talk of raising the domestic price of gasoline, which is the cheapest in the world.
In demanding urgent action by the Organization of Petroleum Exporting Countries, Venezuela's foreign minister, Rafael Ramírez, has also thrown around conspiracy allegations. According to a government news release, Mr. Ramírez demanded "some kind of action to stop the fall in the price of oil, especially since we are convinced that it does not result from fundamental market conditions but that there is price manipulation to create economic problems for the large oil-producing countries."

The major question now looming is if OPEC, led by Saudi Arabia, will cut production and stabilize prices at a meeting next month.

Some analysts say that is a logical step, while others suggest that Saudi Arabia may allow lower prices to persist, in part to squeeze its main rivals Iran and Russia and in part to put pressure on shale oil producers in the United States, whose higher production costs make it harder for them to compete when prices are lower abroad.

Saudi Arabia's relatively low production costs and its domestic spending program allow for a balanced budget at a price of roughly $95 a barrel, compared with $100 or more for Russia and even more for Iran. Saudi Arabia also has huge cash reserves to prop up its budget while prices remain low.
"The question is how much are you willing to eat into your cash reserves and for how long until you adjust your production down," said Gal Luft, co-director of the Institute for the Analysis of Global Security, a Washington research organization focused on energy issues. "In the November meeting of OPEC you are going to see some of their members saying, We cannot live with those kind of prices; we are going bankrupt; we want to cut down production.'
"Then you will have others, mainly Saudi Arabia, who might say, Well, we don't want to overreact.' In the short run, I think most of the players can survive," Mr. Luft said. "In the long run, beyond a year, I don't think they have the means."
For the United States and most of the developed world, a decline in oil prices is generally regarded as a macroeconomic plus, reducing costs for consumers and businesses and often lifting stock markets.
That classical view has begun to change, however, as the United States has increased its own oil production, particularly in states like Texas and North Dakota.
In Russia, the Kremlin and the Central Bank have insisted that there is no cause for panic. Official projections show oil prices rebounding to about $100 a barrel over the next three years, and government officials are adamant that the country's cash reserves are sufficient to weather temporarily low prices.
In testimony before the lower house of Parliament on Monday, the head of Russia's Central Bank, Elvira S. Nabiullina, said that despite the government's confidence, the bank was assessing the risks of a severe and prolonged decline in oil prices, to $60 per barrel.
"The central bank is currently working on a so-called stress scenario, emergency scenario so to say, which includes an abrupt, more noticeable oil price fall in a forecasted time span," Ms. Nabiullina said. "Nevertheless, I think there are low chances of this."
Mr. Luft, the Washington-based analyst, said it was hard to say whether the Saudis would eventually tighten the spigots in an effort to prop up prices, as they have in the past, or pursue a strategy of preserving market share, which means keeping prices relatively low.
"From them, what matters is how much money goes through the door," he said. "They don't care how many barrels they sold or pumped, but how much money in billions goes through the door. In the end, that's what it is all about. It's about staying alive, staying in power, making sure you don't end up like Mubarak."

[David Guyatt]

From Yahoo Finance:

[David Guyatt]

From Yahoo Finance:

