What Do U.S. Sanctions Mean for Exxon’s Close Friendship With Russia in the Arctic?

A new policy aimed at hitting Russia’s energy strategy may hurt the U.S. oil company too.

National Journal
Marina Koren
Aug. 1, 2014, 8:52 a.m.

The latest round of sanc­tions against Rus­sia have the op­por­tun­ity to hurt Rus­sia’s oil in­dustry, its crown jew­el. But for that to work, they may have to hurt one of the most valu­able com­pan­ies in the U.S.

Sanc­tions from the Com­merce De­part­ment’s Bur­eau of In­dustry and Se­cur­ity will re­quire U.S. com­pan­ies to ob­tain li­censes in or­der to ex­port tech­no­logy to Rus­si­an oil pro­duc­tion in the Arc­tic and else­where. The meas­ures “are de­signed not to im­pact Rus­si­an cur­rent pro­duc­tion, but to im­pact their abil­ity to pro­duce in more tech­no­lo­gic­ally chal­len­ging fu­ture pro­jects,” a seni­or ad­min­is­tra­tion of­fi­cial said Tues­day.

One of these fu­ture pro­jects, however, in­volves Amer­ica’s biggest oil com­pany: Ex­xon Mo­bil.

In 2011, Ex­xon and Rus­sia’s state-run oil gi­ant, OAO Ros­neft, formed a $500 bil­lion part­ner­ship to ex­plore Rus­si­an seas for oil. It was a happy mar­riage at the time: Ex­xon needed Rus­sia’s un­tapped re­serves to nurse its stead­ily drop­ping out­put, and Rus­sia needed Ex­xon’s tech­no­lo­gic­al ex­pert­ise and mar­ket know-how to main­tain its status as the world’s largest oil pro­du­cer. But the ven­ture was signed in the days of Pres­id­ent Obama’s Rus­si­an re­set””long be­fore Syr­ia, Snowden and, most re­cently, sep­ar­at­ists in east­ern Ukraine made U.S.-Rus­sia re­la­tions the shaki­est since the Cold War.

Ex­xon and Ros­neft have plans to drill their first ex­plor­a­tion well in the Arc­tic this year, tar­get­ing a de­pos­it that may hold more oil than the pet­ro­leum-rich North Sea, which made Nor­way rich. As many as 40 oth­er wells would fol­low in the next few years, with one in the Black Sea. The com­pan­ies also planned to frack shale fields in Siber­ia.

Ex­xon Mo­bil spokes­man Alan Jef­fers said Wed­nes­day night that the cor­por­a­tion is as­sess­ing the im­pact of the sanc­tions. He could not say how long such an as­sess­ment may take.

The new sanc­tions put U.S. oil com­pan­ies work­ing with Rus­sia in an un­com­fort­able spot. If the Ex­xon deal moves for­ward, Amer­ica’s most prof­it­able en­ergy com­pany will be in­vest­ing bil­lions in Rus­sia’s long-term en­ergy strategy at a time when all Wash­ing­ton wants to do is isol­ate Mo­scow. If the part­ner­ship is put on ice, the Obama ad­min­is­tra­tion would have hurt Rus­sia at the ex­pense of U.S. oil pro­duc­tion.

The bond between Ros­neft and Ex­xon is a strong one. Last sum­mer, Rus­si­an Pres­id­ent Vladi­mir Putin awar­ded Ex­xon CEO Rex Tiller­son the Or­der of Friend­ship, which is meant to re­ward for­eign na­tion­als whose work im­proves the Rus­si­an na­tion and its people. “Most big U.S. com­pan­ies, es­pe­cially those mak­ing long-term stra­tegic de­cisions, dis­miss Rus­sia-U.S. polit­ics as something of a soap op­era with fre­quent script changes,” Chris Weafer, man­aging dir­ect­or of Macro Ad­vis­ory, a Mo­scow-based con­sult­ing firm for in­vest­ment op­por­tun­it­ies in Rus­sia, told Bloomberg’s Steph­en Bier­man in Janu­ary.

