Date: 9/16/2020
Author: Kent Moors, Ph.D.
The last edition of Classified Intelligence Brief detailed how Glencore allegedly set up a complicated network to evade international sanctions against Iraq and Iran. The Paradise Papers data breach was instrumental in revealing this.
In this CIB, I will be describing some more recent actions…concerning Russian assets.
The Swiss oil trader has shared interests with Oleg Deripaska. Oleg Deripaska may be known to many Americans because he was an important figure in the Robert Mueller investigation of Russian connections in President Trump’s campaign. In 2019, federal authorities were still looking to investigate Deripaska and his companies for money laundering in what could have been an outgrowth of Mueller’s work.
Until recently, Deripaska was head of En+ and Rusal. En+ is a powerful mining, metals and energy group, which had Rusal, the world’s second largest aluminum company, among its holdings. In 2018, the oligarch close to Russian President Vladimir Putin announced he was stepping down from leadership in order for the companies to avoid economic sanctions. While Deripaska personally is still sanctioned by the U.S. government, the sanctions on the companies were lifted after Deripaska reduced his holdings. The Trump Administration’s move to relieve sanctions was very controversial.
Interestingly, Glencore is also involved in the effort to avoid sanctions. After Deripaska gave up his controlling share in the companies, Glencore executed an asset swap, transferring an 8.75 percent stake in Rusal to 10.55 percent of En+. The sanctions had stopped this maneuver from taking place earlier. When the deal was finalized, En+ raised its stake in Rusal to 56.88 percent. In April, Rusal approved a new $16.3 billion supply contract with Glencore.
The connection between En+ and Rusal is critical. The partnership between the two had always been considered a pure vertical play, since electricity is the single largest cost in the production of aluminium. Though Deripaska is no longer leading either company, he remains a major shareholder in both. “Ownership” is also difficult to define in these companies because various offshore entities own major percentages of the companies.
Glencore’s role is also important, because the aforementioned deal isn’t its only stake in the Russian energy market. In 2016, Glencore and the Qatar Investment Authority (QIA) paid over $10 billion for a 19.5 percent stake in Rosneft, the dominant Russian state-owned oil company. However, Glencore supposedly contributed about 3 percent of the purchase price, about €300 million ($373.2 million at current exchange rates). Glencore would receive the right to 220,000 barrels a day of Rosneft crude over the next five years.
The ownership records are murky and there is confusion about who “really” owns this major stake in one of Russia’s most valuable conglomerates. The numbers don’t add up, given Glencore’s relatively small payment for this share. One of the companies involved in this sale is based out of the Cayman Islands, which prevents anyone from finding out the ownership identities from public records. However, we do know that VTB, a Russian state bank, loaned a Singapore-registered investment vehicle the money that was used to purchase this stake. In other words, the Russian government essentially lent some of the money that was used in this “privatization.” Incidentally, VTP was also an important factor in Robert Mueller’s investigation, because the state-owned bank could be used to finance projects supported by the Russian government.
Rosneft head Igor Sechin announced this deal alongside Russian President Vladimir Putin. The deal was evidently a surprise even to some of the board and to other investors in Rosneft. It strains credibility to believe Sechin orchestrated this deal without the knowledge of or input by the Russian president. Several of my contacts believe it may have been a way for private interests in Russia, close to Vladimir Putin, to benefit from the sale of a state asset.
In 2017, Glencore said the Chinese conglomerate CEFC would buy a 14.6 percent stake in Rosneft. However, the deal fell through after CEFC founder and chairman Ye Jianming was arrested by the Chinese government. CEFC paid about $250 million to Glencore and the Qatar Investment Agency as compensation. In 2018, Glencore sold its stake in Rosneft to the Qatar Investment Fund for €3.7 billion. It retained its ability to purchase crude from Rosneft.
Though the deal with CEFC fell through, both China and Russia are trying to form economic partnerships that will protect them from American sanctions. In October 2019, Rosneft switched contracts from dollars to euros. Rosneft, and Russia generally, are heavily dependent on the Chinese market. And once again, in the middle of all this, is Glencore.
There’s more, because Glencore is also involved in a battle over control of the world’s top nickel producer, Norilsk Nickel. Glencore tried to buy it in 2010, but was turned down. The head of this company is Vladimir Potanin, identified by Forbes as the richest businessman in Russia. One of Norilsk Nickel’s aging tankers recently suffered a catastrophic oil spill. It led to President Putin publicly criticizing him in front of the nation for the disaster. And one of the key investors in this company is none other than Rusal. It has publicly called for sweeping changes in the company two months ago.
Thus, Glencore has an interest in how all this plays out. Glencore owns a stake in Rusal’s parent company, so it has a managerial interest. But there are also personal rivalries at work. The aforementioned Oleg Deripaska has clashed with Vladimir Potanin very publicly over a decade for control of Norilsk Nickel. Vladimir Putin even installed a minority shareholder in 2012 to keep the peace, but that agreement very publicly broke down in 2018. One of the key issues was that Norilsk Nickel has tried to avoid working with Glencore.
Thus, we see two major controversies in which Glencore, via various complicated legal arrangements, is somehow involved. More than that, in both the energy market and the battle over Norilsk Nickel, the Russian state is involved. Vladimir Putin is acting almost as a referee between dueling oligarchs. However, it is very likely that he and his political allies are also benefiting from the various offshore transactions these companies are making.
Glencore could be at the center of this, helping the Russian president, his political allies and/or the government to move money and facilitate investments in ways that are practically untraceable.
My sources tell me there are some major power plays that may come in the next few months. They could destabilize both the energy and mining sectors, and this seemingly unlikely partnership between a Swiss company and the Kremlin could be at the center of it. Stay tuned to CIB. Both the energy and mining markets aren’t just about economics, but geopolitics and statecraft. I will continue to track these developments and Machiavellian power plays, following the money using all my contacts and sources. I think I see a new pattern beginning to emerge… and I may be able to find a way to help you profit from this turmoil in the circles of power.
Dr. Kent Moors
This is an installment of Classified Intelligence Brief, your guide to what’s really happening behind the headlines… and how to profit from it.
Dr. Kent Moors served the United States for 30 years as one of the most highly decorated intelligence operatives alive today (including THREE Presidential commendations). After moving through the inner circles of royalty, oligarchs, billionaires, and the uber-rich, he discovered some of the most important secrets regarding finance, geo-politics, and business. As a result, he built one of the most impressive rolodexes in the world. His insights and network of contacts took him from a Vietnam veteran to becoming one of the globe’s most sought after consultants, with clients including six of the largest energy companies and the United States government.
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