Daily Ticker

Yes, Oil Prices Are Being Manipulated But Not By Who You Think


By Aaron TaskNovember 13, 2013 8:54 AMDaily Ticker

Ask most Americans and they'll tell you the oil markets are controlled by OPEC. But a recent lawsuit brought by four veteran floor traders alleges the global oil market is being manipulated from the waters off Scandinavia, not via the Middle East or Venezuela.
Specifically, ex-NYMEX board member Kevin McDonnell and three other floor traders allege BP, Shell, Statoil and the private trading firm Vitol are colluding to manipulate prices of Brent crude, the world's benchmark energy price.
At issue is that a relatively small amount of oil from the North Sea -- between 1.2 million and 1.4 million barrels per day -- is being used as the benchmark for the roughly 90 million barrels that are priced daily in financial markets, as Dan Dicker, a former oil trader and author of Oil's Endless Bid, tells me and Lauren Lyster in the accompanying video.
Dicker calls the traders' lawsuit "quite compelling" and says "to imagine this stuff doesn't happen would be a little naive."
There have been concerns about manipulation in the Brent market since the 1980s and at least six other U.S. lawsuits alleging price-fixing have been filed this year. As Bloomberg reports, they all have a common thread: North Sea oil producers are allegedly colluding with energy-trading houses like Vitol and Phibro Trading to submit "false and misleading information to Platts, an energy news and price publisher whose quotes are used by traders worldwide."
As Dicker notes, the energy manipulation allegations echo similar charges of manipulation levied against Goldman Sachs in aluminum and JPMorgan in electricity markets. Add to that the new revelations about investigations into currency trading and the massive LIBOR scandal of recent years and I'm reminded of something discussed here previously: Any market where prices are set by a group of individuals -- or a few companies -- rather than actual, exchange-based trades are highly likely to be manipulated.
"Proving it will be another matter, of course. But the outcome of the case isn't the point," Dicker writes. "The point to me is again a clear example of how the commodity system, with physical control of commodity assets priced through financial vehicles like swaps and futures is a scourge that cannot assure anyone of legitimate prices. "
It shouldn't surprise anyone who's been paying attention that traders would manipulate markets if given the opportunity because the motives to do so are so compelling, as I wrote here last summer. And while these markets may seem arcane, they do have real world impact: LIBOR is the global benchmark for interest rates, including those on mortgages and auto loans; Brent Crude is the global benchmark for energy prices, ultimately including gasoline and heating oil.
The good news, as Dicker notes, is that regulators are aggressively pursuing allegations of manipulation, and have levied heavy fines against firms like SAC Capital and JPMorgan.
The bad news, he says, is regulatory zeal is pushing banks to get out of related businesses, leaving them increasingly in the hands of private firms who are unregulated and harder to sue, meaning the manipulation isn't likely to go away -- just underground.
Aaron Task is the host of The Daily Ticker and Editor-in-Chief of Yahoo! Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com

[David Guyatt]

From Fortune via Academia.edu:

he unseen hand that moves the world's oil
By Brian O'Keefe with Doris Burke
@FortuneMagazine
February 28, 2013: 9:08 AM ET
Vitol built this state-of-the-art storage terminal in Cape Canaveral, Fla. Open since 2010, it supplies the nearby port, the Orlando airport, and gas stations across centralFlorida.
(Fortune)
The man who runs the biggest, most important company you've never heard of bounds into the room with a grin. In hiselegant navy suit, and with his cheerfully self-effacing personality, Ian Taylor is the very model of a British executive. The57-year-old is bald on top and graying on the sides, yet he sparkles with boyish enthusiasm. It almost goes without sayingthat he's eloquent, having studied politics, philosophy, and economics at Oxford. His firm is just one player in a "whackinggreat" industry, he explains. But he's happy to discuss his business. Simply put: He buys oil in one place and sells it inanother, hoping to make a profit. In reality, it's a bit more complicated than that.Taylor is CEO of the Vitol Group, the world's largest independent oil trader. According to results provided by the company,Vitol, which is a private partnership, racked up revenues of $303 billion in 2012. That would make Vitol the biggest privatecompany in the world by sales, ahead of commodities industry peers such as Cargill and Koch Industries. If Vitol werepublicly traded, its reported revenues would have ranked it No. 7 on last year's
Fortune
Global 500, ahead of Chevron andToyota. Margins in the trading business are razor thin, but the company's profits are divvied up among just 350 or soshareholders.Despite those jaw-dropping numbers, Vitol is a mystery even to many in the oil business. Dan Yergin, the chairman of IHSCambridge Energy Research Associates and the foremost chronicler of the oil industry's rise in his books
The Prize
and
The Quest
, says that while he knows Vitol's name, "I must admit that I don't know too much about them."How vital is Vitol? Think of the company as an unseen hand that helps steer global energy markets. The company isprimarily engaged in the physical trading of oil -- moving it from places of surplus to areas of deficit. That means that Taylor and his associates do a lot more than use derivatives to make bets on the future direction of crude prices. The companybuys and sells more than 5 million actual barrels of oil each day. "Our basic function, I suppose, is being an incrediblyimportant connecting pin to making sure that oil is delivered to where it's required," says Taylor.That takes remarkable logistics capability. Last year Vitol chartered more than 5,400 ship voyages. At any one time, it hasabout 200 tankers on the seas hauling cargoes worth tens of millions of dollars -- ships that are potentially vulnerable toeverything from pirates to typhoons to more mundane, but still costly, mechanical or weather delays.Vitol is the largest of a group of trading companies that fill in the gaps between the big oil companies, such as Shell andExxon, state-controlled producers, and hundreds of smaller players around the world. This trade has grown over the pastfew decades as the original, integrated system has broken down. "Once upon a time oil flowed from the wellhead all theway to the gasoline pump within a single corporation," says Yergin. "That began to change after the first oil crisis in the1970s." Consider that today Vitol sells gasoline to Saudi Arabia and supplies crude to Exxon for refining.