In April, when the U.S. Treas­ury De­part­ment black­lis­ted Ros­neft CEO Ig­or Sechin, who is thought to be be­hind Rus­sia’s en­ergy strategy, Ros­neft shares hit a 10-month low. But neither Ros­neft nor Ex­xon blinked when it came to their luc­rat­ive oil-ex­plor­a­tion deal.

At least one mem­ber of Con­gress has ex­pressed con­cern about the part­ner­ship. After meet­ing with Ukrain­i­an lead­ers in May, Sen. Ted Cruz, R-Texas, said that the U.S. “should look very closely” at the deal.

While the latest sanc­tions cer­tainly carry more weight than black­list­ing a CEO, Ex­xon and Ros­neft’s part­ner­ship is not ex­pec­ted to buckle. Glob­al­iz­a­tion””and the profit that comes with it””is top pri­or­ity for both com­pan­ies. For Ex­xon, “their fi­del­ity is to their share­hold­ers, not ne­ces­sar­ily their gov­ern­ment,” wrote Mat­thew Philips for Bloomberg Busi­nes­s­week in March.

U.S-Rus­si­an re­la­tions are already tense in the Arc­tic. Rus­sia has been vy­ing for years for more con­trol of the re­gion, which in­cludes the North Pole and is home to 15 per­cent of the world’s oil. The U.S. has not yet rat­i­fied a United Na­tions con­ven­tion that would al­low it to re­quest more ter­rit­ory, through Alaska, but law­makers are wor­ried that the U.S. isn’t do­ing enough there any­way.

“Our coun­try has more work to do to catch up with oth­er Arc­tic na­tions,” Rep. Rick Larsen, D-Wash., said earli­er this month when Adm. Robert J. Papp Jr. was ap­poin­ted the State De­part­ment’s spe­cial rep­res­ent­at­ive to the Arc­tic. On Tues­day, the day Obama an­nounced the latest sanc­tions, Papp lamen­ted, “How do you get the gen­er­al Amer­ic­an pub­lic to un­der­stand that we’re an Arc­tic na­tion?”

The Amer­ic­an pub­lic may not see it that way, but Ex­xon Mo­bil cer­tainly does.

What We're Following See More »
A DARK CLOUD OVER TRUMP?
Snowstorm Could Impact Primary Turnout
2 days ago
THE LATEST

A snowstorm is supposed to hit New Hampshire today and “linger into Primary Tuesday.” GOP consultant Ron Kaufman said lower turnout should help candidates who have spent a lot of time in the state tending to retail politicking. Donald Trump “has acknowledged that he needs to step up his ground-game, and a heavy snowfall could depress his figures relative to more organized candidates.”

Source:
IN CASE OF EMERGENCY
A Shake-Up in the Offing in the Clinton Camp?
2 days ago
THE DETAILS

Anticipating a primary loss in New Hampshire on Tuesday, Hillary and Bill Clinton “are considering staffing and strategy changes” to their campaign. Sources tell Politico that the Clintons are likely to layer over top officials with experienced talent, rather than fire their staff en masse.

Source:
THE LAST ROUND OF NEW HAMPSHIRE POLLS
Trump Is Still Ahead, but Who’s in Second?
1 days ago
THE LATEST

We may not be talking about New Hampshire primary polls for another three-and-a-half years, so here goes:

  • American Research Group’s tracking poll has Donald Trump in the lead with 30% support, followed by Marco Rubio and John Kasich tying for second place at 16%. On the Democratic side, Bernie Sanders leads Hillary Clinton 53%-41%.
  • The 7 News/UMass Lowell tracking poll has Trump way out front with 34%, followed by Rubio and Ted Cruz with 13% apiece. Among the Democrats, Sanders is in front 56%-40%.
  • A Gravis poll puts Trump ahead with 28%, followed by Kasich with 17% and Rubio with 15%.
IT’S ALL ABOUT SECOND PLACE
CNN Calls the Primary for Sanders and Trump
1 days ago
THE LATEST

Well that didn’t take long. CNN has already declared Bernie Sanders and Donald Trump the winners of the New Hampshire primary, leaving the rest of the candidates to fight for the scraps. Five minutes later, the Associated Press echoed CNN’s call.

Source:
×