Current reports suggest that Trump will select ExxonMobil CEO Rex Tillerson as his Secretary of State. Like many things Trump, this creates substantial uncertainty. For despite the fact that Tillerson has been a public figure for years, he has not been part of the foreign policy community, and hence his view on specific issues (China, the Middle East, and on and on), and his philosophical/ideological/doctrinal orientation are unknown.
As for the fact he has not been part of the FP community–good! It’s not as if it has covered itself in glory in the past couple of decades. Chin pullers moan that Tillerson’s appointment would represent the biggest discontinuity in US foreign policy in years. Again–good! We’re in a rut. Discontinuity has potential.
Others fret that as the mere CEO of one of the largest (if not the largest) corporations in the world, which invests in highly complex technology, operates in virtually every country on the globe, and which must navigate complex political issues in these myriad countries, is just not up to the job of managing the complexities of international diplomacy:
Some former officials said it was an open question whether Tillerson could make the transition from running Exxon, a vast company that explores for oil and gas on six continents, to the even greater complexity of being secretary of state.
“Negotiating a real estate deal or an oil contract with Saudi Arabia is not the same thing,” said Aaron David Miller, a former State Department Middle East specialist now at the Wilson Center think-tank in Washington.
“It’s not a complicated summit where you are trying to reconcile historical woundings, religious identities, sectarian tensions.”
“I’m not arguing that he can’t make this conversion. I just don’t think we know.”
Because ex-pols and career diplomats like John Kerry, Hillary Clinton, Warren Christopher, Cyrus Vance, James Baker, etc., are such towering geniuses that they are much better able to manage the complexities of foreign affairs.
Please.
In today’s hysteria over Russia, of course Exxon’s and Tillerson’s relationship with Russia and Putin has been the focus of much angst and criticism. He received the “Order of Friendship” from Putin! XOM was going to invest zillions in Russia but sanctions prevented that! Sanctions cost Exxon billions! He’ll go easy on Russia to help Exxon!
Tillerson ran an oil company. Oil companies look for oil. Russia has oil. Tillerson’s company looked for oil in Russia. Not that complicated.
Further, XOM was not nearly as dependent on Russia as other majors, such as BP or Shell. Consider the billion or so that Exxon had at risk in joint ventures with Rosneft, but which were scuppered by sanctions. Well, a billion is real money, it’s not nearly as big a deal for Exxon because, well, Exxon is so damn big. Even at the depressed values due to low oil prices, $1 billion is .25 percent of XOM’s market cap. The other numbers bandied about–$400-$500 billion in investments in the Arctic over decades–are highly speculative, and dependent on many contingencies. Indeed, the main source of these numbers is hype by Igor Sechin, and should be discounted accordingly.
But even going beyond that, oil exploration and development is a highly fraught and unpredictable endeavor, especially in harsh natural environments like the Arctic, and harsh political environments like Russia. Seemingly promising finds can turn out to be disappointing. Numerous technological hurdles must be overcome. Political difficulties must be surmounted. Take a look at the Shtokman saga to see how these things can bedevil big Arctic projects.
Most importantly, development economics depend on prices, and prices are highly volatile. The initial XOM-Rosneft deals were negotiated in 2011-2013 when oil prices were north of $100/bbl, and were expected to stay there for, well, pretty much forever. A mere year later, oil prices cratered, and now the conventional wisdom is that $100/bbl oil is not on the horizon, even the distant horizon. Even absent sanctions, there would have been a massive re-evaluation of the scale and scope of the Rosneft-XOM cooperation.
Look at Shell. The technological challenges and costs of the Arctic, plus low prices, have led it to pull the plug on its once vaunting ambitions there.
Here’s something else that should provide this perspective. One of Tillerson’s most important moves as CEO was the acquisition of shale operator XTO Energy, for which Exxon paid $31 billion. This dwarfs the commitment to Russia, and shows that Tillerson was investing bigger dollars in a technology that actually reduced the need for access to Russian resources.
To some, any involvement in Russia inevitably makes one beholden to Putin. Consider this from one of the lead hysterics, Julia Ioffe:
What does that kind of friendship mean? Past experience suggests it is not a relationship of equals. It means that, at the drop of a hat, the Kremlin might discover serious environmental violations at your Sakhalin plant and drive you out of the country, as it did to Royal Dutch Shell, and then give the lucrative access to a better, domestic ally. It might decide to harass you with lawsuits to force you out, as it did to BP. And it might even throw you in jail, as it did to powerful Russian oligarch Vladimir Yevtushenkov in order to take a small oil company, Bashneft, away from you and give it to Sechin. Putin would even arrest his largely popular economics minister, as he did on November 15, to help Sechin retain it.
The lesson of Putin’s 16-year tenure is a lesson that all businesspeople, foreign and domestic, have learned: to do business in Russia, you have to be on good, personal terms with Putin and Sechin. And you have to understand that those two gatekeepers to Russia’s riches are fickle and sadistic, and, as former KGB operatives, know little of real friendship. To do business in Russia—both for Exxon Mobil and for Tillerson’s own massive retirement fund whose fortunes would rise significantly if a Trump White House lifted sanctions—you have to dance to Putin’s tune, and take whatever favors and humiliations he sends your way. Putin may act a friend and pin state medals on your breast, but he is, ultimately, a cynic. And to play ball with him, you have to be a cynic, too. Forget your honor, your rule of law, your independent judiciary, your human rights, your international law, and focus on the gold coins he throws to your feet. And forget looking dignified as you gather them up.
