The Forecast for Black Wednesday
The president pulled a letter from his desk drawer.
It was the one I had sent to the White House through Martin Channing not long ago.
……Tap.
He unfolded it and laid it on the table.
My handwriting spread across the page.
///////
-To His Excellency, President George H. W. Bush of the United States of America
-On the Potential Detroit Riot and Its Impact on the Election
-Sir, I am Lee Sanha, president of Lee Energy. I am sending this letter through lobbyist Martin Channing.
……The British pound is currently under severe pressure within the European Exchange Rate Mechanism. The Bank of England is burning through its foreign reserves in an effort to defend sterling, but it is becoming increasingly difficult to withstand market selling pressure. As a result, British oil majors such as BP and Shell have begun cutting overseas risk exposure, and they are shedding a large number of subcontracts in the United States. The first targets for cost-cutting are Black and Hispanic subcontract workers in and around Michigan…….
……Given the sharp rise in unemployment around the Detroit River Rouge refinery, I expect the first riot to break out between August 28 and 30. The scale will be around 400 to 600 people, with arson and property destruction accompanying it. Based on Gallup, I estimate a 2 to 3 percentage point drop in the incumbent’s approval rating…….
……The problem is the second one. On Labor Day, September 7, the keynote speaker at the Detroit Labor Day rally is scheduled to be the CEO of Highland Petroleum. Last year, this person caused an uproar by saying, “It is the law of nature for lazy workers to lose their jobs.” The draft of this year’s speech is even harsher, as far as I have learned. If he preaches personal responsibility in front of thousands of unemployed workers……
……there is a high likelihood that the resentment already stirred by the suppression of the first riot will combine with it and spiral into a large-scale clash…….
……I therefore urge you to take prompt action at your earliest convenience…….
-With respect,
-Lee Sanha
-President, Lee Energy
.
.
///////
The president looked away from the letter and met my eyes.
“On August 29, just as Mr. Lee predicted, a riot broke out in front of the River Rouge refinery. Five hundred and thirty participants, three acts of arson, and twelve instances of property damage. Seven police officers were injured.”
“It was unfortunate.”
“That it was. And there’s another point worth noting: my approval rating fell by 3 percentage points in the Gallup poll, exactly as you wrote.”
Gallup.
Founded in 1935, it was the polling firm that made its name by correctly predicting Roosevelt’s reelection the following year.
For fifty-seven years after that, they had measured public opinion in every presidential election, and in American politics, a Gallup approval rating was another name for credibility.
I nodded.
“I may have sent the letter a little too late.”
“Not at all. You sent it early. I understand my staff simply needed time to review it. In the meantime, the first riot broke out.”
The president let out a sigh, then tapped the bottom of the letter with one finger.
“The riot that already happened and the approval rating that already dropped can’t be helped…… but this part here, September 7, when you predicted the second riot. Is that date still valid?”
“Yes, sir. It’s still valid. September 7 is Labor Day. Have you confirmed who the keynote speaker at the Detroit Labor Day rally is? As I said in the letter, it’s the CEO of Highland Petroleum.”
The president’s expression hardened.
Highland Petroleum was the largest refinery company in the Michigan area.
And its CEO was notorious in the industry for his openly hostile remarks toward labor unions.
I continued in a measured tone.
“He’s the same man who said in last year’s Labor Day speech that ‘it is the law of nature for lazy workers to lose their jobs and fall behind.’ I’m told this year’s draft is even more hardline than that.”
“Where did you hear that?”
“I hired a public relations man who was recently fired from Highland Petroleum. He helped draft the speech, but he left on bad terms with the company over severance pay. According to what he’s been telling people in the industry, this year’s remarks are ‘politically dangerous to a considerable degree.’”
The president nodded.
He had confirmed that my source was an internal industry network.
“Once the speech is over, the mood will deteriorate quickly. What happens when thousands of unemployed workers gather in one place and the man they blame for their unemployment starts preaching personal responsibility? It’ll be a dangerous situation, naturally.”
“So it’ll be different from the first one in scale.”
“You didn’t deploy the National Guard for the first riot, did you? The resentment toward that is still there. The second riot could easily turn into armed conflict, not just a protest.”
“…….”
The president fell silent for a moment.
“My staff reached a similar conclusion. They just couldn’t pin down the date. Your forecast is more precise.”
“There was a slight delay in the response after the first one. This time, you need to move preemptively. I’d recommend contacting Highland in advance of Labor Day and advising them to adjust the tone of the speech. You should also coordinate the National Guard deployment ahead of time.”
“That is a very wise judgment. I have no reason not to follow your recommendation, Mr. Lee.”
The president looked at me.
“Mr. Lee. I’ll be frank. Someone with a perspective like yours is exactly what my campaign needs right now. As I said earlier, would you consider working with me?”
“…….”
My answer had already been decided.
I already knew Bush would lose to Clinton in November and fail to win reelection.
It’s not like suppressing one or two riots will be enough to reverse his approval rating. At best, it could turn an utter rout into something only moderately humiliating.
But I couldn’t just say I didn’t want to. At times like this, the manner of refusal mattered.
