Freakonomics Radio Episode 633: "The Most Powerful People You’ve Never Heard Of"

Release Date: May 23, 2025
Host: Stephen J. Dubner
Guests: Javier Blas and Jack Farchi, co-authors of "The World for Sale: Money, Power, and the Traders Who Barter the Earth's Resources"

Introduction to Commodity Traders

In this episode, Stephen Dubner delves into the shadowy yet immensely influential world of commodity traders with Javier Blas and Jack Farchi, the authors of "The World for Sale." These traders operate behind the scenes, shaping global events through the buying and selling of essential resources like oil, metals, and agricultural products. Dubner reflects on his initial skepticism about the relevance of their book but acknowledges its growing importance in understanding current geopolitical dynamics.

Stephen Dubner [00:01]: "There are a lot of books where I read only the introduction or a couple chapters, even books I like. This may strike some people as a wasteful practice, but I recommend it anyway."

Understanding Commodity Trading

Blas and Farchi explain that commodity traders differ significantly from the stereotypical image of Wall Street traders. Instead of dealing solely with financial instruments, these traders handle physical commodities—buying barrels of oil, shipments of copper, or entire loads of wheat. They engage in complex transactions that often involve financing, logistics, and strategic partnerships.

Javier Blas [07:58]: "These traders are very different to what people think about a trader behind a computer screen trading on the keyboard and the mouse."

Historical Evolution of the Commodity Trading Industry

The authors outline four pivotal factors that have shaped the commodity trading landscape since World War II:

1. Nationalization of Oil Industries (1950s-1970s): The shift from vertically integrated oil companies, known as the "Seven Sisters," to nationalized industries in the Middle East and North Africa opened opportunities for independent commodity traders to act as intermediaries between resource-rich nations and consumer markets.

2. Collapse of the Soviet Union (Late 1980s-1990s): The dissolution brought vast amounts of previously inaccessible commodities to the global market. Commodity traders facilitated the transition by managing the distribution and financing of these resources.

   Javier Blas [34:54]: "She quickly accepted the flow of Russian commodities into the global market, which was a game-changer for traders."

3. Financialization of the Global Economy (1980s-1990s): The introduction of commodity derivatives allowed traders to hedge against price risks, enabling larger and more stable trading operations.

   Javier Blas [36:38]: "One of the big problems of a commodity trader is that you are taking a lot of risk price wise... The financialization introduced commodity derivative contracts that allow traders to hedge the risk."

4. Rise of China (2000s): China's massive demand for commodities fueled a boom, with traders capitalizing on the increased consumption to expand their operations and profits.

   Javier Blas [37:57]: "China needs a lot of commodities, and it goes to the very same players that everyone else have gone through the 70s, 80s, and 90s."

Influence on Geopolitics and Global Events

Commodity traders often find themselves at the nexus of significant political and economic events. Their ability to swiftly mobilize resources can influence the outcomes of conflicts, economic crises, and political shifts.

• Mark Rich and Commodity Trading Origins:

  The episode highlights Mark Rich, a pioneering figure in commodity trading whose aggressive strategies and willingness to engage in controversial deals laid the groundwork for modern trading practices. Rich's intervention in Jamaica's 1980 oil crisis and his subsequent influence underscore the profound impact traders can have on national economies.

  Jack Farchi [19:59]: "Mark Rich was a godfather of the modern commodity trading industry... He made huge amounts of money by facilitating deals that were crucial for countries in crisis."

• Libyan Civil War Involvement:

  During Libya's uprising against Muammar Gaddafi, traders like Vitol played a critical role in supplying the rebel forces with essential fuels, demonstrating how traders can act as de facto diplomats and financiers in conflict zones.

  Javier Blas [42:14]: "Vitol said, no worries, actually, we can help you. Let us extend you a credit card of a billion dollars and you buy from us gasoline with that credit card."

• Impact on the Arab Spring:

  The episode connects the doubling of wheat prices in 2010, exacerbated by Glencore's actions, to the socio-political unrest that ignited the Arab Spring. This example illustrates how commodity trading can have far-reaching consequences on global stability.

  Jack Farchi [41:07]: "The doubling of the price of wheat... caused by Glencore, was an important factor in the Arab Spring."

Modern-Day Operations and Regulatory Challenges

While the commodity trading industry has grown more sophisticated and legally constrained, traders continue to find ways to navigate sanctions and political barriers. The authors discuss how increased government scrutiny, particularly from the U.S., has forced large firms to adopt stricter compliance measures. However, shadowy traders and emerging markets like Dubai still pose challenges to regulation.

Jack Farchi [49:04]: "In the last five years, almost all of the largest commodity traders have pleaded guilty to misconduct, mostly corruption and market manipulation."

Despite these reforms, the industry's profitability remains robust, exemplified by the $48 billion profits reported by the four largest traders in 2022, surpassing major tech giants.

The Ethical and Social Implications

The episode addresses the ethical dilemmas surrounding commodity trading, including corruption, market manipulation, and the exacerbation of economic inequalities. While traders often argue that they are essential for the smooth functioning of the global economy, critics point to the harmful social impacts, especially on the world's poorest populations.

Javier Blas [63:09]: "Commodity trading at this moment is as large as it has ever been... Therefore, you need commodity traders more than ever to arbitrage those flows."

Future Outlook and Conclusion

Blas and Farchi emphasize that commodity trading will continue to play a crucial role in the global economy, especially as demand for resources like rare earth metals and cobalt rises with technological advancements. They caution that without adequate government oversight and a deeper understanding of the trading dynamics, the sector's influence on geopolitics and the economy could have increasingly destabilizing effects.

Javier Blas [68:28]: "We find more policymakers that are aware of who these companies are. It really concerns me that from time to time a government may invite Jack or me to speak to them as if we were the source of expertise in the industry."

Dubner concludes by acknowledging the book's role in shedding light on this hidden yet powerful industry, urging listeners to recognize the profound impact commodity traders have on shaping the world.

Notable Quotes

• Jack Farchi [28:27]: "Single moments and single deals can shape the course of history."

• Javier Blas [32:34]: "The first one is nationalizations of the oil industry starting from 1950... It was a time where commodity traders saw opportunities and started shifting flows."

• Jack Farchi [49:29]: "Fewer suitcases full of cash... probably these days it's a thumb drive with some crypto on it."

Final Thoughts

The World for Sale by Javier Blas and Jack Farchi offers an eye-opening exploration of the commodity trading industry's intricate web of influence over global politics and economics. This episode of Freakonomics Radio effectively highlights how these "invisible" traders wield power that rivals that of governments and multinational corporations, shaping the world in ways most people are unaware of.

For more insights and the complete transcript of this episode, visit Freakonomics.com.