Chris Cook’s tour of the oil markets: from Nixon to Trump

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Posted May 31 2020 by Chris Cook of Bella Caledonia
Chris Cook's tour of the oil markets

Today I’m talking with Chris Cook, who designed and built the Iranian Oil Bourse (see Wikipedia for a timeline of the events Chris describes), which could help move the world away from the petrodollar. We’ll be talking more about that later.

I’ve been working with Chris on a mutual credit idea, and he’s got lots of interesting things to say, so I thought I’d interview him about his views on the new economy, and how we get there. However, that will have to happen another time, as this one turned into a romp through the last 50 years’ of global energy shenanigans, from an insider’s perspective. It includes fascinating insights, and is well worth a listen / read. So get Wikipedia ready and off we go.

Chris, you’re an ex city regulator, senior research fellow at the UCL and inventor of financial products & services designed to help communities rather than helping extract wealth from communities. Is that close?

Close enough.

I think a lot of people see the need for a new kind of economy, because this one isn’t sustainable or democratic. And there are a lot of people working to try to build this new economy. My aim with these interviews is to explain to a general audience what those people are doing, and to try to work out how they might come together so that the whole is greater than the sum of the parts if you like. The kinds of things you’re doing are quite complicated, so I think it might be more of a challenge than usual, so we’ll talk about what you’re up to now, and about how it contributes to building a new economy – but first, I want to talk about something that happened to me in a kebab shop in Tooting, in south London, a few years ago.

The TV was on, in Urdu. Then someone started speaking English, with Urdu subtitles. It was a guy called John Perkins. He said: “I was sent by Nixon to Saudi Arabia in 1971, and my mission was to say to the Saudis, ‘nice oilfields you’ve got here – wouldn’t it be a shame if anything happened to them. But we’ll protect your oilfields, as long as you promise never to sell your oil in any currency but dollars.’ Then all countries will need dollars to buy oil, the value of the dollar will stay high, and the US will be able to hoover up all the world’s resources cheaply. The Saudis said yes. He then visited all other oil-producing countries and they all said yes too. Only two people ever stepped out of line and said no – Gadafi and Saddam, with immediate consequences.

I looked around me and asked if this was common knowledge in the Pakistani community. They said yes. I said that it wasn’t common knowledge in the white European world, and they said they knew.

I looked up John Perkins – there was a ‘veracity memo’ put out by his publisher, and he seems to be credible. I wanted to find someone on the inside to find out if this is true. So – is it true?

It contains elements of truth. The relationship with the Saudis really began in 1945 – Bitter Lake. The Americans came to an agreement with them, that they would give protection to the Saudis, in return for the Saudis providing them with oil. Naturally the dollar was part of that. 1971 was interesting, because that’s when the world came off the gold standard. Now the Saudis believe in a hard currency – gold specifically, and this was important in the founding of the Iran Oil Bourse, but we’ll come back to that later.

The important thing to remember about the oil market – or any market, come to that – is that it doesn’t matter so much what you price it in, as what you settle it in, because those two things can be different. I could do an oil trade now in euros, but I’ll be looking at the dollar price, and I’d immediately also do a foreign exchange transaction at the same time, which then settles when we actually come to pay for the oil in 3 months time, once the ship has been chartered etc.

So it doesn’t really matter what the unit of account is, in which you price it. What matters is what currency you actually pay for it in, in due course. Then – which takes us into the petrodollar – what happens to the proceeds? That’s the really important thing. That’s where the US has got very persuasive over the years.

When you say ‘persuasive’ – in John Perkins’ account, it was a protection racket. Do you think it was a protection racket?

What he was doing, going around the world with the CIA, was basically selling debt. Going round to different countries and lending people dollars on a massive scale, particularly in Latin America. This puts people in hock, to you. They create the dollars through loans. That’s how money is created, which isn’t widely understood. The Chinese are doing exactly the same thing now – it’s economic colonialism. The British did it. Everybody tries to do it.

I wasn’t particularly picking on the US. I know that China’s going to move in and do exactly the same thing. But he didn’t mention anything about debt. He was saying it was a pure protection racket – the insinuation was that if they didn’t comply, they were going to bomb their oilfields.

