ExxonMobil’s CEO Rex Tillerson (whose first name gives you an idea of his self-image) has decided to suspend offshore gas exploration projects in Ukraine, while continuing extensive cooperation with Russia (including a project very close to Crimea).
Talk about shivving someone when they are down. Although any project like that the one that Exxon shelved would only produce years from now, if ever, a necessary condition for Ukraine to escape the Russian yoke is that it reduce its dependence on Russian energy, particularly Russian natural gas. The Exxon decision makes that prospect ever more unlikely. Ukraine’s bargaining power vis a vis Putin has just taken a big hit. The Exxon betrayal also has huge symbolic importance: it indicates that energy companies are likely to deal with the devil-Putin-and willingly throw Ukraine on his tender mercies. This will further convince Ukraine, and the Euros, that the country’s only option is to kneel before Don Vladimir.
Tillerson claims that he has no qualms about continuing to work with Russia, because he perceives no political risk:
“As for the current situation, obviously it’s early days,” he said. “There’s been no impact on any activities or plans at this point, nor would we expect there to be any, barring governments taking steps beyond our control.
“In terms of our view of country risk, geopolitical risk, other than things like sanctions, we don’t see any new challenges out of the current situation,” he said.
If you don’t see any new challenges relating to political risks in Russia arising from this situation, Rex, you need to get an eye test. The substantial sell-off in Russian stocks was all about political risk. And a victory in Ukraine would embolden Putin and make him more likely to expropriate western energy companies, including Exxon.
But maybe Tillerson’s vision is just fine. As I wrote about a couple of years ago, Exxon has tried to manage that expropriation risk by tying its ventures in Russia to cooperating with Rosneft in the Gulf of Mexico in what is effectively an exchange of hostages: if Russia takes from Exxon in Russia, Exxon can retaliate against Rosneft here. Maybe that’s what convinced Tillerson he can deal with the devil. He gets the devil’s goodwill by abandoning Ukraine, and feels confident that the hostage he holds in the GOM will protect XOM against future Russian predations.
Arguably this is a smart bargain from the perspective of Exxon shareholders. But there are huge externalities here. Ukraine is obviously a big loser. But so are other investors in Russia who are not so fortunate as to have valuable hostages as does Exxon. But US national interests, and the interests of myriad US allies, notably Poland and the Baltic states, are also severely damaged by Tillerson’s cynical calculation.
This is precisely the circumstance in which it is justifiable, and indeed necessary and desirable, for the government to address a serious collective action problem through the imposition of sanctions on Russia and companies that provide it material and moral support (as Exxon is doing), and through the use of carrots and sticks to cajole companies like Exxon to provide aid and comfort to Ukraine.
But, cynic that I am, I doubt that this will happen. The reason that Germany and the UK are so adamant against sanctions or any other economic measures against Russia in response to Ukraine is that it hits their businesses’ bottom line, and those businesses are are pressuring their governments very hard to take a soft line on Putin. No doubt Exxon is doing the same.
Lenin was right about at least one thing, perhaps. That capitalists would sell you the rope you use to hang them. Or in this instance, Exxon will gladly sell Russia the rope Putin uses to hang Ukraine.