Flacks, Profiteers and The Secret World of Oil




Michael Busch interviews Ken Silverstein

Flacks, Profiteers and The Secret World of Oil

June 27th, 2014 reset - +

FIXERS, FLACKS, THUGS and LOBBYISTS: essential ingredients to the maintenance and success of the international oil industry. All manner of services are provided by middlemen and power brokers. They make sure deals get done, interests are promoted, and that the oil keeps flowing without concern for the law or human welfare. Yet for all their influence, these intermediaries and industry cheerleaders are rarely covered in the news, and their role remains poorly understood.

Ken Silverstein’s The Secret World of Oil puts these players at the center of attention. The book offers a startling look at the corruption, violence, and shady characters that animate the world’s oil trade. The Secret World of Oil clearly outlines the various links connecting powerful oil firms, staggeringly corrupt political regimes, and our gas pumps at home. Silverstein, recently named Senior Investigative Reporter for First Look Media, investigates these mysterious actors in great depth, following their trail to far-flung parts of the world and getting their first-hand accounts of life inside the fossil fuel economy. While certain aspects of the industry remain frustratingly opaque, Silverstein argues, one thing is clear: in the secret world of oil, everyone takes their cut.

I recently spoke with Silverstein about the slimier aspects of the oil industry, how China goes about doing business with resource-rich regimes, and the perils of reporting on industry insiders who also happen to be friends.

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Michael Busch: Unlike most books dealing with the oil industry, yours examines the internal machinery of the business, and the players who grease its wheels. Can you start by outlining the scope of your investigation into the world of oil, and the various actors it involves?

KEN SILVERSTEIN: I’ve been writing about the oil industry for more than 15 years, and during that time, I’ve traveled multiple times to Africa and Central Asia, mostly, and Houston, of course. It’s hard to think of any commodity or good that is more important to international commerce than oil. Or more sensitive, for that matter. In this sense, it’s comparable to the global arms trade in its different hidden worlds, which is always interesting. For this project I was funded by Open Society to specifically look at middlemen and oil trading firms that have an enormous role in this trade, but whom are almost never written about. There’s all sorts of great reporting and writing about the oil industry, but rarely do we get a look at these players who are hugely significant but almost entirely hidden.

Fixers, for example.

There are fixers, who act as middlemen between the oil industry and those governments from whom oil companies wish to obtain concessions. For a very long time now, oil was mostly pumped in the Third World and generally shipped to the First World, and it was First World companies who controlled the trade. As our illustrious former Vice President, Dick Cheney, put it, “The good Lord didn’t see fit to put oil and gas only where there are democratically elected regimes.” He was saying this at a time when he was still with Halliburton, and using it as a justification for the fact that his company was doing business with some pretty shady regimes.

It’s a good point. Because so much of the oil we rely on is located in the Third World, getting access to it has frequently involved bribing governments. Sometimes those bribes have been legal, and sometimes they haven’t been legal, but payoffs to corrupt government officials have always been involved. In the old days, there were a lot of direct bribes made until the Foreign Corrupt Practices Act was passed in 1974. In Europe, bribes were legal until much more recently — you could deduct them in your taxes. But if you are a company executive, you would rather have other people dealing with these governments than having to do it yourself. It’s a very dicey area, and that’s what makes fixers useful. Companies like to have intermediaries who know a country well, or several countries. Of course, I don’t want to blame all of the corruption only on Third World governments. The companies obviously don’t like making payoffs, but they do it because they benefit; they want to win influence and government friends in the corrupt, undemocratic countries that control oil.

In Equatorial Guinea, for example — a country rich in oil but suffering under a terrible dictatorship — Exxon wanted access to the country’s deposits. The President, Teodoro Obiang [Ngeuma Mbasogo], had land, and the company bought it directly from him. President Obiang has been in power since 1979, so “president” is a generous title. “Ruler” is more accurate. In any event, Obiang sold Exxon some land, where they could build their own compound and develop the land for exploitation. It is safe to say they overpaid enormously for that land. It would be difficult to prove that this constitutes a “bribe,” but these are the sorts of tradeoffs that are made in the name of access.

