Inflation and supply-chain insanity haven’t stopped global traders from booking record profits. But the Ukraine war could end their streak
On a summery July day, the Port of Rotterdam in the southern Netherlands feels almost pastoral. Cyclists sit picnicking among squawking seagulls, while a family walks along the harbor’s edge on a scenic stroll. Orchids grow wild near the shipping terminals, and even the port’s massive infrastructure seems placid and sleepy: Perched on the water’s edge, three enormous concrete storage tanks look like hippos basking in the sun.
But for all its surface serenity, Rotterdam is one of the world’s most hectic trading hubs—and it’s the site of a high-stakes scramble. Here among the refineries and warehouses, the intertwined economic crises of the moment—the ongoing pandemic, accelerating inflation, supply-chain mayhem, and the fallout of Russia’s Ukraine invasion—are playing out in real time, as manufacturers and suppliers race to secure the raw materials, especially oil and gas, that industries, governments, and consumers need.
That is no easy matter, at a time when commodities are increasingly expensive, and when sourcing and supplying them is maddeningly complicated. Soaring post-COVID demand has collided with skyrocketing fuel prices and transportation costs to create shortages and bottlenecks everywhere along the chain of global trade. And all of that has been exacerbated by the growing strain of the Ukraine war—Europe’s deadliest conflict since World War II.
Indeed, one sign of that strain is visible in plain sight on the day that Fortune visits. Parked alongside those peaceful storage tanks is a blue-and-white Russian vessel, which has sailed here from the Yamal peninsula, carrying a cargo of liquefied natural gas (LNG)—a reminder of Europe’s uneasy dependence on Russia’s hydrocarbon wealth.
For thousands of companies, mega-ports like Rotterdam provide a lifeline during epic instability. When supply chains operate smoothly enough to ease the expenses and delays that have been hammering their profit margins and share prices, multinational companies have ports like these to thank.
But there’s another group of companies doing business here that have thrived through more than two years of whiplash disruption: the world’s biggest commodity traders. They aren’t waiting for relief; in fact, they’re booking profits like never before.
In global commerce, these trading firms are the truly big hippos on the water’s edge. Though most consumers are unaware of the existence of behemoths like Trafigura (No. 19 on this year’s Fortune Global 500), Glencore (No. 23), Cargill, and Vitol, their yearly sales reach hundreds of billions of dollars, eclipsing household names like Microsoft or Procter & Gamble. These trading groups touch almost every aspect of our lives, from the metals in our computers and smartphones, to the fuel in our gas tanks, the batteries in our EVs, the sugar in our coffee, and the coffee grounds themselves.
Without the traders, companies like Microsoft and P&G would falter, or at least would need to make profit-sapping investments to source these raw materials on their own. Instead, the traders keep the world’s essential goods flowing—and they’re being richly rewarded for doing so. A decade after launching the London Stock Exchange’s biggest-ever IPO, Glencore, headquartered in the small Swiss town of Baar, reaped revenues of nearly $204 billion in fiscal 2021—a 43% increase from the year before. Trafigura’s 2021 revenues tipped $231 billion, up 57.4% from the year before. And both have tallied record earnings in the first six months of this year. (Traders Vitol, Mercuria, and Cargill have also reportedly seen record profits in 2022; they aren’t ranked on the Global 500, because they don’t publicly report certain data that Fortune requires.)
When you drive around the Port of Rotterdam, the names of those firms are not emblazoned on buildings or tankers. But their activities span the complex. Trafigura is part-owner of a major marine-fuel operation that services ships across Rotterdam. Sprawling refinery operations for crude oil and palm oil reflect the influence of other traders, including the trading arms of BP and Shell. Indeed many of the nearly 30,000 ships a year that ply the port’s waterways are leased by commodity traders, or are carrying cargo they’ve sourced—including all of the crude that passes through Rotterdam.
“For us it is about, how do we get oil, gas, metals, from where they are produced, to where they need to be, and when they need to be, and in what form they need to be,” says Saad Rahim, chief economist for Trafigura, speaking from the company’s trading base in Geneva (its headquarters are in Singapore). “There are only a few companies who can really do this at the scale that we do.”
