The defense of the resource allocation system by the market is based on a fundamental premise: that there are multiple economic agents that buy and sell and none have the capacity to influence the price (which is then a good indicator of relative scarcity). The theory, you know, is very nice, but many times things are not like that.
The absence of a market that functions as such has been, for example, the reason why the European Union is considering limiting the price of gas. Setting the price of electricity by the marginal cost of the last energy that enters makes sense under normal conditions, not when volatility is enormous in the midst of a war and a country like Russia controls the flow of gas to Europe. Because, if a market doesn’t work, its prices don’t mean anything. Of course, the result of the measures does not have to be the anticipated one, but that is another story: what is clear is that extraordinary situations require extraordinary measures.
In the world of international trade, in fact, there are many situations in which the market does not work as it should. Despite the fact that the governance of international trade has always been one of the most developed (much more, for example, than that of financial markets), with a once powerful World Trade Organization that prided itself on its ability to enforce regulations, there are areas that have always escaped its influence; behaviors totally prohibited in the domestic or European framework, but that occur daily in the international arena without anyone being able to do anything to prevent it. One of them is from the competition (or, rather, its absence).
The international community can do nothing against this OPEC attack on the market, which makes the world hostage to a group of countries
Thus, for example, and for the umpteenth time since its creation in 1960, on October 5, the OPEC (in its expanded version of OPEC +, which controls more than 40% of world oil production) agreed to establish cuts of 2 million barrels per day (bpd) in its production to increase the price of crude oil, which was falling. OPEC, as you know, is a cartel, that is, an agreement between the world’s leading oil producers to prevent mutual competition and control prices. Therefore, something prohibited at the national level. However, the international community can do nothing against this attack on the market, which makes the world hostage to a group of countries. The decision, classified as “technical” by OPEC members, it is nevertheless perceived in most of the world (and, of course, in the United States) as a political decision of Saudi Arabia -Leader de facto of the group – to help Russia.
OPEC is well known, but there are other lesser known and equally powerful oligopolies in world trade. Few people know, for example, that trading in energy and raw materials is far from being a perfectly competitive market, but is in the hands of a few multinationals that monopolize a large part of trade flows. They have power and, as usual, they exercise it.
the swiss company glencore is one of them. It is currently the largest commodity trader in the world, with revenues of 170 billion and more than 190,000 employees. It controls half of the world copper market, 60% of zinc, 38% of alumina, 28% of coal for thermal power plants and 45% of lead. Or cobalt, crucial for electric car batteries (and 40% of which is produced in the Congo). In food, it manages 10% of the wheat and 25% of the world market for barley, sunflower and rapeseed.
Another is Trafigure, a company created in Singapore in 1993 by former Glencore workers. With revenues of 147,000 million, it is the second largest trader oil company and the largest private base metals trader, along with Glencore.
the dutch Vitol, founded in Rotterdam in 1966, also trades energy and commodities. It is, in fact, the largest trader independent of energy. It transports more than 350 million tons of crude oil a year and owns 250 supertankers.
After Glencore, Vitol and Trafigura, the Cypriot Gunvor It is the largest trader of crude oil (previously of Russian origin, now mostly from South America), as well as other basic products. Gunvor also owns three major European refineries in the Netherlands, Belgium and Germany, with a combined processing capacity of almost 300,000 barrels per day, and is, together with Vitol and Glencore, one of the largest traders of LNG.
The agricultural giant
If the former dominate the energy market, the agricultural product market is the natural area for Cargill, an American family business based in Minnesota (incorporated, of course, in Delaware). Founded in 1865, it has revenues of $115 billion and almost 170,000 employees, and is the largest private company in the US in terms of sales. It trades in palm oil, livestock, animal feed, food ingredients, vegetable oils or fats for processed foods. It is responsible for 25% of all US grain exports, supplies 22% of US meat, and is Thailand’s largest poultry producer. It also has an energy, steel and transport branch, and a financial arm.
The most important thing about the existence of these companies is, fundamentally, that the success of such crucial decisions for the future of the West as the sanctions against Russia depends to a great extent on them.
Little is known about these companies. Only Glencore is publicly traded. An excellent book, the world is for sale of Javier blah Y jack farchyis one of the few that delves into the ins and outs of these large raw material multinationals with solid, first-hand information.
The most important thing about the existence of these companies is, fundamentally, that the success of such crucial decisions for the future of the West as sanctions against Russia depends to a great extent on them. The experience in this sense is not very good: several have been involved in bypass mechanisms for sanctions against Iraq, Cuba, Iran or other countries (in some cases with significant fines). They know very well how to handle gray scenarios.
This shows us, once again, the need to have an international trade governance framework that not only contemplates the dumping, subsidies or other prosaic elements, but also cartels, market sharing agreements, control of key raw materials or games to circumvent international sanctions. The Russian economy is weakening rapidly due to lack of technology, but Europe needs sanctions to be enforced and the power of large multinationals not to be used for the benefit of the aggressors of international law.
Biden’s threat to Saudi Arabia
In any case, the world is changing very quickly, and with it the arbitrage opportunities. Information is no longer as secret as it used to be, eroding the competitive advantage of many of these companies. China, in addition, manages all the trade in raw materials on its own. The margin of tolerance has also been lowered: the United States, for example, is willing to combat OPEC’s practices by using its strategic reserves (it has been doing so for several months) and Biden he has promised, in an unusually harsh message, that “there would be consequences” in US-Saudi relations.
And the European Union? It would not be bad if, now that it is waking up geopolitically, it also contemplates the possibility of promoting serious international competition rules.