The volume of energy Vitol trades -- in addition to crude oil, it buys and sells everything from gasoline to natural gas to jetfuel to coal -- has more than doubled in less than a decade. (The company also happens to trade about 5% of the world'ssugar supply.) Rising energy prices have driven even faster growth in revenues. In 1995, the year that Taylor took over asCEO, Vitol had revenues of around $13 billion. Ten years ago it was still less than $50 billion. Since then it's exploded.Vitol's highest-profile rival in this great game is Glencore, the Swiss commodity trader formed by former partners of MarcRich, which went public two years ago and ranks No. 14 on the Global 500 list. In its most recent fiscal year, Glencorereported $115 billion in energy trading, but it is better known for its heft in the metals markets. Other privately heldcompetitors -- such as Gunvor, Mercuria, and Trafigura -- more closely mirror Vitol's focus on energy trading, but nonematch its scale.To get their hands on new product, Taylor and his traders compete with their rivals for the favor of government officials andexecutives in former Soviet republics, Arab kingdoms, and unstable African countries. Taylor oversees the far-flungoperation from the company's London office, across the street from Victoria Station. The company has offices in 30countries, including major regional centers in cities like Houston, Moscow, Dubai, and Singapore.Because of Vitol's size and its confidence in its own ability to manage risk, the company is often willing to deal withcustomers that more conservative companies shun. Vitol, for instance, has done business over the past couple of yearswith customers in Greece, Egypt, and Yemen, despite serious credit issues in those nations. When the rebels in Libya weredesperate for gasoline and diesel, Vitol, urged on by several governments, was for a time the only trader willing to risksupplying them.Not surprisingly, Vitol's dealings have sometimes drawn criticism. Notably, in 2005 it was one of many companies identifiedin an independent investigation led by Paul Volcker as having paid "surcharges" to the regime of Saddam Hussein to buy oilthrough the United Nations' "oil for food" program. As part of the fallout, in 2007 Vitol pleaded guilty to grand larceny, afelony, in New York County Supreme Court and paid $13 million in restitution and a $4.5 million fine.More recently some U.S. lawmakers have raised questions about Vitol's trading with Iran and whether Vitol should beallowed to buy oil from the U.S. Strategic Petroleum Reserve. The U.S. and the European Union have imposed tradesanctions on Iran, and Vitol says it has fully complied since President Obama issued an executive order authorizingadditional sanctions on July 31, 2012. But last September, Reuters reported that Vitol had bought fuel oil from Iran. Taylor says it was a single cargo that a Vitol trader in Asia agreed to buy weeks earlier. Vitol, he adds, won't trade with Iran as longas sanctions apply. "Not another drop," he says.Taylor says there is an inherent tension built into the company's role as a global connector of dots. "Because we're going totrade everywhere around the world, we will occasionally be trading in countries where people feel maybe we shouldn't be,"he says. "Now, okay, we do have our own internal moral sort of values that we do occasionally apply to this. But in general,we feel it's the right thing to do, which is to carry on participating in most countries, providing there are no sanctions, inwhich case we immediately will abide by them, obviously. Or providing there's not a situation which we feel is bluntly notacceptable, according to our values."In recent years Vitol has begun to acquire or develop physical assets -- refineries, terminal facilities, pipelines -- around theworld, including in the U.S. Taylor sees these investments as a way to boost his business in an increasingly competitivetrading market. Though Vitol's sales for 2012 were up marginally over 2011, its oil-trading volumes were down. "There arenot huge, great pockets of freely traded oil that we can unquestionably still add on," says Taylor. "We fight very hard to dothat, but there's not great chunks, really."Vitol's move into owning assets is also part of a larger story in the oil industry. The major oil companies continue to try toshed low-margin "downstream" businesses to focus on higher-margin upstream exploration projects. And Vitol and itstrading peers are snapping up many of those properties to give them added flexibility -- a concept they call "optionality."What it means is that Vitol and its peers are likely to have an even more important role in energy markets. To understandVitol is to gain insight on how the gasoline really gets in your tank and on how the world of big oil is evolving.One day last spring a Vitol trader in Geneva agreed to buy a cargo of 720,000 barrels of "Urals" crude oil from a seller inRussia. As part of the deal, the Vitol trader would send a tanker to Russia to collect the oil, worth roughly $80 million, inearly May. The two parties agreed that the price of the cargo would be finalized based on the average price of Brent crude,the most common benchmark for crude oil in Europe, over the entire month of May. A Vitol trader is like a quarterback of a well-coached team. As soon as a trader agrees to a deal, he kicks off a chain of activity from the rest of the squad. Contracts must be sent out. Inspectors must be appointed to make sure the oil is loadedproperly. A letter of credit must be obtained from a bank to guarantee payment. A ship must be chartered and vetted. Andevery aspect must be monitored because the details can make or break the profitability of a deal. Often the margin maydepend on managing freight costs. Each purchase or sale must be hedged to limit risk.







