The Secret World of Oil

Notes

Introduction

The Secret World of Oil

Most people think about oil as something pumped from the ground or used to make the gasoline that fills their fuel tanks. But between those two points, and beyond, a wide range of players takes a cut of the profits, from middlemen who broker deals between energy companies and government officials in countries sitting atop the world’s energy reserves, to academics, lobbyists, and flacks whose incomes derive from their promotion of the fossil fuel economy.

This book will explore the secret world of oil and examine the little discussed but important role played by these various actors in the global fossil fuel economy. These fixers, traders, and lobbyists don’t generally own nor operate oil refineries or wells; nevertheless, they smooth the workings of the energy business on the basis of discreet payments and backroom deals. They typically have excellent political contacts, which they can, when necessary, leverage into legal protection. Indeed, their success depends on their intimate connections to senior-level decision makers. You have to deal with governments and ministers, and you have to service those people, one Swiss oilman told me. You can call it corruption, but it’s part of the system.

That’s important to keep in mind, especially at a time when the global energy picture has been unusually bright. For much of 2013, for example, the US media was filled with upbeat news about America’s energy situation. Thanks to new technology and higher prices, the energy industry was extracting millions of barrels more a week, from the deepest waters of the Gulf of Mexico to the prairies of North Dakota, the New York Times said in a story early in the year. As a result the United States was moving closer to becoming independent from foreign energy sources of both oil and natural gas, a milestone that could reconfigure American foreign policy, the economy and more.

Output was growing so quickly that the Energy Department reported that the US might overtake Saudi Arabia and become the world’s largest producer by 2020, leading Congress to consider lifting a ban on exporting crude oil that was put in place after the Arab embargo of the 1970s. Meanwhile, Americans were driving less and buying more fuel-efficient cars, and hence using far less gasoline. For decades, consumption rose, production fell and imports increased, and now every one of those trends is going the other way, Michael Levi, an energy and environmental senior fellow at the Council on Foreign Relations, told the Times.

This was deemed to be especially good news, because despite concerns about global warming, oil and other fossil fuels will remain the dominant source for the global economy for a very long time. Petroleum and natural gas will provide about half of America’s total energy supply in 2030, according to the Energy Department, not significantly less than they do now. Furthermore, the US transportation network, and hence the broader economy, is overwhelmingly fueled by petroleum derivatives such as gasoline, diesel, and jet fuel.

And as a Financial Times article put it in September 2013, even as the US was drowning in oil, the world has become, if anything, more dependent on a handful of Gulf producers to fill supply shortfalls—oil production in Saudi Arabia, Kuwait, and the United Arab Emirates was at record levels. The article concluded:

For all the talk about the shale boom, then, it is business as usual for the rest of the world in terms of supply. The concern remains, despite apparent nonchalance, that consuming nations like the US, China, and India will be stifled should production disruptions last.

In other words, oil and natural resource policy are as vital to global affairs as ever. Because of its financial weight and political significance, energy is the world’s most important commodity and represents a $6 trillion annual market. Daniel Yergin estimates in his book The Quest that the value of the energy economy could increase by as much as 40 percent over the next twenty years, because of soaring demand, mostly from China, India, and other rising economic powers. And even with the surge in domestic production, the US (and its Western partners) will be importing oil and gas for decades to come, much of it coming from Third World countries with terrible records on human rights and corruption, among them Saudi Arabia, Nigeria, Iraq, Angola, Kuwait, Colombia, Azerbaijan, and Equatorial Guinea. As Dick Cheney once said, The good Lord didn’t see fit to put oil and gas only where there are democratic regimes friendly to the United States.

Whether the Unites States is exporting it or importing it, with oil some things never change. The political power of the energy industry, for example, remains as formidable as ever. Individuals and political action committees affiliated with oil and gas companies have collectively donated $238.7 million to candidates and the two parties (75 percent went to Republicans) over the past thirteen years, according to data from the Center for Responsive Politics. Between 2008 and 2012, they spent an average of about $150 million per year on Washington lobbying. Midway through the last year, oil and gas companies had spent more on lobbying than all but four other industries (the pharmaceutical sector was number one) and almost as much as Wall Street and defense combined.

The industry won huge favors during the administration of former oilmen George W. Bush and Dick Cheney but has fared quite well under Barack Obama as well. A piece that ran in 2013 on the Forbes magazine Web site, Don’t Worry Big Oil, President Obama Probably Doesn’t Hate You As Much As You Think, noted that his administration had done much to help energy companies and had largely dismissed calls by environmentalists and others to regulate the industry.

