January 2017, Vol. 244, No. 1


Rex Tillerson: The Watch Is On

By Jonathan Hoogendoorn and Irina Slav, Oilprice.com

Rex Tillerson, CEO of ExxonMobil and President-elect Trump’s nominee for Secretary of State, is a well-known figure on the global stage, with close relationships to foreign and business leaders such as Russian President Vladimir Putin and Rosneft head Igor Sechin. It’s no surprise that such a negotiator and business magnate would be attractive to President Trump, and there are obvious benefits and liabilities to having such a man in office, both for energy and politics.

The potential nomination has not come without its share of controversy. Many in Washington, such as Senator John McCain (R-AZ), see the nomination as a topic of concern, considering his foreign ties and vested business interests. Others see these same factors as an asset to the State Department, as it would allow the Secretary to navigate U.S.-Russian relations through both business and political interests.

The topic of energy, especially in Europe and Central Asia, is politically charged, even more so since Russia’s incursion into Ukraine and energy crises of 2006 and 2009. ExxonMobil navigated a contentious 2011 deal with oil giant Rosneft for drilling in the Russian arctic. The deal was halted after 2014 sanctions punished Russia for its intervention in the Ukraine, and Tillerson understandably expressed his distaste for the subject, and loss of company assets.

What do both energy and global security stand to gain or lose from a leader like Tillerson? The CEO brings the obvious ties to and understanding of Putin’s Russia to the office, a point of view from which Washington might benefit. Relations with Russia plummeted throughout the Obama administration, and Trump’s team will have their work cut out for them. Those at the top of the global energy sector must conduct their business through keen political insight, something Tillerson has certainly obtained. This deep understanding of political tension in Europe could be a needed asset, but his likely view of politics through a business lens (Tillerson has no political experience) could also introduce a conflict of interest to a foggy bottom, affecting the profitability of the energy sector as a whole.

Fruitful energy relations between Europe and Russia are paramount. After the recent energy crises caused by Russia’s halting of gas flow through Ukraine, Europe awoke to its dependence on Russian resources. From this point there arose a divide in willingness to expand deals with Russia, leading to the highly controversial Nord Stream line(s), which provide a direct natural gas line from Russia to Germany. There continues to be a divide over whether Europe should continue expansive deals with Russian energy companies.

With Tillerson at the helm, the U.S. is likely to see more business-based approach to the Euro-Russian energy relationship. Whereas past State Department heads and White House officials have dealt with Russia primarily through the lens of European security, we could see a shift toward transactional policy, seeking to build a mutually beneficial business relationship and de-escalate tensions which have been rising in the East.

If, indeed, this is the route Tillerson pursues, would it work? Russia has in the past wielded its mammoth energy sector as a tool of pressure and foreign policy against Europe and CIS states, and the U.S. and Europe must both be wary, balancing out trade-based benefits with overall continental security. The opportunity to create a more robust trade relationship between the two should not be sacrificed at the expense of European security, and the future administration will have to decide whether it can pursue this potential transactional diplomatic relationship.

Regardless of the specifics of Tillerson’s State Department, he has a very close relationship with Putin. It is possible that he truly does understand Putin’s goals in Russia and Eastern Europe, and will be able to use them to the advantage of both nations. This is, of course, the ideal outcome. A misstep in the European energy sector could either allow Russia to make gains impossible to roll back, or cause a Western miscalculation leading to actual conflict. The experience of Tillerson is controversial and could be either a very promising or controversial influence.

The news about Tillerson has sparked an outrage among Democratic and Republican legislators alike, both sides worried his appointment would further warm relations between the U.S. and Russia.

To an outsider with a limited understanding of geopolitical dynamics, this outrage would sound absurd. After all, what is wrong with good bilateral relations, especially those between two of the world’s nuclear powers? But to an insider of American – and Russian – politics, the outrage is an understandable knee-jerk reaction, brought about by years of anti-Russian sentiment across the West, after Moscow annexed the Crimea and sent troops to eastern Ukraine in support of pro-Russian insurgents, deepening the political chaos in Ukraine.

On top of that, the Kremlin is facing accusations of organizing the email hacks that, according to the Clinton campaign, cost their candidate the election. Various media are quoting some unnamed CIA officials as “believing” the hack attack was aimed to tip the scales in favor of Trump. There is still no proof of any of these hacks (which is different than leaking emails), or the intent behind the hacks.

Smack in the middle of this scandal, Trump presents Tillerson as his favorite for what’s probably the second-most important position in the government. Tillerson, who was awarded by Russia’s the Order of Friendship, has already lost a billion dollars from Western sanctions against Russia, and has been against these sanctions from the beginning.

Let’s stop here. It’s not Tillerson personally who stands to lose billions from Russian sanctions – it’s the company he ran. Tillerson, in this respect, is just like any other big business leader with operations in a country that is subjected to sanctions. CEOs are responsible for the general well-being of the company, and any measures that seek to strip the company of profits are bound to be protested vehemently. From this perspective, there is nothing sinister in Tillerson’s opposition to the anti-Russian sanctions. But can he wear another hat entirely?

As for his relationship with Putin, Tillerson is considered one of few friends of Russia in the United States. This relationship is being treated as a suspicious thing – a relationship that could compromise his loyalty to his country. But Tillerson’s loyalty lay with ExxonMobil, not with Russia – Russia was but one of many foreign relationships that Tillerson forged with ExxonMobil’s well-being in mind. This is precisely what has prompted most to label Tillerson as an astute businessman and company executive -someone who was able to keep ExxonMobil in the black through the crisis while many competitors suffered, all the while maintaining dividend payouts.

This exemplary company record has been cited by many as a guarantee for his success as Secretary of State. Yes, wearing the ExxonMobil CEO hat, Tillerson negotiated lucrative deals in Russia. In his capacity of a corporate CEO, Tillerson negotiated deals that would bring profit ExxonMobil. Unavoidably, these deals were also positive for Russia, as is the nature of such deals.

It is this mutual benefit that seems to be the basis of the anti-Tillerson opposition. Media are quoting Tillerson as agreeing with Putin that, “nothing strengthens relationships between countries better than business enterprise.” A mere universal truth, that is bringing short-sighted condemnation, especially when the statement is part of the protocol-required niceties for this kind of meeting.

Democrats seem convinced that Tillerson is a Putin spy. Republicans, who were against Obama’s first-term “reset” approach to bilateral relations with Russia, are still against it, and worry that Tillerson will make this reset happen. Tillerson has a tough road ahead but he has at least a couple of arguments in his favor. First, he can always state the obvious: that he was working in Russia on behalf of ExxonMobil, and that he worked well, as the company’s bottom line shows. Second, he can argue from a solid base that the difference between running the largest energy company in the world and running the foreign policy of the world’s most powerful nation is basically a matter of scale -but with different objectives.

Something else that could knock some sense into his most vehement opponents is the scrutiny he would be subjected to if his confirmation goes through. Should he be appointed Secretary of State, Tillerson will have people watch his every single step. That’s certainly loyalty-enhancing, whatever his opponents say.


{{ error }}
{{ comment.comment.Name }} • {{ comment.timeAgo }}
{{ comment.comment.Text }}