◼ FINANCE Bloomberg Businessweek March 1, 202121a relatively small investment—less than 0.1% of the
Pennsylvania teachers’ total holdings. But it was also
one that pulled them into the Middle East’s power
struggles over oil riches.
For Oilflow SPV 1 DAC wasn’t just some anon-
ymous investment vehicle. It was controlled by
Glencore Plc, the world’s largest commodity trading
company. We’re all customers of trading houses like
Glencore. We take for granted the ease with which
we can fill up our cars, buy a smartphone, or order
a cup of Colombian coffee. But underpinning almost
all our consumption is a frenetic international trade
in natural resources. And underpinning that trade,
from their offices in sleepy towns in Switzerland or
New England, are the commodity traders.
Little noticed and little scrutinized, the com-
modity traders have become essential cogs in the
global economy. To grasp the interplay of money
and power in the modern world, to see how oil and
metals flow out of resource-rich countries and cash
flows into the pockets of tycoons and kleptocrats, it
is essential to understand the commodity traders.
They thrive through a mixture of ruthlessness and
personal charm, willing to do business where other
companies don’t dare set foot.
Kurdistan was just such a place. Numbering
about 30 million people spread across Iraq, Syria,
Turkey, and Iran, the Kurds are often described as
the world’s largest ethnic group without its own
country. After the fall of Saddam Hussein, they spent
more than a decade lobbying the international com-
munity to recognize their push for independence in
northern Iraq.
By 2014, through geological good fortune and an
audacious military campaign, the Kurds had secured
several oil fields in northern Iraq, including a giant
deposit near Kirkuk. But to convert their oil into
money, they needed to find a way to sell it. That
wasn’t an easy task: The central government of Iraq
in Baghdad had threatened legal action against buy-
ers of the crude, considering it stolen property of the
Iraqi state. The warning deterred many, but the com-
modity traders weren’t so easily intimidated.
Nonetheless, the threat of legal action hung over
every deal they did. “The early business was: ‘Can
you take some crude oil and help us find homes for
it?’ Because, obviously, it was more of a disputed
commodity at the time,” says Ben Luckock, head
of oil at Trafigura, a major commodity trader that
helped to organize some of the shipments. “It was
really very difficult.”
Eventually, with the help of traders, the regional
government of Kurdistan was shipping almost
600,000 barrels a day at the peak. Yet the Kurds
were still short of money, so they again turnedto the commodity traders. Would they lend the
government some money in exchange for future
oil shipments? Vitol, Trafigura, and Glencore—
the world’s three top oil traders—together with
the Russian oil company Rosneft and another,
smaller trader, advanced the Kurdistan Regional
Government as much as $3.5 billion.
Some traders enlisted the help of their banks
to provide the money, but Glencore took the most
unusual route: The trading house decided Kurdistan
was too risky for its own money, so it turned to inter-
national investors for $500 million in cash, selling
them an oil-backed bond that paid a high rate of
interest. That note, in turn, would fund Glencore’s
advances to the Kurds. Oilflow SPV 1 DAC was born.
The investor presentation for the notes laid out their
numerous risks, including civil wars and border dis-
putes. Glencore declined to comment.
The cash from the oil deals did a lot more than
pay the salaries of Kurdish civil servants. It also
emboldened Kurdistan’s independence move-
ment. Before its deals with the commodity trad-
ers, the Kurdish government had had little source
of income other than handouts from Baghdad. Now,
for the first time, local politicians felt that true inde-
pendence from Baghdad was within reach.
In September 2017, only a few months after
Glencore had raised money for the region through
Oilflow SPV 1 DAC, the politicians of Kurdistan held
an independence referendum, and 93% of the pop-
ulation voted to part ways with the rest of Iraq. But
if the Kurds had hoped that the international com-
munity would welcome a new nation, they had
miscalculated. Washington and other Western gov-
ernments had warned the Kurds against holding a
referendum. The last thing they wanted was another
fragile nation in an already volatile region. Now they
did little to deter Baghdad’s response.
Within days of the referendum, Baghdad sent the
federal army north to recapture the city of Kirkuk
and its oil fields. The region’s hope of independence
was in tatters. The economic autonomy that might
have been possible now seemed like a fantasy. For
the traders, who had helped the independence
movement with billions of dollars, it was a worry-
ing development. That’s when Oilflow SPV 1 DAC
started posting notices about the military maneu-
vers in Iraq to the Cayman Islands Stock Exchange.
Glencore had set up the vehicle with plenty of
leeway to manage either a drop in exports or oil
prices, and its ability to repay investors that had
bought the notes wasn’t immediately affected when
Baghdad took over the Kirkuk oil fields. But when,
in 2020, oil prices also fell, even the headroom
Glencore had built into Oilflow SPV 1 DAC wasn’t● The World For Sale,
published on Feb. 25ILLUSTRATION BY KATI SZILAGYI. BOOK: OXFORD UNIVERSITY PRESS