Another constant in the energy business is corruption. Partly due to the political geography Cheney referred to, the energy industry violates the US Foreign Corrupt Practices Act more frequently than any other economic sector, even weapons makers. Two central figures in this secret world are fixers and traders. Fixers open doors for corporate clients and arrange introductions to the various potentates they know. They help companies navigate the local bureaucracy, or provide the lay of the land with political and economic intelligence, or point to important people or companies that should be courted or hired in order to curry favor. Fixers funnel money to dictators to obtain concessions for oil companies, set up shell firms and front companies to move money, and line up firms to explore for oil. In some cases, fixers feed money to those in power, in payoffs that often would be illegal under American and European antibribery laws.

Oil traders operate in a similarly murky world. They negotiate and purchase output from energy-producing nations, find buyers, and charter tankers to ship the oil. The original trader was Marc Rich, who during the 1970s and 1980s pioneered the practice of commodities swaps with outlaw regimes, frequently in war zones. In a profile, Businessweek reported:

Rich is notorious for trading with Iran during the hostage crisis, South Africa during apartheid, and Cuba and Libya during US trade embargoes. In 1983 he fled to Switzerland after being indicted by the Justice Dept. for racketeering, trading with the enemy (Iran), dodging a $48 million corporate tax bill, and other violations that could have resulted in 300 years of jail time.

In 2001, Rich received a controversial pardon from President Bill Clinton on his last day in office.

The biggest oil trading firms are Swiss-based Glencore and Vitol. Given the enormous size of these companies—in 2011, Glencore was valued at $60 billion, higher than Boeing or Ford Motor Co.—and the global scope of their operations, remarkably little is known about them. In recent years, major oil-trading firms were discovered to have arranged secret deals with pariah states such as Sudan and were implicated in the United Nations oil-for-food scandal during Saddam Hussein’s rule in Iraq. More recently, Amsterdam-based Trafigura, a trading firm that operates widely in West Africa, was found to have dumped four hundred tons of toxic waste in the Ivory Coast. The company paid a fine of nearly $200 million to settle charges stemming from the case, which resulted in ten deaths and tens of thousands of illnesses.

Third World countries have become more sophisticated and are better able to negotiate directly with oil companies, and the biggest multinationals are powerful enough that they sometimes operate without go-betweens. But fixers and traders continue to have utility. A worldwide scramble for oil is under way, with the United States and China being the two major competitors. There are fewer major fields and concessions available, and national oil companies control much of what’s out there. That makes the stakes higher and the desperation to get in greater. Companies are always looking for an advantage, and often the right fixer or trader can be the means to gain it.

The lines of US anticorruption laws are drawn very strictly, but oil company executives are sent overseas to make deals, and they are measured by performance. Ed Chow, a longtime Chevron executive, told me, You’re supposed to be clean, but you’re also supposed to create business. That leads to a tension, and a temptation to use middlemen. Let him do whatever he needs to do; I’m not part of it and don’t want to know. In some ways, it’s not that different from hiring lobbyists or giving campaign contributions. We just do it at home in a different way.

The process for awarding oil contracts and concessions in Third World countries is inherently politicized and centralized, because energy resources typically belong to the state and decision-making power is concentrated in the hands of a dictator or a small group, Chow explained. In Texas, I can convince landowners to lease me their mineral rights. They get a royalty check every month and the companies leave a small footprint on their land. What’s not to love? There is no equivalent in places like Nigeria or Angola or Kazakhstan. You get the land, but you don’t provide a lot of jobs, you may be destroying the environment, and most of the profit goes to international capital. The companies don’t have a strong case to sell to local communities, so they come to not only accept highly centralized government but to crave it. A strongman president can make all the necessary decisions. It’s a lot easier to win support from the top than to build it from the bottom. As long as we want cheap gas, democracy can’t exist.

The intimate ties between strongman presidents and multinational energy firms are another topic detailed in this book. Of particular note is General Teodoro Obiang Nguema Mbasogo, who has ruled the small West African nation of Equatorial Guinea since seizing power in a 1979 coup. The basis of the Obiang regime’s wealth is oil, most of it pumped by American firms such as ExxonMobil and Hess Corporation. With an estimated output of about three hundred thousand barrels per day, Equatorial Guinea has emerged as the third-largest energy producer in sub-Saharan Africa.