Shortly after buying the Urals crude, the Vitol trader agreed to sell it to a buyer in the Caribbean and deliver it a few weeksafter picking it up in Russia. The sale price would be determined by a formula based on the average price of WTI crude for a five-day period in May. WTI is the most common benchmark for North American crude prices. At the time of the deal, itwas trading for about $15 less than Brent.The fact that the trader bought the oil priced in Brent and sold it priced in WTI added an extra layer of complexity to thehedging. For each of the 23 trading days in May, Vitol had to sell futures against the Brent price to hedge its purchase price. And it had to buy futures against the WTI price for the five pricing days to hedge the sale price. During the course of May,the price of oil plummeted -- Brent prices dropped from $120 to $103 a barrel -- adding to the trickiness of the hedging.The headquarters of Vitol's trading business is located in downtown Geneva, on two floors of an eight-story building abovea nightclub. The traders and their assistants sit in clusters of desks in an open space taking up just over half a floor. On themorning I visited, there was a muted buzz as the traders pondered a sharp drop in the price of Brent crude the day before."What does a trader do?" says David Fransen, a tall, thin, bespectacled Brit who heads up Vitol's trading unit. "He's not justthinking, 'Oh, I believe oil is going to go up, so I'm going to buy some.' It's more like, 'I'm going to buy something here, andI'm going to hedge it there. And what are my costs? How's my P&L? How was my hedging yesterday? So, the market wentup. I thought I was hedged. Did I make or lose any money? I'm long Europe vs. New York -- did my spreads go the rightway? Do I need to change it?' That's what the traders do. Decide on how to react."The margins in physical trading are thin -- a profit of 1% or less is typical. Of course, a small margin on a giant grossrevenue number can still create big profits. In 2010, for instance, Vitol had $206 billion in revenue and $1.5 billion in netincome, according to figures from Thomson Reuters. That's a margin of just 0.7%. A better year was 2006, when Vitol got aboost from selling a refinery and earned $2.2 billion in profit on $116 billion in revenue, for a margin of 1.9%, according tofigures from Dun & Bradstreet.Still, it's a lot of work to earn a buck. "It does beg the question of why on earth we play around with something so complex,"says Fransen. "Because the more we talk about it, the more it seems like it would be an awful lot easier just to buy futuresand sell futures. But that's far too risky for us. This is where our skill is."The company has been developing its skill set since it was founded in Rotterdam in 1966 by a pair of Dutchmen, HenkVietor and Jacques Detiger, who traded barges of petroleum products up and down the Rhine. (They came up with "Vitol"by combining Vietor's last name with "oil.") A couple of years later, they opened the office in Geneva, which was becoming ahub of commodities trading. Taylor remembers them as courtly gentlemen who liked to play dominoes.Taylor joined the company as a trader in 1985 from Shell, where he had been learning the craft of trading oil. In part tomove their production and supply their refineries, Shell and BP run trading operations that are even larger than Vitol's andthat have long served as training grounds for Vitol and the other trading houses. After nearly 30 years at Vitol, Taylor has accumulated more than enough wealth to retire and live the easy life. Married, withfour children ranging in age from 11 to 24, he sits on the board of the Royal Opera House. Six years ago he swooped in asan angel investor to help save the Harris Tweed industry on the Outer Hebrides islands at the behest of his friend BrianWilson, a former British trade and energy minister who lives there. But get him talking about the details of his tradingbusiness, and it's clear that he's deeply engaged.The CEO describes Vitol's approach to risk management as "relatively informal," in the sense that there isn't a dedicatedrisk-assessment group. But because the company is a partnership, everyone is engaged in scrutinizing and evaluating riskat all times. "A lot of people are involved in every change of direction that we make," says Taylor. Every trade can betracked through a proprietary trading and operations system that Vitol designed in the late 1990s. Twice a day it generatesrisk reports that the traders can use to, say, assess exposure to certain counterparties or to a particular country.Vitol's risk tolerance was put to the test in 2011 when Taylor received a call from the Qatari government asking Vitol tosupply the rebels fighting Muammar Gaddafi with gasoline and diesel in exchange for crude from rebel-controlled oilfields ineastern Libya. Urged on by a coalition of governments, including the U.S. and Britain, Vitol took a calculated risk bysupplying the rebels, and continuing to supply them even when payment was slow in coming. Eventually Vitol was fully paidwith oil from the rebels as well as funds released by the UN. "It was a bit hairy," says Taylor. "There were one or twosleepless nights, I can assure you."Not every trade is a winner. The trader who bought the cargo of Urals crude in Russia sold it in the Caribbean and ended uplosing $5 million on the physical trade. With hedging, the deal turned a profit of $5,430. To make the trade happen, Vitol hadto produce 391 regulatory filings. It sounds as if it was hardly worth the trouble. But we don't know how it played into thetrader's overall strategy. He might have sold the cargo in the Caribbean so that there would be less Urals crude available inEurope, which might have boosted the value of another cargo and netted a big profit.