Let me tell you my take on that, which brings in Gadafi and Saddam. Back in the days of Bush and Cheney. Cheney had read a book called Twilight in the Desert, by Matt Simmonds, about peak oil. The thesis was that Saudi oil was limited and it’s running out. Now the big oil companies make their money, not from owning oil assets, but from developing new oil assets. What they want to find is cheap, easy to develop oil. The thing about Libya, Iraq and Iran was that the oil was cheap and easy to develop. They all have massive amounts of oil, they know where it is, it’s under-exploited, and it’s there to make a huge amount of money out of, from development. They wanted control of those countries for development, and they had a shopping list of countries that they were going to go into – Iraq was the first. Everyone thought that Iraq would be difficult – Saddam had a big army. But the US were all over them in weeks. They called it ‘Shock and Awe’. At that point, Gadafi rolled over. He gave them details of all the weapons he was developing, he invited in Tony Blair etc.

Wasn’t he trying to develop a new currency to replace the dollar in North Africa?

He was, but again, I think that’s a red herring, and I don’t think that has much to do with it at all. I was interviewed about it at the time, and was unable to say precisely why that meme doesn’t work. We can come back to it.

About the Oil Bourse. Do you think the reason they haven’t invaded Iran is because of their closeness to China?

I don’t think so. I think it was because Iraq was seriously traumatic for them. I wrote about this in the Asia Times at the time. In 2007 I believe the Chinese said to the US: ‘If you continue what you’re doing in Iraq, we’re going to pull the plug on the dollar.’ They would have sold the dollar colossally. At that point, the US announced that they would pull out, and that other countries apart from the US would get oil development. It blew out of the water any chance of the US getting first go at all the low-cost oil.

After that, the Iranians started funding the Iraqi resistance against the US occupation, making life very difficult for them. The US never forgave them for that. I think it was at that point that the entire neocon plan went ‘tits up’. This is what happened at Suez in 1956. The French and the British went in, with delusions of empire, still. And the US said ‘if you continue, we’re going to pull the plug on sterling’.

That was an end of empire moment. I believe the Chinese said the same thing to the Americans in 2007, and that was their Suez moment – their end of empire moment. Hank Paulson had a season ticket to China at the time. I’ve talked to someone very senior at the time, who confirmed that that was the threat. The Chinese insisted that the US shared the fruits of oil development. That was the US end of empire moment, and it coincided with the financial crash – they were two sides of the same coin.

Why did the US allow China to buy up so much of the US economy?

First of all, the US outsourced its industries to China. The Chinese were building on a massive scale, but the dollar being the currency of trade, and whenever dollar loans are created – in Eurodollars – you get dollar reserves at the Fed. People think that the money belongs to China and they can do what they like with it – but it’s not quite like that. The Chinese do have the capacity to lend money. They’re going into Africa and hoovering up assets, in the same way that the US did before them. But they’re also pissing a lot of people off, in the same way that the US did before them.

But what the Chinese don’t have that the US did, is the military muscle to go in and enforce the debts. So that’s the realpolitik. If you didn’t pay your debts to Britain in the empire days, they would take your country away from you. US, the same. But China doesn’t have that ability, and I don’t believe they ever will have. Big difference.


China built the wall to keep people out. Their posture has never been adventurism. They’re too smart for that. They’d rather other people’s 19-year-olds die defending the trade routes. Their 19-year-olds will never do that.

They certainly seem intent on taking over economically. I was speaking with someone who lives in China, who said that they make a 5-year plan and stick to it to the cent. They never put a foot wrong and they will take over the world. He’s convinced that the future is Chinese.

Yes, they do those things ruthlessly. Your friend is quite right. But can they send the bailiffs in the way the British and the US can? No. Countries can walk away from them. I think the Chinese need to rethink their strategy. But certainly they take the long-term view. They’re strategic, in a way that the US isn’t. The US is just looking to the next quarter. The US doesn’t have a strategy.

So back to the headline – you’re the inventor of the Iran Oil Bourse. Can you just explain what it is?

I’ll tell you where it came from first. I was a director of what is now the biggest energy exchange. It’s now called the Intercontinental Exchange (ICE). I was the director of compliance and market supervision of the International Petroleum Exchange, which was bought around 2000. Essentially, the Intercontinental Exchange is Wall Street, who set out to buy and financialise the oil market.