For more than a decade, Obiang and his family members have spent enormous sums of money in the United States on real estate and extravagant purchases at stores such as Dolce & Gabbana and Louis Vuitton. In 2011, the American government finally acted to halt their collective shopping spree when it filed a civil asset forfeiture complaint seeking to take possession of tens of millions of dollars in assets owned by Obiang’s son and heir apparent. The son, who is the country’s minister of forestry, was alleged to have used money laundered through US banks to buy a $30 million estate in Malibu, a private plane, and assorted Michael Jackson memorabilia, including a white crystal–covered ‘Bad Tour’ glove.

But Obiang and other oil-rich foreign leaders have few problems lining up support in Washington and typically have numerous lobbying and PR firms on retainer to peddle themselves to the American public and policy makers. Lobbying, though, is subject to disclosure laws, and hence in recent years foreign governments and interests seeking influence in Washington have increasingly turned to other means, which are largely unregulated and don’t require public disclosure—which of course makes them all the more effective and useful.

These newer tactics include: making contributions to think tanks, universities, and nonprofit groups; setting up business associations that advocate for better political ties with the US but aren’t legally defined as lobbying organizations; and offering huge consulting contracts and speaking fees to politically prominent Westerners—retired politicians (and their offspring), corporate titans, college professors, think-tank fellows, and countless former senior US officials, who use their experience and connections to promote the oil industry’s interests in these countries and advocate for closer ties to the US.

For example, the departed Libyan leader Muammar Gaddafi recruited prominent academics and former officials through the Monitor Group of Cambridge, Massachusetts, which was charging his regime $250,000 per month to burnish its image. Among those the Monitor Group lined up—in exchange for big fees—were historian Francis Fukuyama, the Middle East scholar Bernard Lewis, neo-conservative Richard Perle (who twice traveled to Libya for meetings with Gaddafi), and Professor Joseph Nye of Harvard, who also visited Libya and wrote a favorable story afterward for the New Republic. Nye also offered advice to Saif Gaddafi, the colonel’s son, on the dissertation he wrote for the London School of Economics.

Gaddafi also counted on support from the Washington-based US-Libya Business Association, which was founded and funded by American oil companies. The group was headed by David Goldwyn, who worked at the Energy Department under Clinton and who, after retiring from government to run a consulting firm that provided political and business intelligence to industry, returned to public service as the State Department’s coordinator for international energy affairs during the Obama administration. A few others featured in this book include:

•  Former British prime minister Tony Blair, who netted about $150,000 for a twenty-minute speech in Azerbaijan, in which he said that President Ilham Aliyev was a leader with a very positive and exciting vision for the future of the country. A WikiLeaked cable offered a less flattering description of Aliyev, comparing him to Sonny Corleone, the fictional mobster from The Godfather.

•  Neil Bush, the son of one American president and the brother of another, who one newspaper observed ran numerous business ventures that had a history of crashing and burning in spectacular fashion. Nonetheless, Bush’s family name has led various natural resource companies to hire him to broker deals in Asia and Africa.

•  Bretton Sciaroni, a portly American and former ideologue of Ronald Reagan’s White House who played a little-known but vital role in the Iran–Contra scandal but now resides in Phnom Penh, where he is an official adviser to Prime Minister Hun Sen, a one-time Khmer Rouge cadre, and opens doors for Western natural resource firms.

In large part because they inhabit the shadows of the energy world, the oil literature has largely consigned such middlemen and other characters to the margins of attention, or omitted them entirely. Yet it is precisely these sorts of friends that help the energy industry thrive and prosper, and this book for the first time puts them at center stage, where they belong.

1

The Fixers: Ely Calil

A lot of my business comes from someone who has a problem and who knows someone who knows me. Then the first someone gets directed to me and asks, Can you fix it?

—Ely Calil

On a cold, damp November night several years ago, a Mercedes sedan looped through the semicircular drive of the Saint James Paris, a century-old château-style hotel across the Seine from the Eiffel Tower. As the car rolled to a halt at the hotel’s main entrance, a well-tailored, trim man named Ely Calil walked unhurriedly out the lobby door and down wide stone steps, talking into an earpiece that was connected, through a thin black wire, to a tiny cell phone tucked in the closed palm of one hand. The driver stepped from the car and opened the door for Calil, who interrupted his conversation to give the driver instructions. He spoke in a voice a little above a whisper, perhaps just a touch softer than his normal cool, flat tone. The driver returned to his seat and steered the car out through the granite-pillared entryway and onto Avenue Bugeaud.

