First it was the Libor interest rate and its variants that were found to be being manipulated. Then questions were raised about the wholesale gas price, which is fixed by a similar mechanism of aggregating unverified information from large-scale buyers and sellers. Now the oil market is coming under the same scrutiny.
As yet, the allegation that producers and traders have been colluding to rig the oil price is unproven. Although four companies – including BP and Shell – have been raided by European Commission investigators, it is possible that the inquiry will reveal nothing untoward.
Should evidence of fraud be found, however, the implications are difficult to overstate. As with Libor, the headline oil price has tendrils that reach far and wide. It is not just a matter of artificially inflated charges at the petrol pump (although that would be bad enough). The oil price is also central to the calculation of any number of costs and contracts worldwide.
Proven or not, though, the suspicions now attached to both gas and oil undermine the very notion of a benchmark price. Indeed, with the benefit of post-Libor hindsight, it is impossible to justify a system dependent upon unsubstantiated submissions from organisations with a direct financial interest in the final calculated rate. Few outsiders can comprehend how such an arrangement came to survive for so long against the backdrop of modern, sophisticated corporate culture focused unflinchingly on the maximisation of profit.
Moves to replace Libor with a transaction-based alternative are – rightly – under way. All other benchmarks must be similarly reformed. At the same time, the response to any proven fraud must be unequivocal. That means not only fines high enough to make executives think twice. It also means criminal proceedings against the individuals involved.
The Prime Minister is making the right noises. He must be sure to keep up the pressure. The banking crisis shone a light on a corporate world that believed itself untouchable. No more.