Gary Cohn of Goldman Sachs and John Shapiro of Morgan Stanley sat down for dinner one night, during the dotcom boom, and decided that they would put together a project for a global, electronic oil trading platform. They made an offer to Jeff Sprecher for ICE, which was going nowhere, in trouble. They brought Sprecher in to do the technology, and their strategy was brilliant. First they went to 6 of the big oil companies and liquidity providers, including Shell, BP and Société Générale. These were what we call market makers. You need liquidity in order to have a market. In return for commitments from these companies to provide liquidity to this new market they were setting up, they gave them equity – shares in the new exchange.

Having got that, they went to the next tier – the not-so-big traders – and they had to pay to get in. There were a dozen or so – all middlemen, not producers or consumers. The Intercontinental Exchange is all about middlemen.

And the middlemen are who you wanted to cut out with the bourse?

We’ll come back to that. Yes, that’s the way the world’s going. At that time I was more interested in the producers and consumers. I didn’t really see the strategy for what it was. I’ll come back to what happened to me in a minute.

What they needed was to get to the end-user customers. They went to the New York Mercantile Exchange, NYMEX, and made them an offer. They wanted to buy them, because that then gave them the market – access to all the producers and consumers of oil in the world, because they all used that exchange. NYMEX told them to sod off, because NYMEX was run by traders.

Then they came to the International Petroleum Exchange (IPE), and made them an offer they couldn’t refuse, because IPE wasn’t a middleman’s market, it was a broker’s market – people who facilitated deals.

At that point, I’d got involved in helping an IPE trader who’d asked me to help defend him in a disciplinary case. What I found was that they were hanging the trader – shooting the messenger – because I found, and blew the whistle, on manipulation of the trade settlement price every day – by the middlemen. It was massive. Traders were manipulating the closing price of the exchange, because that gave them an advantage in pricing physical market deals.

So I stumbled across this, blew the whistle on it, and because of who I was, they had to take it seriously. But I got stitched up and hung out to dry, and lost everything I had – home, family, everything. An Iranian friend of mine saw what happened to me, and was disgusted. He happened to know the governor of the central bank of Iran, Mohsen Nourbakhsh. He and I wrote a letter to him. More on that later – but the IPE price was being manipulated (and still is, but that’s a separate story).

I don’t understand how it was being manipulated. I guess that doesn’t matter, does it? I was just corruption.

Well the whole point of the Intercontinental Exchange was and is to control the price. It made OPEC irrelevant. Wall Street, plus a couple of North Sea producers, were able to take control of the global benchmark price (Brent – North Sea oil), and it gave them the ability to control the price. How it’s done is complex, but that price, since 2001, has been manipulated. They immediately introduced a formula called BWAVE (the Brent weighted average), and the Saudis started to price their oil against it.

Why did the Saudis do that?

I’m sure they were ‘persuaded’, or told to. But it suited them, because the whole purpose was to get the higher price. If producers can support the price, they will. Whether it’s DeBeers in diamonds – whether it’s any cartel – they’ll always try to support the price. And the North Sea oil producers – BP, StatOil, people like that – they had an interest in high prices. So if they can put the price up, they will.

So that’s exactly what happened. I blew the whistle on it. We then wrote this letter to governor Nourbakhsh, recommending a Middle East benchmark – and the currency was never a consideration. I can tell you that, because it was my idea. Subsequently, in 2004, we made a presentation to the central bank in Iran, and we got the contract to do a feasibility study.

OK, so the currency wasn’t a consideration for you, but even if they didn’t say so, wasn’t it a consideration for the Iranians?

Well, I met Iran’s OPEC representative in London, who said that the Iranians had raised the possibility of the euro, but the euro was only just emerging at that time. It was only introduced in 2000. It wasn’t that important, although the European Central Bank has always had ambitions for a petroeuro, and I believe that after 2014, the Saudis took their oil away from the dollar and put it into the euro. It’s all about strategy.

