The Cable

Forget Sanctions: Exxon Would Like Access to Russian Oil Anyway

Because Russia just doesn’t loom large enough already in Washington.

putin crop

With the simple submission of a technical sanctions waiver, oil giant Exxon Mobil created a potential PR headache for the White House. On Wednesday, the Wall Street Journal reported Exxon is seeking a greenlight from the U.S. government to bypass sanctions on Russia and resume doing business with the country’s state-owned oil giant Rosneft. On Friday, the U.S. Treasury Department said it would not issue the waiver.

Despite, or perhaps because of, the refusal, it’s hard to imagine how the optics could be worse. One of the biggest of the many scandals plaguing Trump’s White House is the FBI investigation into whether his campaign coordinated with Russian intelligence to tip the election in his favor. An unverified dossier alleges that Rosneft may have played a role in the Russian election meddling. And Secretary of State Rex Tillerson happens to be the former Exxon CEO — who before becoming America’s top diplomat had lobbied the Obama administration to ease sanctions that hamstrung Exxon’s business in Russia.

The State Department is one of several government agencies that will oversee Exxon’s waiver application, though a State Department spokesman told the Wall Street Journal Tillerson (who received the Russian Order of Friendship in 2013) is recusing himself from any decisions relating to Exxon for two years.

The sanctions were put in place in 2014, after Russia annexed Crimea. The sanctions prevent U.S. companies from dealings with Rosneft involving technology transfer, and also target Rosneft chief — and Putin confidant — Igor Sechin.

Under Tillerson’s leadership, Exxon paid hundreds of thousands of dollars to lobbying groups to argue against U.S. sanctions and he personally met with senior Obama White House officials a dozen times to discuss sanctions on Russia (though he assured Congressional leaders at his confirmation hearing in January he “never lobbied against sanctions personally” and “to [his] knowledge, Exxon never directly lobbied against sanctions.”) Exxon figures the sanctions, which have forestalled exploration in places like the Russian Arctic, cost it at least $1 billion.

Exxon is apparently trying to get U.S. permission to drill in the Russian Black Sea; if it doesn’t drill an exploratory well this year, it could lose the concession. But existing sanctions aside, Exxon’s efforts now to get access to deepwater, offshore oil fields is a little curious given the big global oil supply glut and still-cheap prices. Deepwater projects, like the one Exxon is trying to get going, generally need oil prices closer to $70 a barrel to be economic; crude oil has spent months in the $50 a barrel range. (Exxon’s other sanctions-stalled project with Rosneft, in the chilly Kara Sea, would be an even dicier proposition at these prices.)

But under the terms of its agreement with Rosneft, Exxon’s Black Sea play could expire if it doesn’t act soon, so it presumably wants to keep the proverbial pilot light on so they’re ready to pounce when prices rebound.

Another reason could be sheer competitive pressure. The European Union is granting sanctions waivers to its own companies, including Italian oil company Eni, to explore cooperation with Russia in the Black and Barents Seas, even while the sanctions freeze out U.S. firms.

“Exxon is worried it could get boxed out of the Black Sea by the Italians,” one person briefed on the Exxon waiver told the Journal. That’s a fear that became increasingly likely to be realized on Friday.

Update, April 21, 2017, 3:05 pm ET: This post was updated to include the Treasury Department’s refusal to issue the waiver. 

Photo credit: ALEXEY DRUZHININ/AFP/Getty Images

Robbie Gramer is a diplomacy and national security reporter at Foreign Policy. Twitter: @RobbieGramer

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