[David Guyatt]

Two men founded Vitol, Henk Vietor and Jacques Detiger.

Vitol is absolutely a major player in the oil market today, but try and find out anything about these two guys of any significance, like their family and educational backgrounds, associations etc., and you seem to hit a brick wall. For me, that's highly suspicious. What is there that needs such a level of stealth and hiding?

[David Guyatt]

A 2001 article from the Guardian that provides deeper insights into the business ethics (or lack of them) of Vitol and associates of them:

Oil chief paid $1m to warlord

London firm used Arkan to sort out Serbia fuel deal

Special report: Yugoslavian war crimes

• Antony Barnett and Martin Bright
  
• The Observer, Sunday 1 July 2001 03.26 BST
  

Correction (Published July 15th 2001)
'Oil chief paid $1m to warlord ' was wrong to say that Robin Cook, when Foreign Secretary, had helped British businessman Kaveh Moussavi obtain 'confidential documents' from a Bermuda-based company. The documents were not confidential, but the audited accounts of Berry Trade (Bermuda) which had not been released to a major shareholder of the company who was entitled to see them

---

A British oil company which once employed senior Tory Alan Duncan as a consultant paid $1 million to the Serbian war criminal Arkan to settle a score over a secret oil deal to supply Slobodan Milosevic's Serbia with fuel.
An investigation by The Observer has established that millionaire oil trader Bob Finch, director of Vitol, based in Knightsbridge, London, used Arkan as a 'fixer' after a controversial oil deal in the former Yugoslavia collapsed.
Documents obtained by The Observer reveal that in 1995 Vitol signed a deal with a Serbian company, Orion, to sell thousands of tonnes of oil to the former Yugoslavia.
The deal was struck with Belgrade-based businessman Zveto Dragovic in June 1995 while the Bosnian conflict was still raging and UN sanctions were in place. Vitol insists the oil was delivered only after sanctions were suspended and the deal was therefore entirely legal.
Only weeks after the deal was struck Serb forces walked into the United Nations 'safe area' of Srebrenica and led 6,000 Bosnian Muslims to their deaths.
The UN-imposed sanctions in 1992 made it illegal to supply oil to Serbia. These were suspended at the end of November 1995 after the Dayton peace accords were signed. Dragovic claims that, after sanctions were lifted, Vitol cut him out of the deal and began dealing directly with the Yugoslav state oil company, Yugopetrol.
As a result, in February 1996 he took the company to court in Belgrade and won the right to seize 8,000 tonnes of Vitol's oil stored at the Novi Sad refinery north of the Serbian capital. Vitol never accepted the decision of the Yugoslav courts and in April 1996 Finch, head of trading at Vitol, flew to Belgrade to retrieve $2 million for the oil supplied to the middleman.
The Observer has established that Vitol used Arkan to 'persuade' Dragovic to pay up. Contacts in Serbia set up a meeting at Arkan's house on 10 April 1996 attended by Finch, Dragovic and Arkan and his henchmen. As a result Dragovic signed a new agreement to set aside the court decision. As a reward for his services, Arkan demanded a $1 million fee.
Faced with the evidence, Finch and other senior executives at Vitol have confirmed their dealings with Arkan, who was assassinated last year in a hail of bullets in a Belgrade hotel lobby.
Speaking at Vitol's HQ, Finch said: 'I have met Arkan once... It does not look good, I agree.'