So this is my version of what happened in the oil market. For a few years after 2001, the oil market was pretty tight, and so high prices were reasonably justified. But then we started to see a new breed of funds coming in, called index funds, where people could do something called hedging inflation. The theory was that you could protect yourself against inflation by investing in assets like oil. Gold was another one, obviously. it’s called an inflation hedge. Funds started to invest in oil through oil futures.

This wasn’t speculation. This was the opposite of speculation. It was people who wanted to protect the value of their money against inflation, by investing it in hard assets like oil. The result of this was that oil prices started to get into a bubble, and in 2008 it spiked up to $147 in July. It was crazy. I gave evidence to the Treasury Select Committee at that time, because everybody wanted to know what was going on.

I said then that we have to open an international regulatory commission in the US and the UK, because the market is being manipulated. I could see who was doing it and I could see why they were doing it. It was a private sector bubble. Governments weren’t involved in that. It was Goldman Sachs and BP in the oil market, with a ‘fan club’. They were the ones mainly responsible for that bubble and spike, using the same sort of techniques that Enron used, to invest in oil.

So then the price collapsed – because it was only ever a spike, in the same way that the recent price falls were a spike – and at that point, OPEC started to cut production. But the price kept going down. By December it had reached $35 per barrel – down from $147 in July. So, as you can imagine, OPEC were shitting themselves at that point, and they made the mistake of cutting 4 million barrels per day.

Why was that a mistake? Because the price collapse had nothing to do with physical oil. It was because the buyers could no longer buy it, because the bank finance system had collapsed. Banks didn’t trust each other, so buyers who wanted to pay for oil were unable to pay for it. So there was no physical market at the time – in the same way that there’s no physical market in oil right now. There’s a forward market, but no physical market, because 30 million barrels per day of demand has disappeared.

So the price collapsed. Then Obama came in – a Wall St. president. Bush was an oil president. Obama immediately tries to solve the financial problem by throwing gazillions of dollars at it. The banks started to finance things again. Then the oil price was pumped up to $80, and was kept above that price (it went to $120 at one point) for the next five years.

Why would Obama do that? The same reason as in 1973, when the oil price went from $3 to $12, and stayed there (the OPEC oil price rise). Kissinger went to the Shah of Iran, who was the boss man in the oil market then, and told him to keep the oil price at $12. The Shah didn’t understand why, but Sheikh Yamani (Saudi Arabia) did. The reason was that at $3 per barrel, it was impossible to finance North Sea oil, Alaskan oil, US Gulf oil. At $12 they could, and they did. The petrodollars from the high prices funded it. All that money flowing into the US enabled the US and the UK to fund the higher production.

Then in Teheran in 2011, when the price was over $100, I said that once quantitative easing (QE) stopped, then the price would collapse to $45-50. And it did, because it was QE and the price support that was keeping the price high. Obama did what he did for the same reason as Kissinger. In the previous 5 years, massive investment had gone into shale oil. US oil production went up by 5 million barrels per day. Consumption went down everywhere, because the high prices deterred consumption. It made oil too expensive to use.

By 2014 there was a surplus of oil, and the price collapsed, and at that point, the Saudis realised they’d been shafted. They didn’t understand the policy, in the way that Yamani did. He was very wise. He said that the Stone Age didn’t end because we ran out of stones, and the Oil Age won’t end because we run out of oil. He understood that when oil gets too expensive, people start using alternatives.

So the price collapsed, and Obama’s strategy was transition through gas. Where did he send troops? Qatar – where the gas is. And it’s also in Iran. He was also looking at gas from the Caspian. My understanding of his strategy is that he wanted to get away from reliance on the Saudis. So the Saudis start to lose the US umbrella. So they stop putting money into the dollar, and they start putting it into the euro. What evidence do I have for this? Well, what is QE? It’s printing dollars or euros. And in order to buy petrodollar assets, you need dollars.

The whole purpose of QE was to enable the producers to buy treasury bills. The European Central Bank (ECB) started the QE programme. They called it ‘stimulus’, but no-one has been able to show me how swapping one financial asset for another stimulated anything. Euro QE, in my view, was only about the petroeuro, which the ECB had been trying to do forever, but nobody was biting. But I believe the Saudis did, and it was all going swimmingly until President Trump came along. Nobody expected Trump to become president.

Not even him, probably?