They’re doing a lot of it in Rotterdam. This is the world’s biggest seaport outside Asia—25 miles, nearly twice the length of Manhattan, from end to end. It took us almost an hour to drive across the array of pipelines, jetties, container terminals, warehouses, and refineries. Last year alone, Rotterdam handled nearly 463 million tons of cargo (61 million tons of it from Russia)—loading, off-loading, shipping, storing, and processing it. That haul included oil, natural gas, and coal—together accounting for about 13% of Europe’s energy needs—along with food, clothing, electronics, metals, and the gazillion other items that keep modern life ticking in dozens of countries.
The port was already feeling the strains of the post-pandemic comeback when its CEO, Allard Castelein, awoke at dawn on Feb. 24 to find that Vladimir Putin had sent troops into Ukraine. Castelein raced through his mental checklist of potential disasters: dire shortages, piled-up containers, blocked ships. “I had an awareness that this might go pear shaped,” says Castelein, sitting in his office with a sweeping view over the port.
The CEO quickly summoned the team he had set up in 2020 to tackle the pandemic lockdowns and began gaming out wartime scenarios. The group now meets online every few days. Urgent topics have included the impact of European Union sanctions on vessels wanting to sail to Rotterdam; the 27-country bloc has imposed six rounds of punitive measures on Russia since the invasion, but quantities of Russian oil, LNG, and coal, as well as steel, copper, aluminum, and nickel, still come through the port, all of it legal for now. There are other concerns, too, like the threat of a cyberattack. “We have certainly beefed up the level of awareness,” Castelein says.
Castelein’s meetings convene representatives of shipping companies, and barge and terminal operators. But there’s one group that hasn’t been joining in: the big traders. Castelein says those companies keep him apprised of their concerns. But as a former trader himself—he moved oil for Shell in the 1980s—he also knows that the tumult that keeps him awake at night can work to the financial advantage of the trading companies. “There is no money to be made in a stable market,” he says. “Volatility is like air for a trader.”
For all Rotterdam’s importance, it is just one dot on the map for the biggest traders. Glencore operates in more than 35 countries; Trafigura operates in 48. In recent years, the trading giants have expanded ever farther beyond delivering raw ingredients, amassing large stakes in mines, oilfields, and refineries—in the process becoming even more crucial to the global economy, and helping them profit as commodity producers. Since taking over Anglo-Swiss mining company Xstrata in 2013, for example, Glencore now earns about 80% of profits from mining, even though mining accounts for only about one-third of its revenues.
It’s their trading, however, that has been crucial to keeping goods flowing throughout the pandemic and the war. It takes rarefied skills to retrieve vast quantities of the earth’s natural resources, sometimes from remote and dangerous places, and deliver them to customers far away.
The actual price on world markets for grain, gas, copper, oil, or any other commodity, is just one of many factors these traders are considering at any given moment. They make slim margins per unit, but trade mammoth volumes—many millions of tons of wheat, nickel, or zinc, for example, or millions of barrels of oil—often for equally mammoth profits or losses. They capitalize on price differentials between different geographic areas, or between purchase times, aiming to arbitrage long-term and short-term shifts in the prices of their holdings.
The traders’ deeper value lies in the risky, labyrinthine logistics that the job entails. Commodity trading, the FedEx of raw materials, requires a web of relationships across the world, cultivated over decades, enabling resources to move from point A to point B, no matter how. It is not for the faint of heart. In 2016, I traveled to the Democratic Republic of the Congo, a corrupt, conflict-ridden, and deeply impoverished country, to see how Glencore extracts and ships strategic metals like cobalt and copper. To make EV batteries, Tesla buys large amounts of that Congo cobalt. For Elon Musk, his relationship with the trader is essential to maintaining a steady supply for his gigafactories. On its own, Tesla would have no way to mine the cobalt it needs, then truck and ship it across the world—short of Musk buying Glencore outright.