Asked how he was introduced to the former bank robber, who was known at the time to have committed atrocities in Croatia and Bosnia, Finch said: 'We do have local people in Belgrade... They said, "Go there. Meet the man. It can be sorted out." And, to be honest, it was sorted.'
Although it was not until 1997 Arkan was indicted by the UN war crimes tribunal in The Hague for crimes against humanity, his brutality was well documented when Finch met him in 1995.
His band of paramilitaries, the Tigers, were the most feared unit of the Serbian murder machine. He was known as the butcher of Vukovar after ordering the shooting in cold blood of 250 patients and staff his unit had taken from a hospital.
By April 1996, Arkan had become one of Serbia's richest men after amassing a fortune from the currency black market, arms dealing and oil smuggling.
Vitol's involvement with Arkan came to light as a result of a £122 million court case involving a controversial oil deal in Iran. British businessman Kaveh Moussavi accuses Vitol of cutting him out of a deal to transport millions of gallons of oil from the Caspian Sea in the north of the country to the Gulf in the south.
Although the legal battle between Moussavi and Vitol has so far been the talk only of the oil industry, it now threatens to spill into the world of British politics. Earlier this year Moussavi obtained the help of Robin Cook, then Foreign Secretary, to obtain confidential documents that would help in his court case against Vitol.
After receiving a letter from fellow Cabinet Minister Andrew Smith on Moussavi's behalf, Cook wrote to the financial authorities in Bermuda demanding information on Berry Trade, created by Vitol and Moussavi to deal in Iran.
Six days after getting Cook's letter, the Bermudan authorities released information revealing that Vitol had received a $3 million insurance payment for oil that went missing in Iran. Moussavi alleges the claim was fraudulent, something Vitol denies and will contest in court.
The other senior politician being dragged into the action is the Tory, Alan Duncan, whom Moussavi intends to call as a witness. Duncan, former Tory vice-chairman and a supporter of Michael Portillo, was a paid consultant to Vitol in the early 1990s. He worked with Vitol's president, Ian Taylor, at Shell and remains a close friend.
Duncan, a millionaire, made part of his fortune by brokering a deal between Vitol and Pakistan during the Gulf war. Duncan's company, Harcourt Consultants, continued to do work for Vitol in Pakistan until four years ago.
Moussavi said: 'It is was well known within Vitol how important Duncan was, particularly in Pakistan. I want him as a senior political figure to come to court and explain on oath how the company goes about its business.'
There is no suggestion that Duncan knew about, or was involved in, any deal with Serbia or Iran, and he is furious that Moussavi is determined to drag his name into the court action.
Speaking to The Observer, Duncan said: 'Vitol is a well-respected oil-trading company. I am irrelevant to any dispute they may have with someone else.'
A spokesman for Vitol last night said: 'Mr Moussavi is determined to blow up a small business dispute into a major political row. We are not prepared to play his game. We do not believe any of his allegations of wrongdoing have any foundation and will vigorously contest his wild accusations in court.'

[Magda Hassan]

What is there that needs such a level of stealth and hiding?

Venezuela, China and Russia.

[David Guyatt]

Vitol's competitor companies include Glencore (formerly Marc Rich of which a great deal written) and Trafigura, which was founded by former execs of Marc Rich.

