The Exxon-Treasury Fight And The Roots Of Russiagate

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By David Halperin and Kert Davies, originally published at HuffPost.

Putin and Exxon have aimed relentlessly at ending U.S. sanctions, but scandal and Congress have now tied Trumpโ€™sย hands.

When the Treasury Departmentย announcedย on July 20 that it had fined ExxonMobil $2 million for violations of U.S. sanctions against Russia, there were multiple ways to view the dispute. Was it best understood as an awkward battle pitting Treasury Secretary Steven Mnuchin against Secretary of State Rex Tillerson, who was ExxonMobilโ€™s CEO at the time of the alleged misconduct? Was the decision a case of principled career Treasury staff standing up to Exxon and Russian bad behavior in defiance of pro-fossil fuel, pro-Putin President Trump? Was Tillerson, given Exxonโ€™s alleged defiance of U.S. law on his watch, morally qualified to be our nationโ€™s chief diplomat? Was the Treasury action the final insult for Tillerson, who seems to have beenย frustratedย atย every turnย by Trump and his own lack of effectiveness, triggering aย resignation?

But the most relevant context for the Treasury fine on Exxon is, in fact, the thing weโ€™re all talking about anyway:ย Russiagate.

As weย wroteย back in February, if there was, in fact, a corrupt bargain between the Trump campaign and the Russian government, or a tacit understanding, the outlines of the deal seem straightforward. Trump wanted help to win the most prestigious and potentially lucrative prize available in America: the Oval Office. What Vladimir Putin wanted most, what he has wanted desperately for several years, is also crystal clear: for the next U.S. president to lift the major sanctions that have been strangling the Russian economy. And Trump repeatedly signaled as a candidate that he might do justย that.

To be sure, there wereย reasonsย besides the sanctions that Putin might have wanted to help Trump win: Trump lacked Hillary Clintonโ€™s national security and government experience and thus was potentially a weaker adversary; Trump was calling into question U.S. alliances and commitments overseas, including NATO

Putin also could have believed that even if Russian interference did not manage to swing the election to Trump, the email hacks and other measures could embarrass Clinton, weaken her presidency, create a sense of chaos, and give Russia newย advantages.

But the chance to rescue the flagging Russian economy by electing Trump and eliminating the sanctions certainly would have loomed large for the Kremlinย leader.

And in this regard, at this point, it seems that the whole scheme may have backfired. Trump was elected, but his presidency is in total disarray, in part under the weight of the mounting investigation of the campaignโ€™s Russia ties. Tillerson became Secretary of State, which must have thrilled Putin, and the Russian state oil company that had signed extensive agreements with Exxon, but his influence seems to be minimal. And political pressure on Trump from Russiagate has greatly reduced the likelihood that the U.S. will relax its Russia sanctions any time soon; indeed, Congress has just forced Trump to agree to tightenย them.

Putinโ€™s Relentless Effort to End U.S.ย Sanctions

The concept of an election help/ sanctions relief deal is reflected in the story of the crowded June 2016 Trump Tower meeting: Donald Trump Jr. jumped at the emailed offer of dirt on Hillary Clinton from the Russian government, and pulled in Trump son-in-law Jared Kushner and campaign chairman Paul Manafort. But when the Russians showed up, Trump Jr. and Kushner have each claimed, they mostly wanted to talk about โ€œadoption.โ€ President Trump told the New York Times that in their extra discussion at the G20, Putin also wanted to talk about adoptions, โ€œwhich is interesting because it was a part of the conversation that Don had in that meeting.โ€ Interesting, sure, because โ€œadoptionsโ€ really meantย sanctions.

The Russians werenโ€™t raising Putinโ€™s ban on U.S. adoptions of Russian children because they care about orphans; Putin imposed the adoption ban in response to the 2012 U.S. Magnitsky Act sanctions against a group of powerful Russians who are suspected of playing a role in the death of a whistleblowing Russian lawyer. These are penalties that Putin wantsย lifted.