I had to preserve the option of squeezing every last useful thing out of Bush during his lame-duck period.
“That’s an honor, sir. However, I’m currently studying at Harvard and running a company in Texas. Even doing those two things at once leaves me short on time.”
“Studying and running a business simultaneously. Impressive.”
“If I join the campaign, both of those will suffer. I think it’s better if I help you in the areas where I can be most effective, rather than make only a halfhearted contribution.”
“And what area would that be?”
“Energy. Lee Energy has already completed vertical integration in Texas, from drilling to refining to distribution. The next step is expansion overseas. We’re looking at the North Sea oil fields in the UK.”
“The North Sea. The North Sea.”
The president repeated the words to himself.
I went on.
“If an American energy company enters the North Sea, both countries benefit. The UK gains development capital and technology, while the United States can diversify its energy supply sources. But we’ll need diplomatic support during the licensing process. If the British Department of Energy and the North Sea authorities receive a recommendation from the U.S. government, the procedures should move much more smoothly.”
“So that’s why you sent this letter. You wanted to negotiate with me one-on-one.”
“Negotiate? Not at all. I simply wanted to create a picture that benefits everyone involved. Me, you, the United States—everyone.”
“I understand.”
The president nodded.
“What sort of support does Lee Energy need, specifically?”
“Three things. First, an official recommendation letter in the name of the Secretary of Energy. A document that proves Lee Energy is a company supported by the U.S. government.”
“That can be done. And the second?”
“Second, administrative support from the American embassy when bidding for North Sea exploration rights. That would include introductions to local law firms and arranging meetings with the regulators.”
“That can be done as well.”
“Third, preferential tariff treatment for exports to the U.S. When crude produced in the North Sea is imported into the United States, I’d like it classified as a strategic material and exempted from tariffs.”
“……Hmm.”
The president thought for a moment.
“Tariff exemptions require congressional approval. Still, if you sign a Strategic Petroleum Reserve supply contract, I can probably handle it under executive discretion.”
“If it’s an SPR supply contract, I’d welcome it. I’ll do my best for the national interest.”
“Good. I’ll order the recommendation letter and embassy support immediately. As for the SPR supply agreement, I’ll consult with the Department of Energy and get back to you.”
“Thank you, sir!”
I answered vigorously.
Strategic Petroleum Reserve, or SPR.
It was the emergency oil storage system the United States created after the 1973 oil shock, determined never to be pushed around by the Middle East again.
Deep inside the salt caverns along the Texas and Louisiana coast, hundreds of millions of barrels of crude lay sleeping.
It was the world’s largest national petroleum reserve, built so America could endure even if war broke out or exporting countries imposed an embargo.
And filling that massive reservoir was the job of private companies.
The Department of Energy bought tens of millions of barrels every year through bidding.
The problem was that not just anyone could participate.
Because it was a national-security-related business, suppliers had to pass a strict review to earn the right to deliver.
Financial soundness, production capacity, quality standards, and above all, a reference proving that this was a company the government could trust.
So if I want the tariff exemption, I should sign an SPR supply contract? Not bad. It’ll give the company’s credit standing a very healthy boost.
The president’s offer wasn’t just a simple transaction.
It meant recognizing Lee Energy as a company the U.S. government effectively vouched for.
And there was profit in it, too, of course.
The SPR contract price was slightly below market, but the volume was guaranteed.
That meant tens of millions of barrels could be sold steadily, and even if oil prices fell, the government contract would remain in place, stabilizing cash flow.
In an economic downturn, when private demand shrank, the SPR volume would still be there.
But I’m not planning to sell crude outright—I’d rather pledge it as collateral to a bank and pull out cash against it. So I can’t exactly call this a fantastic deal.
This would become a business not about selling oil for money, but about building credit.
So I only needed to make a modest profit and supply only a modest amount of crude.
The president, too, probably didn’t need a huge oil contract right away; a manageable volume was enough to test the company’s credibility.
In every respect, it’s a win-win.
Once a company became an SPR supplier, it received an entirely different kind of treatment from the financial world.
The simple fact that the U.S. government was the counterparty served as collateral in itself.
Bank loan reviews came with lower interest rates, and bond issuances received better credit ratings.
In investment negotiations, a record of “government supply contracts” carried even more persuasive weight than actual performance.
And the ability to bypass regulation was an enormous advantage as well.
The Environmental Protection Agency, the Mine Safety and Health Administration, the Texas Railroad Commission—there were countless agencies tightening the screws on energy companies, but even they would find it difficult to interfere lightly with an SPR supplier.
They couldn’t risk disrupting a national-security operation.
It was the kind of power that freed a company from unnecessary inspections and permitting delays.
If they ask whether I’m challenging U.S. national security, everyone will back down in an instant.
This would serve as a powerful warning to competitors.
When the large existing firms tried to pressure Lee Energy, the label of “SPR supply company” would surely complicate their calculations.
No one wanted to meddle with a company that dealt directly with the federal government, not when the consequences were impossible to predict.
The same held true on the international stage.
