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Was This American Hero Actually a Soviet Spy?

By: Marin Katusa, Chief Energy Investment Strategist

-- Posted Tuesday, February 3 2015 | Digg This ArticleDigg It! |

Fact: He was rich, controversial, and his father was a communist.

Fact: He also built one of America’s leading oil companies.

Moreover, he was a major shareholder and director of a company whose main product—an orange box of baking soda—was a staple in every American fridge, and whose name mirrored his own.

The man I’m referring to is Armand Hammer. He had no immediate connection to the company, Arm & Hammer; it was in fact created 30 years before one of America’s greatest oil tycoons was even born. But Armand was as un-American as could be.

Though he later claimed he’d been christened after a character in an Alexandre Dumas novel, Armand Hammer was actually named for the hammer-and-sickle symbol of the USSR and the Socialist Labor Party of America, in which his father had a leadership role.

Armand Hammer sought to buy the company only because he was so often asked if he owned it. He’s quoted as saying: “I offered to buy it so I could say yes. But the owners didn’t want to sell.”

Booze, Drugs, and Wheat

Armand Hammer was born in New York in 1898 to Ukrainian-Jewish parents who emigrated from Odessa (then still a part of the Russian Empire) in 1875. They settled in the Bronx to run drugstores and a general medical practice.

Armand attended Columbia University Medical School and graduated in 1918 with the intent of helping out with the family business, Good Drug Co. His first foray into a business of his own was a highly profitable one: producing and selling an alcoholic solution of ginger, which was extremely popular during the Prohibition era due to its ability to act as a highball ingredient. By his graduation in 1921, the booze business had made Armand a millionaire several times over, and he would revisit it again several decades later, with the same success.

After he graduated school, Armand traveled to the Soviet Union. The actual intent of his trip is still debated. He claimed he only went to Russia to recoup a debt for drugs that he shipped, but he stayed for a decade after he realized the kind of money that could be made by selling wheat to famine victims.

Over that time, he supplied the Soviet Union with more than 1 million tons of grain, which was enough to earn him several in-person meetings with Lenin himself. The Soviet leader personally persuaded the young Armand to stay in Russia so that the country could benefit from his business acumen.

Armand was able to establish many ventures. A concession obtained from the Bolsheviks to manufacture pencils was one of his most successful, as the Russians weren’t able to duplicate the quality and economics of his operations.

He also earned the exclusive rights to represent some of the largest companies in America, including US Rubber, Allis-Chalmers, and Ford.

Russian Jewels and Middle Eastern Oil

Armand lived in a Moscow mansion for 10 years before Stalin came to power and kicked out all foreigners. He used the time to greatly expand his business network, and he even married Russian Baroness Olga von Root. That gave him entrée into the elite White Russian community—and access to some of the country’s greatest treasures.

He returned to the United States with a lot more money, but also with the Romanov crown jewels, which he’d obtained through his growing connections with the cream of Russian society. The gems proved to be invaluable, as he sold them off to raise capital for his post-Prohibition ventures (from art to whiskey to counterfeit Fabergé eggs). Some of the jewels went to Egyptian King Farouk, a good friend to whom he eventually became a financial advisor.

This proved to be a key relationship, because King Farouk funded the secretive and influential Muslim Brotherhood with state funds. The Muslim Brotherhood is a powerful organization that elevated Khomeini in Iran and Kaddafi in Libya. Years later, Armand’s link to Farouk helped him greatly in obtaining Libyan oil assets, one of the main drivers of his oil empire.

Occidental Petroleum and the Gore Family

Yes, that Gore family. First it was Al Gore Sr., and then later Al Gore Jr., the latter of whom claimed to invent the Internet and is now saving the world from Global Warming—what a guy!

Armand retired in 1956, ostensibly to take a much-needed break from traveling and working, but that didn’t last long. Less than a year later, he was approached by an old acquaintance to drill two oil wells in Bakersfield, California. The wells were situated in acreage adjacent to the struggling Occidental Petroleum Corp. Both wells hit oil and despite having no experience in the industry, Armand quickly bought shares in the neighboring Occidental, becoming its CEO and eventually chairman of the board.

Hammer was able to capitalize on his relationship with the Gore family, but not initially because of oil. It was actually at a cattle auction in the 1940s where he first met Al Gore Sr., a US representative from Tennessee who’d go on to become a senator.

The two partnered to raise and sell cattle, and they prospered mightily at it. But this was just the beginning of a long and interesting relationship between Armand and the Gores. When zinc was discovered on some land the Gores owned, Occidental bought the acreage but eventually sold it back, retaining just the mineral rights in a transaction that wouldn’t be accepted by shareholders today. In turn, Al Sr. sold the land to Al Jr., who would benefit from the yearly mineral royalties for years to come.

This isn’t the only example of Occidental buying the Gores’ favor; the biggest payoff came in 1965. With Al Sr. arranging for Armand to obtain the necessary visas and his Egyptian connection providing an introduction to King Idris, Hammer traveled to Libya, where he was looking to obtain oil concessions.

He wasn’t given much of a shot. Tiny Occidental’s resources were no match for the power of the Seven Sisters oil giants, which at the time ruled the industry.

