#63 The King of Oil The Secret Lives of Marc Rich

David, host of the Founders podcast, delves into the life of Mark Rich, a Jewish refugee turned billionaire, who revolutionized the oil industry by creating the first competitive market for crude oil, breaking the monopoly of the "Seven Sisters" oil companies. Rich's spot market invention allowed for transparent, efficiency-driven trading, transforming oil into just another commodity. Despite his entrepreneurial genius and role as a pioneer of globalization, Rich's legacy is marred by his fall from grace, including tax evasion charges, illegal oil deals with Iran during the hostage crisis, and his eventual flight from the U.S. in 1983, leading to a nearly 20-year evasion of American agents. David reflects on Rich's career, his opportunistic business strategies during global crises, and his complex personal life, which included a costly divorce and the loss of his company, Mark Rich and Company, later renamed Glencore.

• The spot market for oil was a revolutionary concept that changed the global oil trade landscape.
• Mark Rich was instrumental in breaking the cartel of big oil companies in the 1970s.
• The creation of the spot market introduced a competitive market for oil.
• Mark Rich's entrepreneurial efforts led him from poverty to becoming one of the richest men in America.

"Crude oil cost $2 per barrel. In the summer of 2008, a barrel went for a record $140."

This quote highlights the dramatic increase in oil prices from the time Mark Rich began trading oil to the peak prices in 2008, emphasizing the lucrative nature of the oil market.

• Mark Rich's success was followed by a significant downfall due to charges of tax evasion and illegal deals.
• His name became synonymous with controversy rather than his entrepreneurial achievements.
• The narrative of Mark Rich is complex, involving high stakes, business opportunities during conflicts, and evasion from law enforcement.

"Today, the name Mark Rich means the billionaire trader who fled the United States in 1983 to avoid charges of tax evasion and making illegal oil deals with Iran during that hostage crisis."

This quote encapsulates the tarnished legacy of Mark Rich, focusing on his criminal charges and flight from justice rather than his business accomplishments.

• The book aims to explore Mark Rich's rise in the oil and commodities market.
• It examines the key decisions and milestones of his career, as well as his limits and failures.
• The story intertwines with significant historical events, positioning Rich as a pioneer of globalization and modern commodities trading.

"Who is the real Mark Rich, the man who managed to elude the agents of the most powerful nation on earth for nearly 20 years?"

This quote poses the central question of the book, seeking to uncover the true identity and nature of Mark Rich's character and life.

• David introduces the podcast "Founders" and its focus on extracting valuable lessons from the biographies of entrepreneurs.
• The podcast is ad-free and independent, with a subscription service for additional content and commentary.
• David emphasizes the importance of supporting the podcast financially to maintain its production.

"Every week I read a biography of an entrepreneur, and I try to find and pull out ideas from their life experiences that we can all use in our lives."

David describes the core concept of the podcast, which is to derive actionable insights from the life stories of entrepreneurs for the benefit of the listeners.

• Mark Rich's family escaped the Holocaust, and this experience influenced his outsider perspective and pragmatic approach to business.
• Rich's father was a significant influence on him, teaching him about success, work ethic, and seizing opportunities.
• Rich learned the commodity trade at Philip Brothers, starting from the mailroom and quickly rising through the ranks.

"My father is definitely the person who influenced me the most."

This quote from Mark Rich emphasizes the profound impact his father had on his life and career, setting the foundation for his future success in business.

• Rich was fascinated by the size of the commodities market and its global necessity.
• He found success by specializing in niche products like mercury and creating new markets for them.
• Recognizing trends and the potential of commodities were key skills Rich developed during his time at Philip Brothers.

"I was fascinated by the size of the market. Take oil or aluminum. You can find those materials on almost any product you touch. The whole world needs them, from east to west and north to south."

This quote reflects Rich's early recognition of the vast potential and importance of the commodities market, which fueled his ambition and success.

• Speaker A discusses the early business successes of a trader named Rich who started trading in mercury in his early twenties.
• Rich anticipated a rise in demand for mercury due to global political tensions signaling war.
• He established relationships with producers and consumers, becoming an expert in the mercury trade.
• The United States government significantly increased its mercury stocks, leading to Rich becoming a key player in the market.
• This resulted in substantial profits for Phillips Brothers, where Rich was employed.

"When Rich started trading in mercury, all the indications were pointing to war."

This quote explains Rich's foresight in predicting a rise in mercury demand due to the political climate, which was indicative of the impending war.

• Rich was sent to Havana after the Cuban Revolution to recover assets lent to the previous administration by Phillips Brothers.
• He successfully negotiated with the Castro regime, ensuring no financial losses for Phillips Brothers and even began making profits in Cuba.
• Rich's approach was pragmatic, focusing on what the new regime needed (hard currency, international contacts, jobs) and offering a service to meet those needs.
• His ability to maintain business relations with governments post-revolution was attributed to his service provision, which included buying products, finding buyers, and organizing transportation.