Probably not. But look what Hilary Clinton said about Libya – ‘We came, we saw, he died.’ The woman is a psychopath, in my view. Whereas Trump, whatever else you can say about him, is a developer. Trump understands that global nuclear war is bad for property prices. And he understands that people don’t do suicide bombing for profit. You won’t see him going into any form of war. He always talks about getting out of those situations. So he’s playing a dangerous game with the Military-Industrial Complex.

So we’ve reached Trump. One of the most interesting things to me, as an observer of US politics, is: what the hell is Gary Cohn (one of the two founders of the ICE) doing consenting to serve as an economic advisor under Trump, who he despised? Also the Secretary of State, Rex Tillerson, from Exxon – what the hell is he doing serving in a Trump government?

Wasn’t Trump going to ‘drain the swamp’?

Everything he said about that was Steve Bannon’s anti-corporate take on it. One thing Tillerson isn’t, is anti-corporate. Tillerson and Cohn did not fit, and yet they came in because they were competent – but they had another agenda. They put in place a new energy strategy. Obama’s strategy was ‘transition through gas’. He saw oil in runoff (running out), and that we needed to get to a renewable energy economy via gas.

Trump, on the other hand, went retrograde. What motivates him more than anything is his hatred of Obama. Because Obama took the piss out of him at some press dinner, and humiliated him. If there’s one thing Trump will never forgive, it’s that. At that point, he swore that every policy that Obama had, as a legacy, he would destroy. And in my view, that’s what’s motivated Trump more than anything else in the last 4 years. It’s personal.

So Obama’s transition through gas strategy got binned; and on June 29th, 2017, they announced a new strategy called ‘Energy Dominance’. It was part of ‘Make America Great Again’, but nobody knew what it was. Then, on July 1st, the way that the Saudis set oil prices (BWAVE – see above) stopped, after 17 years. They went onto a different benchmark. Then in the next 6 months, massive amounts of money went into the futures contract, the price got bid up again, and after 9 months, at the end of March, both Tillerson and Cohn resigned almost at the same time.

Then, their ‘Energy Dominance’ strategy started to roll out. Now if you look at the Federal Reserve balance sheet, and a large chunk of the QE that had been used to buy treasury bills – they started selling these bills off. From the end of the first quarter, 2018, over 18 months, they were sold off, which released dollars, which enabled the repatriation of petroeuros. It was ‘come back to daddy’ time, from the petroeuro to the petrodollar.

Then is September 2019, the Iranians were supposed to have attacked the Saudi oil installations at Abqaiq. I don’t know whether they did or not, but the finger has been pointed at them. It massively disturbed the oil market – there was a huge price jump. Since then, QE has started again, but not in the same way. Before, they were selling treasury bills to the outside world, and most banks were involved, but now, it’s all internal, to 4 big banks. They call it ‘not QE’, because it’s being done internally to the system of reserves – only the Federal Reserve banks are involved in this process.

I think this means that the US are literally basing the dollar on their oil reserves. They’re funding shale, not so much with loans, which is what they did for many years, but with what’s called pre-pay – pre-payment. This is what Enron did, by the way. It’s how Enron defrauded creditors and investors for 10 years. Their strategy is for the Federal Reserve Bank to pump up the oil price, using the North Sea benchmark to do so.

But then Covid happened. 30 million barrels of oil demand disappeared. The US strategy collapsed, and the oil price collapsed with it. Now everybody believes that the oil price is controlled by the producers – that it’s the natural order of things. But it isn’t, because the buyer side can take control. The Chinese, and the buy side are taking advantage of this demand shock. China has built oil storage on a colossal scale – they have immense capacity to build infrastructure. They now have more than 1.2 billion barrels of oil in storage. They have been building oil refineries at a massive rate, so now they can refine far more oil products than they can actually use, and so they can export the surplus. They can dump it. They’ve taken strategic action over a number of years. For an extra dollar on the price of a barrel, China has to pay an extra $10 million dollars per day. So are the Chinese going to put up with an extra $30 per barrel? No – they’re not going to let that happen.

This isn’t being seen, because people are only seeing it from their perspective. I see it from the perspective of how markets work.