Note that none–NONE–of Ioffe’s examples involve ExxonMobil. Consider Shell’s travails in Sakhalin. ExxonMobil had a project in Sakhalin as well–Sakhalin I. Gazprom tried for years–years–to muscle its way in on that the way it muscled in on Shell’s Sakhalin II. It failed miserably. XOM swatted them away. And note that Gazprom and the Russian government didn’t pull the crap with Exxon that they pulled with Shell, or with BP in Kovytka or with TNK-BP. That’s a very big dog that didn’t bark. You think the Russians were just being nice to Exxon? Hardly. They respond to strength, and knew better than to confront Exxon.
When Rosneft and Exxon were negotiating their deals in the 2011-2013 time frame, Sechin wanted an arrangement similar to that he extracted/extorted from BP: an XOM investment in Rosneft combined with a big Rosneft equity stake in XOM. This went nowhere. Instead, Exxon negotiated a set of joint ventures that limited its exposure and gave it a lot of optionality and off-ramps, thereby limiting its vulnerability to Russian extortion. As further protection, it also exchanged hostages, namely JVs in the GOM. (These were ironically terminated last week, due to bad economics and unfavorable exploration results, thereby demonstrating the tenuous nature of these kinds of ventures.) Sachin was the supplicant, and was rejected.
All of this reveals that ExxonMobil, and Tillerson personally, were quite aware of the nature of the Putin regime, and the dangers in dealing with it. He hardly needs instruction from Julia Ioffe on these things. Indeed, he has more schooling in these matters that pretty much anyone alive, and has far fewer scars to show for it than pretty much anybody else who has tried to deal in Russia (Bob Dudley, for instance). He has fewer scars because he had more power to fight back than even behemoths like BP. Because Exxon is the behemoth among behemoths.
XOM/Tillerson were clearly aware of the lack of property rights in Russia, and the vulnerability to expropriation. They were the industry leaders at structuring contracts to reduce their risk to this. Further, they had the economic heft to stand up to Russia and Putin: Exxon’s market cap is almost equal to the market cap of the entire Russian market. What’s more, Exxon used this economic heft to get good deals out of Russia. If anything, Russia needed Exxon more than Exxon needed Russia–something that BP or even Shell could not say.
In other words, Tillerson is a man who understands Russia well, is intimately aware of its dysfunctions, understands relative power, and is willing to negotiate from a position of strength in order to obtain positive outcomes that limit the risk of exposure to these dysfunctions.
This is a problem why, exactly? That sounds like the perfect skill set. I know those still in shock after losing an election want to blame Russia for all their misfortunes and are (insanely) seeking open confrontation. That’s idiocy. He will have the resources of the most powerful nation in the world at his disposal, and he will know that American power vastly exceeds Russia’s. Tillerson has taken Putin’s measure, knows the players, and knows how to deploy power to reach mutually beneficial outcomes. Sounds good to me.
Also, incentives matter. As CEO, Tillerson was accountable to shareholders, and his compensation largely aligned his incentives accordingly. He was not (directly) accountable to the US government or the American people, and therefore it is expected that he would sometimes make decisions that benefited Exxon but which were not necessarily aligned with American policy or even American interests. (Though no one has provided a compelling example of that.*)
As Secretary of State, however, his incentives will be far different, and his interests will be far less aligned (if aligned at all) with his former employer. However imperfectly, the incentive structure of democratic politics will lead him to make choices that will differ substantially from those he would have made as CEO of Exxon. I would note that there are many, many instances where what people do in office is very different from what they did or said previously. This is because they face very different incentives. To go out on a limb, I would not be surprised if Tillerson becomes a Strange New Respect winner.
I have no idea how Tillerson will perform as Secretary of State. But I am highly confident that his long experience in Russia does not represent a serious concern: in fact, I would venture that it is his greatest attribute. He dealt with the Russians for years, and didn’t get run over, and indeed, negotiated some pretty favorable deals with them. That speaks volumes.
Further, I would note that Russia is obviously an important policy challenge, but as a declining power that faces some rather daunting geopolitical and economic handicaps, I do not consider it our primary policy threat. The political class’ recent obsession with Russia, to the exclusion of more important countries–China, most notably–reflects the narcissistic rage of a part of the political class that was thwarted in its ambitions, and which is casting about for a scapegoat. These people didn’t give a damn about Russia before last summer, and indeed, to the extent they mentioned it at all it was to scorn those (e.g., Romney) who raised alarms about it. These are not serious people and their hysterics should not be taken seriously. Fixating on Tillerson’s Russian experience and dealings will distract attention from inquiries about his policy thinking on more important issues.
*In the comments Tim Newman mentions ExxonMobil’s dealings with Kurdistan in defiance of US government policy. That’s a good example, though I do find American policy in this regard problematic. Another example that comes to mind is Tilleson’s decision to terminate drilling in Ukrainian waters around the time of the Crimean crisis.