The traders’ assets proved especially important when COVID-19 hit. In April 2020, with planes and cars grounded by lockdowns, demand for oil plummeted to its lowest levels in history, with prices for crude futures at one point slipping below zero, as the world ran out of places to store unused barrels. Among the few companies capable of resolving the crisis were Glencore and Trafigura, both of which offered to store the oil, including on their leased ships; Trafigura boasts of having one of the biggest oil fleets in the world. “We said, ‘Look, we have the infrastructure and the ability to store those volumes,’ ” says Rahim, the Trafigura economist. “When the world needs that oil, we will have it ready.” Rahim has witnessed the company’s growing importance: When he joined Trafigura in 2015, it traded 2.5 million barrels of oil a day; now it trades 7.3 million a day.
The Ukraine conflict has made diversified traders even more pivotal. When a German utility company decided to stop buying Russian coal, for example, Glencore was able to quickly supply it with coal from elsewhere, since the company owns mines in Colombia, South Africa, and Australia.
Not surprisingly, the major traders have ballooned in size and scope at a time when political and health crises make other companies increasingly concerned about their supply chains. For the six-month period ending on March 31—a span that included Russia’s brutal advance on Kyiv—Trafigura’s net profits shot up 27%, to $2.7 billion. CEO Jeremy Weir said that although geopolitical turmoil was a challenge, the market insights and logistics skills of Trafigura’s traders made them exceedingly valuable to clients in “periods of seismic change.”
Similarly, Glencore said in June that it expects record profits from trading for the first half of 2022, more than all of 2021—in part because of high commodity prices, but also because of volatility, with the war in Ukraine causing wild swings in the prices of stocks and goods.
“The big shifts up and down, the higher frequency moves, are great for business,” says Oswald Clint, senior research analyst in London for AB Bernstein. The traders “have oil and gas, pipelines, storage tanks, tankers, agreements to sell, intelligence about forward demand,” he says. “You put that together, it is a remarkable formula for success in a volatile market.”
Critics say it is also a formula for wrongdoing. This spring, Glencore reached a series of plea arrangements and settlements in the U.S., the U.K., and Brazil involving bribery and market-manipulation dating to the 2010s; in July, it set aside $1.5 billion to pay related fines. Watchdogs also take the traders to task for financial opaqueness. Glencore is unusual among the big names in being publicly traded, and most operate from low-regulation, low-tax Switzerland. (In the latest ranking of Switzerland’s biggest companies by revenue from Dun & Bradstreet, the top four are traders, led by Glencore and Vitol.)
Switzerland, of course, has banks aplenty to fund expensive shipments, often through complicated credit facilities that give the traders broad leeway. (Trafigura has about $16 billion in credit lines.) Public Eye, a watchdog NGO in Geneva that monitors Switzerland’s traders and is strongly critical of them, calls the industry’s credit arrangements “a veritable black hole.” And some of the traders’ most controversial relationships are now under an unusual degree of scrutiny, thanks to one history-making event: the Ukraine conflict.
Rotterdam has been a prominent trading center ever since the days of Holland’s 17th-century tulip mania. Four centuries on, Russia and crude oil have helped turn it into the gargantuan port it is today.
During the 1970s, Rotterdam again played a role in the evolution of commodity trading. Marc Rich, a ruthless, swashbuckling Belgian-American trader, essentially invented spot trading of crude oil, with much of his activity centered on crude shipped through that port. Rich was indicted in the U.S. in 1983 for racketeering, tax evasion, and trading with Iran, but by then he had fled to Switzerland. There, management bought out his business in 1993—and renamed it Glencore. (Rich was later pardoned by President Clinton.) As Russia’s economy opened to the West, meanwhile, Rotterdam’s location—on the North Sea, near the mouths of the Maas and Rhine rivers—made it a natural entry and transshipment point through which Russia’s crude, natural gas, and metals could reach the factories of Western Europe.
Today, about 13% of Rotterdam’s incoming cargo is Russian. That includes about 30% of the crude oil that passes through the port, and one-quarter of the LNG and coal—tens of millions of tons of fuel in any given year. Plus, Russia exports vital metals like copper, steel, aluminum, and nickel through Rotterdam.