Trafigura is Dutch owned, London operated and Swiss based, which allows it, apparently, to evade various laws on sanction busting and trading without care or concerns, it seems.

Vitol is also Dutch owned, Swiss based and is London operated apparently:

Inside Trafigura

Inside Trafigura: Accusations, sour deals and friends in high places

Behind Trafigura is a little-known but wealthy group of London oiltraders, who have high-level connections in the Conservative party. The firm's profits have ballooned over 16 years; it made $440m (now about £267m) last year on a $70bn turnover, as the world's third-biggest private oil and metals trader, outstripped only by Vitol and Glencore.


The Conservative leader in the Lords, Lord Strathclyde, is on Trafigura's payroll as a director of its hedge fund, Galena Asset Management, which is based at the firm's Marble Arch office, in Portman House, Oxford Street, London.

When Trafigura faced the toxic waste controversy, Strathclyde assisted by recommending the former minister and fellow peer, Peter Fraser QC, to the embattled traders. Fraser says he is being paid to produce an independent report on the dumping affair. But he has agreed not to publish any conclusions in the near future.

The firm's holding company is in the Netherlands, there is a branch in Switzerland, and a parent, Farringford NV, offshore in Curaçao, in the Caribbean. But Trafigura's operations are essentially run from London.


Graham Sharp, a founding director, is based in Kensington. Another director, Claude Dauphin, brought up his family in Hampstead, north London. A third founding partner, Eric de Turckheim, lived until recently with his wife in Wimbledon, south London. The traders charter up to 100 tankers at sea, and control worldwide tank farms which blend fuel.

Trafigura split off in 1993 from an even more controversial group, run by Marc Rich. Rich was accused by the US of sanctions-busting to Iran and tax evasion, but was pardoned by the US president, Bill Clinton, in 2001.

Trafigura's own name has been linked not only with Ivory Coast's toxic waste, but also with worldwide accusations of bribery, smuggling or improper waste disposal.

Saddam Hussein's Iraq was under international sanctions in 2001 when Trafigura was involved in the smuggling out of the country of 500,000 barrels of oil, according to the UN Volcker report. Allegedly, a UN inspector was bribed by Iraq to turn a blind eye.

The company's Swiss arm, Trafigura AG, later pleaded guilty in the US to making false claims about the oil, sold on to US refineries. The company forfeited $20m. Trafigura still insists it handled the deal via third parties in good faith, but US authorities said: "Today's plea agreement reflects the severity of their crime."

Another deal went sour in 2006. Jamaica had been granted rights to some cheap Nigerian oil, and allowed Trafigura to sell it and keep the profits, paying only a few cents per barrel commission.

Scandal erupted when a whistleblower disclosed a secret £220,000 payment to the ruling party. Colin Campbell, general secretary of the People's National party, in Jamaica, had to resign. He said: "I made the arrangements for the funds to be paid into the campaign account, in accordance with their wish for confidentiality." Trafigura had just issued a statement denying the £220,000 was a political donation.

Bruce Golding, Jamaica's new prime minister, told parliament: "Trafigura … is believed to be guilty of having bribed public officials." Dutch investigators visited Jamaica but no action was taken. The traders lost the contract. Trafigura says it rejects "any allegations ofimproper conduct regarding its business activities in Jamaica".

When Trafigura's waste was dumped in Abidjan, the Ivorian government, demonstrating a short way with western entrepreneurs, locked up without charge Trafigura executives for five months until the firm agreed, without admitting liability, to pay $200m for a clean-up. In Norway, Trafigura persuaded Vest Tank, which owned a tank farm on a fjord, to handle more of the waste. A tank blew up in 2007, showering residents with noxious smells. An inquiry found attempts to treat the waste had overheated a carbon filter. Vest Tank currently faces prosecution.

Asked about this history, Bell Pottinger, the firm founded by Tim Bell, and which acts as Trafigura's spin doctors, told us: "Trafigura has always done its business in an ethical and transparent manner."

Source

[Magda Hassan]

[Magda Hassan]

Marc Rich was given a presidential pardon by Clinton as he walked out the White House door when Bush got the keys.

Trafigua shut down UK parliament and threatened to sue if their name came up in some investigation if I recall correctly. Never happened before in English history Represented by Carter -Ruck I think. Some thing to do with massive toxic dumping?