That night Calil’s destination was Spring, a popular restaurant in the ninth arrondissement that offers a set four-course menu to sixteen diners nightly. He was meeting Friedhelm Eronat, a close friend and sometime business partner who is equally reclusive and press-averse. Like Calil, he is one of the world’s leading oil fixers, having grown rich brokering deals for Mobil (before it merged with Exxon) in Russia, Kazakhstan, and Nigeria. A confidential corporate due diligence report about Eronat that I obtained said that the precise nature of his relationship with Mobil was the subject of much conjecture, but his contacts went straight to the top. More recently he has done business in Argentina, Brazil, and China.

Calil had flown to Paris earlier that day from London, where he resides. Born in Nigeria in 1945 to a prominent family of Lebanese origin, Calil belongs to a small group of middlemen, a few dozen at most. They quietly arrange deals and financial transfers—not necessarily illegal—that are vital to the oil industry’s operations. Calil has funneled money to African dictators to obtain concessions for oil companies, traded oil from Russia following the collapse of the Soviet Union, and advised presidents and exiled political leaders.

Along the way he has not only amassed an immense personal fortune but has established a web of political ties stretching from Africa to the Middle East and the United States. He’s built a very effective network of contacts and allegiances and loyalties through money and allowances, a former senior CIA official who has worked with Calil told me, not without admiration. "It’s sort of like The Godfather. One day he’ll come to ask for a favor, and you’ll have to comply."

A former friend of Calil’s, who broke with him over a business deal gone bad, spoke bitterly about him but conceded, He’s a lovable rogue and a very shrewd operator, there’s no doubt about that.

A fixer’s business demands discretion. If you go and blab about your contacts, and talk about being a friend of the president, the next thing you know the president doesn’t want to be your friend, one middleman told me. Calil, for his part, largely avoided publicity for most of his lengthy career. Although he is said to be one of the wealthiest men in Britain, and is a regular on the London club circuit, his name rarely surfaced in the press; for decades, the only photograph newspapers could find to accompany articles about him was a snapshot from his 1972 wedding to the American tobacco heiress Frances Condon, the first of his three wives. Little was known about the man himself, and the few news stories about him described him variously as reclusive, secretive to the point of obsession, and a businessman whose privacy is guarded like a Mogul emperor.

However, in 2004 Calil became the subject of intense and unflattering press scrutiny. That year a group of about sixty South African and European mercenaries were arrested in Zimbabwe, where they were buying weapons. The men were said to be en route to Equatorial Guinea. It was a tale straight from The Dogs of War, and Obiang’s regime and the alleged ringleader, Simon Mann, subsequently claimed that Calil had financed the coup plot in hopes of installing in power an exiled political leader named Severo Moto. The accusations have never been proven, and Calil vociferously denies he had any role in the affair. But the scandal that followed received worldwide publicity and embroiled well-known acquaintances of his, including Mark Thatcher, the son of former British prime minister Margaret Thatcher, and Lord Jeffrey Archer, whom scandal had twice forced to resign from parliament and who did prison time for perjury.

My acquaintance with Calil began two years before the alleged coup attempt, when I received a call from Victoria Butler, a Washington public-relations specialist who was then helping Moto meet with government officials and journalists. I’d written frequently about the Obiang regime, and so I went to see Moto at Butler’s townhouse on Capitol Hill. He had already met with a number of Bush administration officials and members of Congress, and he expressed a naive optimism that the administration might eventually turn against Obiang because of his undeniably appalling human rights record.

As Moto and I chatted on a sofa, another man sat nearby in an armchair and scrolled through his e-mails on a BlackBerry. It was Calil, who told me that he and a number of other businessmen had sponsored Moto’s trip and had retained Butler through a PR office. I had never heard of Calil, and when I returned home that day and used Google to try to find out more, I turned up little outside of a few small clips in European oil-industry publications. His name had briefly surfaced in a bribery scandal in France, where reports alleged that he funneled money to former Nigerian dictator Sani Abacha on behalf of Elf Aquitaine, a French oil company (which later was bought by a French competitor, Total).

Since that first meeting, Calil and I became unlikely friends. My family and I get together with him when he comes to Washington, and on a number of occasions I’ve visited him at his home in London. I’ve always liked Calil, and enjoyed his company, and appreciated the fact that he rarely tried to dress up his motives as altruistic, as oil company executives and industry players so often do. Oil had made Calil rich and that was why he was in the business.

By the time