Until Putin’s forces invaded Ukraine in February, the trading titans retained their ties with Russia—for good reason, given the country’s enormous natural resources. “Most of them were extremely well connected with the Kremlin,” says Adrià Budry Carbó, commodities researcher for Public Eye. One very public sign of those bonds came in 2017, when Putin awarded a medal to Glencore’s then-CEO Ivan Glasenberg at the Kremlin for “strengthening cooperation with Russia,” after Glencore bought a stake in the Russian oil company Rosneft. (Glasenberg led Glencore from 2002 until his retirement last year; Gary Nagle, a South African and a veteran of Glencore’s coal operations, is now CEO.)
But the Ukraine war has forced a reckoning. Switzerland has sanctioned Russian oil companies, but Swiss-based commodity traders are still allowed to do business with them—a reflection of the traders’ economic clout in the country, as well as Europe’s lingering need for Russian goods. Prior to the invasion, about 36% of Europe’s oil came from Russia. The continent has been transitioning to oil and gas from the U.S. and the Middle East, but the process is slow. And in the meantime, the benefits to Putin are clear: The EU paid more than $70 billion to Russian energy companies for oil, gas, and coal between Feb. 24 and late July, according to the Centre for Research on Energy and Clean Air—money that has helped sustain the Ukraine assault.
As reports of Russian atrocities against Ukrainian civilians filled TV screens, more than 1,000 companies, from McDonald’s to Apple, froze their Russian operations, some of which were long-standing and extensive. (See our story in this issue.) The commodity traders also began to create space between themselves and their longtime client, if not as completely. Within days of the invasion, Glencore announced it would fulfill existing contracts with Russian customers, but that it would not do any new business with the country. Its 0.57% stake in Rosneft and 10.55% stake in aluminum company En+ remain unsold for now, in part since they are deemed unsellable amid current sanctions. Trafigura says about 6% of its oil and metals purchases came from Russia before the war; in April it said it would stop buying oil from Rosneft, and in mid-July it sold its 10% stake in a Russian oil project in the Arctic Circle valued at about $85 billion. Both Glencore and Trafigura say they are now trading minimal amounts of Russian commodities, and that none of their business violates sanctions.
The EU announced in May that it would slowly phase out its use of Russian energy. A crude-oil import ban begins Dec. 5, while an import ban on petroleum-based products like fertilizer begins two months later.
Until December, however, there is no ban on Russian tankers docking in the Port of Rotterdam, although as insurance premiums on those shipments soar, and companies shy away from Russia, the number of ships has plummeted. Even under sanctions, Russia has found new markets. And the EU ban has wide loopholes. Much Russian oil trade is now being diverted from Europe to China and India, where the oil is refined; it can find its way into Europe from there. “There is no way to check and control that,” says Castelein, the Port of Rotterdam chief. “There is no bar code on a gallon of oil.”
As the war drags on, Putin’s threats to cut gas supplies to Europe—a looming menace for the winter to come—have begun seeming like far more than bluster. In the meantime, the surreal symbiosis among foes continues. In fact, that blue-and-white ship that Fortune spotted at the Port of Rotterdam in July was transferring its LNG cargo from Russia to those storage tanks, as Europe stocks up before the freezing weather arrives.
For all the nimbleness that the commodity traders exhibit, their influence on the economy would go only so far if the war were to escalate even more. In June, retired Gen. Andrey Gurulyov, now a member of Russia’s parliament, said on the Russia-1 TV network that one sure way to injure Europe would be to aim a torpedo at the facilities in the Dutch port. “Europe would not only freeze, it would totally croak,” he gloated. When I ask Castelein if he takes such talk seriously, he laughs nervously and says, “That is one of the scenarios we have on our risk matrix.” If it were to happen, the traders would have the means, the contacts, and the sources to trade oil elsewhere. But their billions would not be enough to avert devastation—economic and environmental—on the North Sea coast and beyond.
This article appears in the August/September 2022 issue of Fortune with the headline, “Moving money in the shadow of war.”
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