Murkier even than the black stuff itself

The dark world of oil transport and trading: 'the biggest ongoing bribery scam on the face of the earth'

When the Prestige went down, a lot more than cracked fuel oil spilled out into the open," said one London energy trader. "It's events like this that make the world at large realise how incredibly dark this business is."

Unravelling the chain of responsibility for last week's tanker disaster off the north-west coast of Spain has been a revealing lesson in the mechanics and dynamics of oil transport. The Prestige itself was Liberian-owned, had Greek administrators and flew a Bahamian flag of convenience. The ship had, two years ago, been inspected by major oil companies including Shell and ExxonMobil, and rejected for use on safety grounds.

But the contents of the ship tell an even more murky story. The oil was owned by Crown Resources, a Swiss-based company that recently axed most of its staff, leaving a skeleton crew manning its offices. Crown in turn is one of the many business tentacles of Alfa, a conglomerate owned by Mikhail Fridman, a Russian billionaire whose business is a lynchpin of the eastern European oil connection.

The point oil traders and industry veterans are now stressing is that the arrangements surrounding the Prestige are nothing out of the ordinary. Oil, the world's most important commodity, has surrounded itself with a system of transport and dealing that matches in complexity what it offers in profit.

Thirty years ago, things were much simpler. The likes of BP and Shell drilled the black stuff out of the ground in one part of the world and then moved it, via tanker or pipeline, to another. After the oil crises of the 1970s, that system was split apart. The majors have consolidated since then, but thousands of small houses have sprung up to operate in the market for oil trading. Some are pure traders, some are dedicated transporters, some provide storage services. Beneath all this are other, less overt, operators that are seen by industry veterans as "fixers".

"What goes on behind the scenes of a trade can get pretty mucky," said one trader. "There are tankers out on the high seas carrying cargoes that might have been through five different countries, been completely mixed up and bought and sold 20 times."

The rise of trading has coincided with another phenomenon. Oil reserves in the more stable parts of the world are drying up, leaving volatile areas such as the Caspian and West Africa as the emerging centres of attention. Political risk in the oil sector is rising fast, as might be expected given the increasing unrest in countries like Azerbaijan and Nigeria.

As oil moves east and west from these places, and the financial rewards of each transaction pile up, corruption creeps in. For example, while Iran recently celebrated a new export record, many believe that a good chunk of the oil leaving the country was in fact "laundered" product drilled in parts of the former Soviet Union.

"There are so many examples of dodgy practice in this industry, it is nearly impossible to keep track of the product itself," said one executive at a UK oil explorer. "It is one of those great unspoken truths that oil trading with the developing world represents the biggest ongoing bribery scam on the face of the earth."

The scope for murky practice comes mainly from the hugely complex process of moving crude around. There are two methods, both fraught with intrigue. With tankers, as the Prestige showed, safety is often thrown out in favour of cheap transport rates. A large proportion of product – some estimate as much as 40 per cent – is put to sea before a final destination is set, and the tankers in effect become high-risk storage.

"People have been talking a lot about single-hull and double-hull ships, and yes, majors like Exxon and Shell and others claim to use fewer single hulls since Exxon Valdez in 1989," said one former BP manager. "But they are all happy to deal with traders who don't give a toss what they put out to sea in. With outfits like Russia's Lukoil, there are no standards at all."

Ship brokers in London doubt that the Prestige spill will make much difference to tanker use: "There will be another accident in a month's time," said one. "Tankers are a totally unregulated market, where the only concern is low price."

Even more scandal-ridden are pipelines. Increased production in the land-locked Caspian has exposed some of the contorted deals that go on, but the Chad-Cameroon pipeline is stained with arms deals and fraud. Bribery of officials from local to state level is rife in eastern Europe, and vague ownership of the oil in transit causes further confusion. Current interest centres on Baku, the seaport refinery and capital of Azerbaijan. From there, oil from all parts of the Caspian can flow via two controversial pipelines either towards the Mediterranean or the Persian Gulf. Meanwhile, some 3,500 tonnes leave by a special train and large quantities are simply "hidden" from view.

Looming over all this is Opec, the cartel that controls 40 per cent of the world's oil production and meets in two weeks to decide on quota levels. Opec has done its best to make it all seem an exact science, but as one of its senior advisers explained: "Opec knows the truth of this business: oil is impossible to trace, measure or regulate properly. Its own members are all cheating on production quotas, but it is just the top end of a dirty industry. It should be called 'Opaque'."