When Lee Energy entered the North Sea, the record of being a “U.S. government Strategic Petroleum Reserve supplier” would give British Department of Energy bureaucrats both trust and pressure in equal measure.
Combined with diplomatic support from the White House, the permitting process would go far more smoothly.
……I’m getting an awful lot out of a president who’ll be out of office before long.
I began to lay out the plan ahead of me.
President Bush would lose his reelection bid two months later.
But even during the lame-duck period, the powers of the U.S. presidency were immense.
Executive orders, ministerial instructions, embassy mobilization…… all of it could be done without congressional approval.
So it was wise to extract everything possible while I still could.
“Let’s do our best from our respective positions. I hope today’s meeting proves beneficial for all of us.”
“Of course, sir. Why wouldn’t it?”
The president and I shook hands.
And of course today’s meeting would be beneficial for both of us.
A little for Bush, and a great deal for me.
* * *
We spent a few more minutes in quiet conversation after that.
Most of it concerned the development of Garden Queens, and President Bush nodded along with the patient air of a man being polite, but not especially interested.
I didn’t drag the subject out any longer than necessary; it wasn’t the kind of topic that would hold the president’s attention for long.
Everything would be reevaluated later, after the results spoke for themselves.
When the private conversation was over and I stepped out of the reception room—
“Oh! Partner!”
I saw Martin Channing leaning against the wall in a black suit and silver-gray tie.
He moved close beside me and asked, “How’d it go?”
“Better than expected. I got promises of support for entering the North Sea.”
“The North Sea? What kind of support, exactly?”
“A recommendation letter in the Secretary of Energy’s name, administrative support from the American embassy, and a review of an SPR supply contract. Judging by the president’s attitude, the SPR contract seems almost certain. The scale may not be huge, though.”
Martin let out a whistle.
“Well damn—worth comin’ all the way to the White House, then. I reckon you’re the fella who got the best deal out of this place today.”
“Oh, and I was also offered a spot on the election campaign.”
“I know. White Assistant Secretary told me. Said you turned it down with plenty of fire.”
“Yes. I declined.”
“Mind if I ask why?”
“My studies and the business.”
“Mm. Fair enough. You’re still young, after all. And I hate to say it, but…… you’d probably be better off getting set up in the other camp. As you know, the president’s approval numbers are a little rough right now.”
Martin, too, had a fairly sharp political sense.
I nodded and continued.
“It’s true that I turned down the offer, but the fact that I was offered it still remains.”
“That it does. And what do you plan to use that for?”
“Plenty of things. First, I’ll use it in investment negotiations. Hedge funds and institutional investors care about a management team’s political access. If a single line saying, ‘He was offered an advisory role in the presidential campaign but declined in order to focus on his business,’ goes into an investment review report, the credit profile changes dramatically.”
“What else?”
“It’s useful in negotiations with regulators. Agencies like the Texas Railroad Commission, the EPA, and MSHA tend to handle companies that draw the federal government’s attention with more caution. Now that we’ve secured the Strategic Petroleum Reserve business, I think we can avoid unnecessary audits and delays.”
“Heh. So you’re using a political shield for a business asset. Most folks would be happy just to have a stable revenue stream, but you’re seeing a completely different picture.”
“And third, it gives me the upper hand in lobbying wars.”
“That’s right. Other companies have to hire lobbyists directly, but you’ll be able to speak to the federal government yourself.”
“Exactly. A man who received a direct offer from the president has a title money can’t buy. That makes it rare.”
“You’re not even twenty yet, are you?”
“No. I’m nineteen this year.”
“Nineteen, and you’re able to pull this kind of push-and-pull with the president in the White House. At your age, I was arguing with my parents over allowance money. Hell……”
Martin clicked his tongue and looked up at the sky.
I smiled and asked, “So how did things go on the British side? The White House results are excellent.”
“Well. That side’s a bit of a bust. I passed your message along to the British contacts you asked for, but…… the reaction wasn’t great.”
I had sent letters to two places.
One was the White House, where the president of the United States sat; the other was the Bank of England, the beating heart of the British economy.
I shrugged.
“That was the reaction I expected.”
“You expected it? Then why bother having the message delivered?”
“A matter of procedure. Someday I’ll have to negotiate with the British side. If there’s a record showing that I warned them in advance, it’ll be an advantage. In any case, I had the message delivered officially through your contacts, Mr. Channing, didn’t I?”
“Negotiation, huh…… Come to think of it, that part’s been bugging me. What exactly are you negotiating with Britain?”
“Entry into the North Sea oil fields, of course.”
“……Hmm. I don’t know what the president said, but I reckon that one may be a little hard. The British government is rich and comfortable, so they don’t exactly make a habit of welcoming foreign investment. In other words, they’ve got their bellies full, if you ask me.”
“Then over the next week, I’m going to take one step.”
“What kind?”
“If Britain rejects me because it’s too comfortable, then I’ll make sure that comfort disappears so they’ll want me instead.”
“Make their comfort disappear? Against those high-and-mighty aristocrats? How?”
“Simple.”
I added one more line.
“I’m going to bankrupt Britain.”
Of course, I’d need to pull some leverage first.