The following story is taken from Christopher Leonard’s Kochland, and takes place sometime in 1974. This was a horrible time to be in the oil markets, as we shall soon observe.
Let's set the stage. On October 6, 1973, Egypt and Syria launched a surprise military attack against Israel. The United States assisted Israel in its defence, leading the Arab nations to retaliate in a — then, at least — entirely novel way. They banned all oil exports to the United States, whilst cutting overall production by 5%. For every month after that initial cut, the Arab nations cut an additional 5% of production.
The resulting ‘oil shock’ was horrendous. In some markets, crude oil prices jumped from $5.40 a barrel to $17 a barrel. There were long lines at gas stations through the US — if the gas stations were open at all. Today, if you read any business history from the period, the blast radius of the oil shock is stark, and impossible to ignore: it affected pretty much every business in the corporate America.
It affected Koch Industries worse than most.
Charles Koch had been quietly expanding a profitable segment of the company, a shipping division that carried crude oil on oceangoing tankers. Strong demand for US oil imports created a small boom for oil tankers, and Koch Industries signed leases to carry crude around the world. The money was so good that Charles Koch decided to make a giant bet on the business by building a “supertanker” of his own. He named it after his mother, Mary R. Koch, then in her midsixties. What Charles Koch didn’t realize was that he was making a giant, one-directional bet on the future of oil imports. When production plummeted, the bet left him exposed. The shipping market was plagued by crippling excess capacity, almost overnight. The value of the Mary R. Koch plunged, and Koch was obligated to money-losing shipping leases.
Koch’s response was to double down on the Pine Bend r ...
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