Chris, this is an enormous amount of information. Where can people follow this kind of stuff? And also what you’re up to?

Follow me on Twitter. I tweet quite vigorously. There are always links in my articles. My most recent article was in the Teheran Times. I’m ‘big in Iran’.

Back to Iran. The Iran Oil Bourse not only makes it possible to sidestep the dollar, it also makes middlemen unnecessary, doesn’t it? So it reduces the profits of investment banks? What was your main motivation?

A Middle East benchmark. That then became the bourse. We initially considered that it should be products rather than oil, but we’ve got to start somewhere with oil. My deeper motivation was to come up with a market on behalf of the producers and consumers – and not the middlemen. Strip out the rent-seekers. At the moment, the oil market is like a casino – a roulette wheel with half-a-dozen zeros on it, and a crooked croupier. I find it hard to say how bad it’s become. It’s a regulatory disaster.

But still, to this day, my colleagues and I have never been paid by the Iranians for what we did – because there were people there who didn’t want any more transparency than existed at the time. Some of them profited from sanctions, from opacity. We were trying to introduce transparency, and there were people there who did not want that transparency. So we never got paid, the bourse was basically neutered, the currency was never an issue, as far as I could see, and talking with Ardebili, he said that it was raised at an OPEC meeting, then forgotten.

So what’s the latest with the bourse?

My colleagues and I haven’t given up, but we’ve moved away from oil, because we think the oil market is pretty much finished. Oil’s in runoff. It’s never going to go above $60 again, and I don’t think it will ever approach that. Oil products will be around for a bit. We see markets going downstream – first to products and then to services, like heat, cooling, power, mobility. You and I don’t use oil, gas or electricity – we use the services to which they lead; and I believe the markets of the future are going to be based on the least energy-cost provision of services like that. And massive reductions in waste. The James Watt business model. Do you know what that was?

Wasn’t his engine supposed to reduce the use of coal?

That’s exactly what it was. They went to the Cornish tin mines, which had a water-pumping problem. They used very expensive steam pumps. Watt said to them – we won’t sell you our new pumps. It’s much more efficient to give you the use of it (‘pumping as a service’), in exchange for a third of the coal you save. It’s a swap – smart ways of doing work (IP – what’s between your ears) for the value of the fuel saved. That’s where the money is going to be in this next century. It’s going to be in smart ways of saving resources.

James Watt’s engine didn’t save coal though, did it?

(Laughs) It used a damn sight more coal. CO2 wasn’t exactly the issue that it is today though. It was just so much more efficient. And I think that energy efficiency (the ‘fifth fuel’ as it’s sometimes called) is going to be huge. We have a lot in the UK, but we tend to put it to the wrong purposes. Anyway, that was an extended stream of consciousness – I hope you get something good out of it.

I did want to talk about all sorts of ‘new economy’-type things

We can do that with round 2 if you like.

Great. That was really interesting. Are you happy to answer questions in the comments?

Yes, of course.


  1. (the US went) round to different countries, lending people dollars on a massive scale, particularly in Latin America. This puts people in hock, to you. They create the dollars through loans. That’s how money is created, which isn’t widely understood. The Chinese are doing exactly the same thing now – it’s economic colonialism. The British did it. Everybody tries to do it.
  2. In 2007 I believe the Chinese said to the US: ‘If you continue what you’re doing in Iraq, we’re going to pull the plug on the dollar.’ They would have sold the dollar colossally. At that point, the US announced that they would pull out, and that other countries apart from the US would get oil development. It blew out of the water any chance of the US getting first go at all the low-cost oil.
  3. But what the Chinese don’t have that the US did, is the military muscle to go in and enforce the debts. So that’s the realpolitik. If you didn’t pay your debts to Britain in the empire days, they would take your country away from you. US, the same. But China doesn’t have that ability, and I don’t believe they ever will have.
  4. Kissinger went to the Shah of Iran (in 1973), who was the boss man in the oil market then, and told him to keep the oil price at $12. The Shah didn’t understand why, but Sheikh Yamani (Saudi Arabia) did. The reason was that at $3 per barrel, it was impossible to finance North Sea oil, Alaskan oil, US Gulf oil. At $12 they could, and they did. The petrodollars from the high prices funded it.