Against all odds, though, Hammer got the concessions through finely targeted bribery of Libyan officials and one final, brilliant move: he promised that Occidental would drill wells to bring water to the King’s parched ancestral village.

Deal done—and it proved a blockbuster. In 1967, Occidental poked one of its drills into a vast sea of oil. It was the first of the several elephant discoveries that would transform the company into an international oil power and Hammer into a major player on the world stage.

Meanwhile in the political sphere, favors do get repaid. When Gore Sr. left the Senate after a failed reelection bid in 1970, he joined the board of Occidental and took a cushy $500,000 a year job as head of Island Creek Coal, a company subsidiary.

Interesting how Al Gore Jr. kept that inconvenient truth out of his “doculiary,” An Inconvenient Truth.

Even after Hammer was gone, Occidental gave $50,000 to the 1996 Democratic campaign after a solicitation call from Albert Gore Jr, and another $100,000 after then-CEO Ray Irani spent a couple of nights in the Lincoln Bedroom at the White House.

Hammer became close to Al Jr. over the years and in 1984, he helped him win the Tennessee Senate seat formerly held by his father. Armand allegedly promised Al Sr. that he could make his son the president of the United States. But the Bushes—another family with oil connections—got in the way on that one.

But the old favors definitely came in handy when Occidental sought to obtain drilling rights in the Elk Hills of central California. The region was home to 100 sacred burial sites of the Kitanemuk Indians, not to mention inhabited by many animals on the endangered species list.

In any other situation, this type of acreage would be untouchable. But even eight years after Hammer’s death, Vice President Gore honored his debt to Occidental by recommending that Elk Hills be sold as part of his National Performance Review program. An environmental assessment was prepared in record time and in 1998, Occidental purchased 47,000 acres from the federal government for a cool $3.65 billion, tripling the company’s reserves.

Not all was smooth sailing, though. As far back as 1919, FBI Director J. Edgar Hoover had opened a file on Hammer, believing him to be a Soviet agent. He may not have been—at least not officially—but there’s no question the Russians valued him greatly. Lenin himself issued orders to “make note of Armand Hammer and in every way help him on my behalf if he applies.” He added an admonition to keep the relationship secret lest there be a “fatal effect” on Hammer. Armand in turn deemed Lenin “a very warm and human person.”

So what exactly did the American do for them? Researcher Edward Jay Epstein, in his book Dossier: The Secret History of Armand Hammer, argues that he was a financial errand boy for the Soviets, a conduit through which Moscow could finance espionage and subversion abroad. Hoover claimed to know that Hammer helped finance Communist International agents. The G-man delayed moving on his target for a long time, however, believing that it was better to keep him under surveillance. “It is often more profitable not to arrest a detected courier” when you might be unable to identify his replacement, Hoover maintained.

In the 1960s, Hoover was finally prepared to go after Hammer but was dissuaded by—who else?—Senator Gore. The oily aspects of US politics.

Armand’s Legacy

Whether or not Armand was a Soviet spy, a Socialist pawn laundering money, or a brilliant rogue mastermind worthy of a role as a James Bond villain, he was surely not the simple man of commerce often portrayed in the press. However, there is no denying his business acumen and his ability to build relationships and networks. He said it best when asked to describe his career: “I am first and foremost a catalyst; I bring people and situations together.”

Armand was already a millionaire many times over when he took a punt on Occidental for $100,000 as a tax shelter at the age of 59. By 1986, after almost 30 years at the helm, he turned the once-bankrupt company into the eighth-largest oil company in the United States, with revenues of almost $16 billion per year. While Armand was a magnate with his fingers in ventures high and low, energy emerged as his true love. Though he came to it late in life, he found it “more exciting, more interesting, more complex, riskier and more rewarding than any other business I had encountered.”

He died on December 10, 1990, at the age of 92 and was chairman of Occidental till that day. The company is still a major player in the international oil circuit but has definitely lost some of its luster since the passing of Armand Hammer.

It’s characters like this who make the impossible possible. Controversial and complex entrepreneurs who have built massive natural resource companies out of nothing. The oil patch is full of such colorful characters, and we know many of them. It might be a Lukas Lundin, going where no other man will go, in order to build up a deposit. Or Ross Beaty, whose life story could easily make him one of the heroes of Atlas Shrugged. These are the types of industry leaders who make the discoveries that bring outsized rewards to their shareholders. I don’t have enough time today to cover them all, but I will in the coming months of the Casey Energy Report. Many of these resource barons are personal friends and business associates of mine, so you will get all the secret goods.

Investing in resources is all about investing in the right people. I watch them very closely. I travel with them. I speak at their family and office events. But most important, I invest with the best in the business.

If you want to know more, try out my Casey Energy Confidential alert service.

This service is only for serious investors who are active resource speculators. It is not for everyone. It’s expensive, but the best things usually are. Try it out. I know you will like it.

The article Was This American Hero Actually a Soviet Spy? was originally published at caseyresearch.com.

-- Posted Tuesday, February 3 2015 | Digg This ArticleDigg It! |

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