"I offered to inject fresh money. The Cubans liked the idea. It allowed them to continue with the mine, and I was able to recover the entire amount of our initial investments."

This quote illustrates Rich's strategic thinking in offering a solution that was beneficial to both parties, showcasing his negotiation skills and business acumen.

• Rich's business dealings were not influenced by politics but were driven by pragmatic considerations of providing services and making money.
• His neutral stance on political matters was seen as advantageous for business success, though some might view it as amoral.
• Rich's time at Phillips Brothers provided a foundation for his entrepreneurial skills, emphasizing the importance of ideas, contacts, and luck over rigid rules.

"Mark didn't care about politics, only about business and making money."

This quote encapsulates Rich's business-centric approach, highlighting his focus on financial success over political considerations.

• Rich observed the oil market's lack of transparency and competition and aimed to create a market for oil trading.
• He recognized the dominance of the "Seven Sisters" oil companies and sought to provide an alternative for oil-producing countries.
• Rich's company, Mark Rich and Company, was founded in Switzerland, taking advantage of the country's political neutrality, financial discretion, and low tax rates.

"Oil was a product that was moved in huge quantities and had a big value, but it hadn't been traded in a transparent and competitive market."

This quote reflects Rich's perception of the oil market and his ambition to establish a transparent and competitive trading environment.

• Disagreements over compensation at Phillips Brothers led Rich to leave and start his own company with his partner Green.
• Mark Rich and Company capitalized on the oil shock of 1974, trading oil at high profits due to the global shortage.
• The company's aggressive and fast-paced approach allowed it to secure long-term contracts and quickly recognize opportunities.

"I was the right person in the right place at the right time."

Rich attributes his success to being opportunistic and well-positioned to take advantage of market conditions, as this quote indicates.

• Rich emphasizes long-term thinking throughout his career, which proved beneficial during times of rising prices.
• The book suggests that while long-term contracts were advantageous during price increases, they could pose risks if market conditions shifted.

"The partners recognized opportunities and followed up on them faster than the competition."

This quote highlights the competitive edge Rich and his partners had by being quick to act on emerging opportunities in the market.

• Speaker A recounts how Mark Rich and his partner Pinky swiftly capitalized on market opportunities.
• They flew to Houston for an oil deal, learned Turkey needed oil, and Pinky immediately went to Istanbul to secure a profitable deal.
• Their quick response allowed them to outpace competitors.

"Pinky and I, that's his partner again. Pink and I flew to Houston to discuss an oil deal, rich recalls. On the way there, we learned that turkey needed oil. Pinky, who once lived in Turkey, instantly interrupted his visit to Houston and flew to Istanbul. He concluded a very profitable transaction. We were faster than everyone else."

The quote highlights the importance of agility in business, showing how quick decision-making and leveraging personal connections (Pinky's experience in Turkey) can lead to successful deals.

• The spot market revolutionized the oil industry by allowing consumers to buy oil from multiple offers, breaking the oligopoly of the "seven sisters."
• It brought efficiency, transparency in pricing, and a balance between supply and demand.
• Independent oil traders like Mark Rich played a crucial role in this transformation, making oil just another commodity.

"Thanks to the spot market, consumers were no longer dependent on a single company controlling a value creation chain that began at the oil wells and ended at the gas pump. Now buyers could purchase oil whenever and from whoever they wished."

This quote explains the significance of the spot market in breaking the monopoly of large oil companies and empowering consumers with choice and better prices.

• Mark Rich valued practical experience over formal education, giving employees significant freedom and responsibility.
• This approach fostered an environment of autonomy, appealing to talented individuals who thrive under such conditions.

"Rich did not put much stock in university education, but instead entrusted employees with as much freedom and responsibility as they could bear. We throw young people into the swimming pool. Either they sink or they learn how to swim."

The quote reflects Rich's belief in learning through experience and the effectiveness of a "sink or swim" approach in developing capable employees.

• Rich's Swiss company was exempt from President Carter's executive order during the Iran hostage crisis due to its organization under Swiss law.
• Speaker A clarifies the nuances of the executive order and how American companies could still indirectly trade with Iran.

"President Carter's executive order excluded any person subject to the jurisdiction of the United States, which is a non banking association, corporation or other organization organized and doing business under the laws of any foreign country."

The quote indicates the legal loophole that allowed Mark Rich's Swiss company to continue trading with Iran despite the executive order, emphasizing the importance of understanding legal intricacies in international business.

• Despite Iran's public stance against Israel, Mark Rich's company secretly facilitated oil sales to Israel, highlighting the hypocrisy of the Iranian regime.
• Speaker A suggests skepticism towards public statements by governments and the media, advocating for verification of information.

"They talk about the new government in Iran is anti semitic and anti capitalist, right? And let's say you're reading the newspapers around this time in 1970s, 1980s and Iran, they don't recognize the right to Israel to exist publicly, adamantly, we will not sell oil to Israel. We do not sell oil to Israel. Well, one of the biggest money making schemes that mark Rich ever has is like there's a secret pipeline going from Iran sold to Mark Rich and they knew Mark Rich was selling that oil to Israel."