Ed Chow, a longtime Chevron executive, put it most succinctly. In places like Nigeria or Kazakhstan, he said, “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 governments but to crave it. 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.”

One of the fixers you profile, Ely Calil, is probably the most fascinating character in the book.

Ely Calil was very well known throughout Africa — he knew the heads of state in Nigeria and Senegal, he knew Chad. Sometimes fixers will obtain a concession for themselves and resell it; other times they broker deals obtaining a concession for larger companies. Ely is a fascinating character and has an amazing Rolodex. Anytime I’ve traveled overseas, and I’ve asked him if he knew anyone in the country he’d say, “Here’s the cell phone number for the head of intelligence,” or, “Here’s the home number for some minister — call him and use my name.” He’s someone who has been in the business a long time, someone who knows everyone, and someone who can broker deals. I should say that I met him as a journalist but he became a friend, as I note in the book.

What was it like to write about him?

Over the years, I came to know him and like him quite a bit, which made writing about him a complete nightmare. When I asked if I could profile him, I made clear that I would not be portraying him as Mother Teresa. But I also said, “I know you, and I’m not going to do a hatchet job.” Which I’ve done — I’m fond of hatchet jobs, they have a time and place. But he’s a very complex character, and I would have been doing readers a great disservice by not including him in the book. It wouldn’t have been nearly as interesting without him.

I have worked in Washington for a long time — I’ve been based here since 1993. In a way, my experience with Ely was exactly the reason why I have tried to avoid having friendships with powerful people in the Capital, and pretty much have. I don’t really move in journalism circles, I’m not the sort of person who goes to journalism parties, and I don’t have many friends who are lobbyists or government officials. When the book came out, I realized all over again how good it has been that I’ve remained aloof from power circles in DC. I think it is a huge problem in Washington journalism, and I hope I have done a better job in writing about this one interesting person. The chapter on Ely is the best chapter in the book, I think, and the most revealing. I’m proud of it, but boy, it was one of the hardest things I ever wrote.

You note that oil markets have traditionally been understood to operate according to the logic of supply and demand. But recently, oil prices have been all over the place, and don’t seem to jive with the supply and demand data at our disposal. What’s going on?

You’ve had a massive influx into the market of oil traders, which have been accused of speculating and driving up the price of oil. These firms, like Glencore, and Gunvor — a big Russian firm — are negotiating the purchase of oil between the buyer and the seller, arranging the financing, chartering the tankers and all of that, and, in all likelihood, influencing the price of oil at the same time. These firms didn’t exist until after 1973’s Arab-Israeli War, when OPEC became a powerful player in the international market. Up until that point, the business was pretty much controlled by Western multinationals. In response to the growing influence of OPEC, trading firms suddenly began to form, and came in ready to pay more for oil than the big companies. The big multinationals would say to the oil producing countries, “We’ll tell you what your oil is worth, we’ll refine it, and sell it.” But that all changed the day a trader showed up and told the producer, “I’ll pay you $21 instead of the $20 the multinational is offering you,” and from there, these huge companies emerged. To give you a sense of the size, Glencore went public a couple of years ago with a larger market cap than Ford or General Motors.

No one really understands how they operate, or what their relationships are like with oil-producing countries. But we’ve seen hikes, and spikes, and drops in oil markets in the last 10 years or so that have never been experienced before. And most people think that this is due to the fact that traders are speculating on the price of oil. Some of the traders I talked to for the book acknowledged that they did, in fact, have a role in this. One of them told me that at each of these big firms, there is a desk that handles the traditional physical trade in oil, and another that handles the paper trade in oil. The paper trade — essentially the futures market in oil — used to be a very small percentage of operations, but in the last decade, it has exploded. This growth in speculation has contributed to a lot of the irrationality in the market.

Does Glencore’s public offering suggest that the oil trading is becoming more open over time?

