In August 1990, Iraqi leader Saddam Hussein invaded is far-smaller neighbor, Kuwait — seizing the nation’s valuable oil fields and setting off a global scramble to rein in his imperialistic ambitions.
As a global military coalition began to form to oust Hussein from Iraq, his invasion set off a spike in oil trading and prices as the world reeled from such a major disruption in the global oil supply.
But that disruption also proved an opportunity for canny-eyed commodities traders, particularly those at the New York Mercantile Exchange.
Brad Schaeffer, author of the new finance memoir “Life in the Pits: My Time as a Trader on the Rough and Tumble Exchange Floor,” was one such trader — who made a mint (and lifetime of memories) doing deals as war raged in the deserts of Arabia.
While stories of mayhem and murder and plunder dribbled out of the imprisoned Kuwait, a looming question remained: in the face of the awesome firepower of the international coalition arraying against him, would Saddam blink and hightail it back into Iraq?
Or would the US and its United Nations allies have to blast him out? No one knew.
But such uncertainty over there in the sands of Arabia meant a license to print money for the giddy traders over here at the New York Mercantile Exchange (NYMEX) at 4 World Trade Center.
And the longer the tensions dragged on the more money these traders would make.
Trading is not the same thing as investing. An investor in the stock of a concern like Apple is betting that the company will keep on growing in value and thus buys a share in the company.
The company then uses the proceeds to build and expand and in turn make each share that much more valuable.
But trading futures on raw materials, which is what commodities are, is not an intrinsically bullish operation.
Commodities’ prices fluctuate depending on supply and demand. Prices go up and they go down with indifference.
And since a futures contract is an agreement to buy or sell a certain standardized amount of a commodity (in oil’s case each futures contract equals a thousand barrels) at a specific price at a predetermined time, one can effectively go “long” or “short” with equal dexterity and thus profit from both a rise (long) or a fall (short) in prices.
As I learned the ropes of a new exchange, oil trading reached a fever pitch on the NYMEX floor.
Every day from August into the fall through to Thanksgiving and Christmas, traders voraciously gobbled up profits in the heavy volume and extreme volatility of the whipsawing crude oil futures and options markets driven by hair-trigger uncertainties that would suddenly lurch prices this way and that.
On Nov. 29, 1990, the UN Security Council officially authorized the use of force against Iraq if it did not voluntarily evacuate Kuwait by Jan. 15, 1991. The war clouds were growing ever more dark and ominous.
This was just more good news for the oil pit as uncertainty not only begets pricing inefficiencies but heavy volume, allowing one to simultaneously buy low and sell high large blocks with little exposure.
The world was taking no chances, and they were buying or selling futures as needed at a frantic pace to mitigate risk.
And what could be riskier than being dependent upon a commodity wherein much of it at the time was produced right smack-dab in the middle of a potential Armageddon?
Not only was the flow of oil from Iraq and Kuwait suddenly off the market, but Saddam’s misadventure had the potential to ignite a regional conflagration by threatening Saudi Arabia’s daily output while tempting the fanatical theocracy of Iran (Saddam’s arch enemy) to choke off the Strait of Hormuz, through which 20% of all crude oil exports passed.
It was a global crisis of literally biblical proportions as Saddam vowed to launch missiles at tiny Israel should the United Nations try to expel him from Kuwait by force of arms.
His hope was to prompt the hated Jewish state to retaliate in self-defense and turn the oil conflict into an Arab versus-West internecine showdown that would shatter the fragile alliance confronting him…one that included military contributions from Egypt, Saudi Arabia, Syria, the UAE, Oman, and Qatar. High-stakes poker indeed.
The stakes were high on the NYMEX floor as well. This was new territory so prices continued to fluctuate wildly amidst the fog of confusion as to what this all meant at the end of the day to crude supplies.
Did the Friday, Sept.14, British and French announcements of their deployment of troops to the region increase the odds that Iraq would flinch and peace (and the flow of oil) be assured? Sell! Or . . . maybe it meant the battle would be just that much bigger, bloodier, and more destructive once the shit hit the fan.
As word of the ungodly sums of money being printed in crude oil spread across the exchange and onto The Street itself, the number of new traders who suddenly appeared in the mosh pit swelled an estimated four-fold.
The crowd overflowed to the point where it was not uncommon for a trader to be squeezed out and shot from the ring as if popped from a pimple and come careening down onto his back into the aisle as you walked by.
The waterfall of profits was so steady that every moment spent off the floor, whether to grab lunch or even just use the toilet, could cost thousands in lost opportunities.
So vital was trading time that some firms went to extraordinary lengths to make sure their people were in position and raring to go when the opening buzzer sounded.
One firm even went so far as to pick up their star trader every Monday morning and whisk him by helicopter from his Long Island home to lower Manhattan to avoid the Hamptons traffic.
It was money well spent.
Meanwhile, Saddam himself was spewing forth defiant statements on a daily basis. They instantly made their way onto the analog electronic news ticker hovering above our heads. — Saddam – “We are not intimidated by the size of the armies or the type of hardware the US has brought.” — [November 12]
Or on Dec. 12 — Saddam: “Allah is on our side. That is why we will beat the aggressor.”
And so on, and so forth. The dictator’s bellicose proclamations only served to toss lighter fluid on the bonfire of uncertainty . . . and by unintended consequence shower cash like confetti onto the NYMEX floor. One trader leaned over to me: “I f–kin’ love dis guy!”
Such was the global crisis in the second half of 1990. What was a looming disaster for the world was manna from Heaven for the NYMEX oil traders who would eventually earn the envied sobriquets of “Gulf War babies” as this was the time in which their fortunes were made.
After the hectic trading session was over and the day’s profits tallied up — which translated into stacks of money higher than anyone on this sleepy backwater exchange could have dreamt of just a year before — many would retire to Suspenders pub on Greenwich Street and strain bottle upon bottle through already overworked livers (these guys didn’t look very good for all their riches).
They would drink and carouse and backslap the night away, all the while pondering what “So Damned Insane,” as Alan called Saddam Hussein, would do next.
From “Life in the Pits: My Time as a Trader on the Rough and Tumble Exchange Floor,” by Brad Schaeffer. Copyright 2023; Post Hill Press. All rights reserved.
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