This quote reveals the discrepancy between Iran's public declarations and its private actions, demonstrating the complex nature of international politics and business.

• Mark Rich faced a legal battle involving tax evasion, trading with the enemy, and document subpoenas, which tarnished his public image.
• The intense conflict involved the Southern District of New York, Swiss law, and high-profile figures like Rudy Giuliani.
• Speaker A acknowledges the confusion and uncertainty surrounding the case and advises focusing on Rich's business strategies instead.

"So it says the southern district had begun peeing millions of documents from Mark Rich International after he got snitched out by these other guys and oil companies and resellers in the United States that had done business with Rich."

The quote describes the beginning of the legal troubles for Mark Rich, setting the stage for a complex and high-stakes battle between different jurisdictions and legal interpretations.

• Despite being pursued by the U.S., Mark Rich expanded his company to become the world's largest independent oil and metals trading company by 1997.
• His business was active in 128 countries, with 48 offices and 1,200 employees, demonstrating remarkable success in the face of significant challenges.

"Even though he was pursued by the most powerful nation on earth, which did everything possible to thwart his business dealings. Mark Rich was able to continually expand his company until became the world's largest and most successful independent oil and metals trading company in 1997, years after he was indicted in New York."

The quote underscores the resilience and success of Mark Rich's business operations, even as he faced legal and political obstacles.

• Mark Rich attributed his success to long-term thinking, investing time and resources to secure enduring business relationships and contracts.
• This approach contrasts with the short-term focus of many listed companies and aligns with the traditional virtue of family businesses.

"The key to success and real wealth is long term thinking. Rich says six months in South Africa in order to negotiate the purchase of a mine. Six months in Cuba to ensure a loan is paid back. Advanced financing of a smelter that will not be completed for years to come."

The quote highlights Mark Rich's belief in the importance of long-term commitment and strategic planning in achieving sustainable business success.

• The individual in question experienced a significant downfall, losing access to the United States, his wife, and his company.
• His daughter's illness and death highlighted the personal cost of his choices, as he was unable to be with her due to legal issues.
• The story serves as a cautionary tale about prioritizing work over family and personal relationships.

He loses the ability to ever travel to the United States again. He says he loses his wife and loses his company. One of his daughters gets leukemia. She dies at the age of 27... and he cannot travel there because he'd get arrested the minute he comes back to America.

The quotes illustrate the severe personal and legal consequences the individual faced, including the inability to be present during his daughter's final moments due to his barred entry into the U.S.

• The narrative warns against excessive work focus at the expense of family time.
• The reflections of successful individuals like Phil Knight and Sam Walton highlight common regrets about not spending enough time with family.
• The story of Rich's limited time for his family underscores the importance of work-life balance.

Don't be the person that does this... nobody is going to be on their deathbed wishing, I just wish I did one more trade.

The quote emphasizes the importance of not sacrificing personal relationships for professional success, as it is unlikely to be a source of comfort in one's final moments.

• Rich's workaholic nature led to a strained relationship with his family.
• The narrative includes anecdotes of Rich's later desire for more time with his children and reflections on the swift passage of childhood.
• The story encourages prioritizing family, as illustrated by the profound impact of parenting and personal relationships.

You're not going to live a happy, fulfilled life at the end of your life. That's how you treat your family.

This quote underscores the long-term unhappiness that can result from neglecting family for work, highlighting that a fulfilling life is about more than professional success.

• Rich's personal and professional decisions led to significant financial and emotional costs.
• His company's complex structure and his divorce illustrate the repercussions of his actions.
• The narrative discusses the impact of Rich's choices on his wealth and family dynamics.

His divorce cost him $365,000,000... Rich's company was a confusing network of over 200 private companies and subsidiaries spread over five continents.

The quote details the financial cost of Rich's divorce and the complexity of his company's structure, reflecting the tangible consequences of his life choices.

• Rich's attempt to manipulate the zinc market resulted in a massive financial loss and credibility damage.
• Ignoring advice and violating his principles, Rich's personal issues contributed to his professional downfall.
• The narrative highlights the importance of sound decision-making and the dangers of high-risk ventures.

A single bad deal cost him 172,000,000, took his company to the edge of collapse. It was the deal that finally forced rich to sell his company.

This quote illustrates the severe financial impact of a single poor business decision, leading to the eventual sale of his company and the end of his direct involvement in it.

• Rich's weakened position led to the sale of his company and the loss of his leadership role.
• The company's subsequent success and rebranding to Glencore removed Rich's association with it.
• The story concludes with reflections on the value of learning from the regrets of others.

I was weak and the others could sense it, so they took advantage. The name Mark Rich and company... vanished from the scene as soon as possible.

The quote describes Rich's acknowledgment of his weakened state and the erasure of his name from the company he founded, symbolizing the finality of his departure and the loss of his legacy.

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