I don’t think oil trading is becoming more transparent. First of all, Glencore is the first and only of these giant traders who have decided to go public. Going public necessitates that they do things they aren’t accustomed to doing with respect to reporting financial information about the company. But they’re the only one. With a lot of these companies, no one knows how much they are buying and selling, or anything else. There is virtually no information. Gunvor is a good example.

It was targeted by the Obama administration during the Crimea crisis…

The Treasury Department recently sanctioned dozens of Russians, including Gunvor’s principal owner, Gennady Timchenko. He was featured in a WikiLeaks cable from 2008, which claimed that the firm controls up to 50 percent of all Russian oil exports, said it “is rumored to be one of Putin's sources of undisclosed wealth,” and that Timchenko “is rumored to be a former KGB colleague of Putin’s.” I’m not clear if it’s a front for Putin as Washington claims, but it has certainly thrived while he’s been in power. And this was a company that was founded about 14 years ago, when it was nothing more than a series of post office numbers in the British Virgin Islands. Then it moved to Geneva in 2003, and since then it’s just taken off and become enormous. It operates all over the world, has a huge impact on markets, and no one really knows anything about it or how it’s grown. It is completely nontransparent. Whatever the case, the WikiLeaks cable I mentioned gives a good description of how the oil business works. You have deals that take place behind closed doors, arranged by intermediaries with no clear role who often use offshore firms and make fabulous sums of money.

What about China? We hear a lot about its increasing presence in resource-rich countries throughout the world. What sort of impact is it having on the secret world of oil? Has it fundamentally altered traditional ways of doing business, or is it emerging as just another big player?

China is a new player doing the old thing. There’s no question that the Chinese have been more direct in paying bribes, but I’m not sure there’s much difference, for poor people in oil-producing countries anyways, whether it is China exploiting the oil or whether Exxon Mobile is in charge. The oil companies are always talking about all the good things they are doing for oil-producing countries. Just look at their annual reports and you’ll see nice photos of some model school they’ve sponsored with smiling kids and the rest of it, but it’s hard to find instances where the oil industry has benefitted local people in any significant way in Africa or Central Asia. China may be doing things a little dirtier, but its also offering aid packages and infrastructure projects to make it look respectable. The details may be slightly better or slightly worse, but they aren’t significantly different. I don’t think either model — the Chinese or ours — has done much good, at least for the people of these countries.

Tony Blair comes in for particularly critical treatment in the book. How does he fit within the narrative?

The chapter about Blair and other flacks is about that part of the industry which is, by comparison, less secretive. That said, no one knows how much money Blair has made off the oil industry since stepping out of public life. What we do know is that he’s done extraordinarily well advising the governments of oil-rich countries. Kuwait, for example, gave his firm tens of millions of dollars to do some sort of review of the country’s economy, a review that opposition politicians claimed contained absolutely nothing new. He also receives enormous sums of money for speeches he gives in some really awful places. The most galling case is the speech he delivered in Azerbaijan, one of the worst examples of oil-regime corruption. A WikiLeaks cable compared the ruling family there to the Corleones in the Godfather. Anyways, Blair gave this ridiculous speech at a methanol refinery in Azerbaijan that had clearly been written either by the owner of the refinery or one of his own handlers. He’s a flack who has profiteered from his connections and from his shilling for the industry.

Is this type of high-profile influence peddling common to the industry, or are Blair’s actions especially egregious?

The British certainly view it as egregious. He probably hasn’t profited more than Bill Clinton. They were very similar as leaders, and similarly they have both cashed in hugely since leaving office. They both love to be seen with the global elite, always trotting around the world with the Davos set and striking deals for rich people and rich companies. The British find Blair’s cashing in like this pretty troubling. Even Margaret Thatcher, when she retired, did some cashing in, but it was on a small scale. And it was Margaret Thatcher, so in a way you sort of expected it. Whereas Blair has done a lot of talking in office about making the world a better place, and so his actions are seen, I think, as more offensive. He used to be represented in the United States by a Speakers Bureau that listed his minimum fee to give a talk as $200,000 — twice the minimum rate of, say, Donald Trump. In terms of how much money he’s made, Blair has set up an opaque financial network which makes specific amounts impossible to know. But it is a lot.

Oil companies don’t just buy influence abroad, but seemingly have fixers here at home, as well. Can you discuss legacy lawsuit situations in Louisiana, and what they tell us about the nature of corporate power in the United States?

Louisiana is always interesting. You can’t go wrong covering that state. Louisiana is the largest oil producer per capita in the United States, and the industry has always had an incredible amount of political influence there. In some ways, it is comparable to that of a Third World country. Oil has been especially profitable for industry executives and a small number of other elites who have benefitted from its production. I should say, though, that a lot of people in Louisiana got jobs through the industry — oil is not unpopular in the state. But the benefits have not been widely shared, as the state’s social indicators make clear. Louisiana is below just about every state in the country when you look at numbers of people living below the poverty line, or at life expectancy, or at infant mortality.

I was interested in looking at so-called “legacy lawsuits.” For years, the oil industry disposed of its waste in Louisiana in these enormous open pits. They were illegal just about everywhere by the 1980s, but in Louisiana the Department of Natural Resources — which is supposed to regulate industry — has always been captured by industry. In many states we find regulators influenced by the industry. In Louisiana, they’ve cut out the middleman entirely and put oilmen directly in charge of the Department of Natural Resources and other crucial agencies. This has been a long-time Louisiana tradition. The result has been virtually no regulation and enormous environmental damage.

The issue hasn’t received much attention nationally, but companies were storing what they refer to as “salt water” — which is a byproduct of the drilling process — in these open pits. The salt water contains heavy concentrations of potential carcinogens, like benzene, and heavy metals like chromium and lead, and sometimes radioactive materials. Trial lawyers have been bringing suit against oil companies on behalf of the landowners. In the process, they have uncovered some pretty amazing industry memos dating back to the 1930s, where the industry acknowledged that salt water, or brine waste as it is sometimes called, was very, very damaging to the land, but that it was cheaper to dump in the pits than dispose of properly.

Can you give an example?

One document, a 1986 Texaco memo, acknowledged that waste seepage had caused considerable damage, saying that “with the method of remediation being used currently, we are looking at over 125 years cleanup time.” They were referring to one particularly polluted site. The memo goes on to say that “The fastest remediation process would be to remove the soil and eliminate the source. However,” it says, “this is the most expensive procedure with an estimated cost between $5 and $10 million. Other remediation techniques could be used to speed up the remediation process, but this would depend on how much money we are willing to spend. Presently, we are using the cheapest method of remediation.” Five or 10 million dollars it would have cost them? I don’t know what their profits were at the time, but I am sure that would have constituted a tiny, tiny amount, and they weren’t willing to spend it. There was no incentive because there was no regulation.

And today?

The legacy lawsuits began about 20 years ago, but in the last decade or so, Louisiana landowners have won some huge judgments against Exxon, Chevron, and other big companies. There was one case where Exxon got hit with a $112 million judgment. Originally the jury had awarded $1 billion for the company’s polluting of a 33 acre site near New Orleans. The appeals court, which upheld the jury verdict, but reduced the award, called the company’s behavior “calculated, despicable and reprehensible.” The judge said that the company had acted “with a callous indifference to plaintiffs and their properties.” This was particularly embarrassing for Exxon because the land was owned by a state judge. So here we have trial lawyers winning big judgments, which sparked political campaigns by the industry to shut down these suits, and make it impossible for landowners to seek money for damages to their land.

It has worked in other places. You used to be able to sue in Mississippi, where similar lawsuits were taken to court, but there the industry succeeded in closing them down. You can no longer sue for historical damages in Mississippi through the courts. You now have to go through the state oil board, where, needless to say, the odds are against you because the industry has so much influence there. That’s basically what industry is trying to win in Louisiana, too.

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Michael Busch is Senior Editor at Warscapes magazine and a doctoral candidate in International Relations at the Graduate Center, City University of New York

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