But the 2012 Magnitsky sanctions were not nearly as critical for Russiaโ€™s economy, and thus for Putin, as the sanctions imposed by President Obama from March to July 2014 in response to Russiaโ€™s annexation of the Ukrainian territory of Crimea. Those Crimea sanctions, as implemented by Treasury, prohibit U.S. companies from doing business with a group of even more powerful Russians, including Igor Sechin, a close associate of Putin and the head of Rosneft, the Russian state-owned oil company. When it issued the sanctions, Treasuryย saidย that Sechin โ€œhas shown utter loyalty to Vladimir Putin – a key component to his current standing.โ€ The sanctions also bar U.S. deals with Rosneft itself and with other Russian businesses, including Vnesheconombank, whose Putin-connected CEOย met with Kushnerย last December at the insistence,ย according to Kushner, of ubiquitous Russian ambassador Sergeyย Kislyak.

Putinโ€™s drive to overturn the U.S. sanctions also led to the sudden departure of national security advisor Michael Flynn, less than a month after Trumpโ€™s inauguration,ย supposedlyfor misleading the White House about his multiple phone calls with Kislyak. The apparent hook for those calls was President Obamaโ€™s Dec. 29 imposition of new sanctions against Russia โ€• expelling 35 suspected Russian spies from the United States, penalizing Russiaโ€™s two major intelligence services, and kicking the Russians out of waterfront mansions in New York and Maryland believed to be used for intelligence operations. Obama imposed this last round of penalties in the wake of U.S. intelligence findings that Russia had aimed to tilt the election to Trump by hacking emails and spreadingย disinformation.

Although transcripts of the calls from intelligence community intercepts have not been publicly released, the Washington Postย reportedย that some senior U.S. officials interpreted Flynnโ€™s words as signaling that Moscow could expect a lessening of the sanctions. On Dec. 30, Putin announced that Russia would not impose retaliatory sanctions, and instead would wait and see what President Trump did after he was sworn in, a decision that Trump promptly praised on Twitter (โ€œGreat move on delay (by V. Putin) โ€• I always knew he was veryย smart!โ€)

At his only solo press conference as president, back in February, Trumpย said, as to whether Flynn discussed the sanctions with Kislyak in December, โ€œIt would have been okay with me โ€ฆ I would have directed him if I thought he wasnโ€™t doingย it.โ€

Also in February, the New York Timesย reportedย that Michael Cohen, Trumpโ€™s long-time lawyer, hand-delivered to Flynn, the week before he resigned, a proposal for a Russia-Ukraine peace deal that included lifting the U.S. sanctions. The plan was endorsed by Cohen, Felix Sater, a Russian-American businessman with longstanding connections to Trump, and a Ukrainian oppositionย politician.

(In addition, the unconfirmedย intelligence dossierย created by ex-MI6 agent Christopher Steele includes the allegation that Trump campaign adviser Carter Pageย met last summerwith Rosneftโ€™s president Sechin and a senior Russian government official and that โ€œSechinโ€™s associate said that the Rosneft president was so keen to lift personal and corporate western sanctions imposed on the company, that he offered Page and his associates the brokerage of up to a 19 percent (privatized) stake in Rosneft. In return, Page had expressed interest and confirmed that were Trump elected U.S. president, then sanctions on Russia would beย lifted.โ€)

Itโ€™s clear from all these episodes that the Russians have been focused like a laser on getting Donald Trump to lift or relax the U.S.ย sanctions.

Exxonโ€™s Sanctionsย Violation

Other than the relentless Kremlin, the entity that most wants to be free of these restrictions, it seems, isย ExxonMobil.

In April of this year, ExxonMobil asked Treasury for a waiver of the Russia sanctions so it could proceed efforts with Rosneft to drill in the Black Sea. Treasury denied theย request.

On July 20, Treasuryโ€™s Office of Foreign Assets Control (OFAC) concluded that Exxon violated U.S. sanctions in May 2014 when its officials signed a series of agreements with Sechin on behalf ofย Rosneft.

Even though the $2 million fine is a drop in the Arctic Ocean compared with Exxonโ€™s annual revenue of some $225 billion, Exxon promptly sued Treasury, claiming that it had received guidance from Obama Administration that indicated it was legal to make a deal with Sechin acting in his official capacity for Rosneft, as opposed to acting personally. At the time of the contract signings, U.S. sanctions announced in April 2014 were already in effect against Sechin, but the broader prohibition against Rosneft wasnโ€™t imposed until Julyย 2014.

But Treasury says the April sanctions offered no such loophole and that Exxon, in signing the deals with Sechin, โ€œdemonstrated reckless disregardโ€ for theย law.

The Russia-Exxonย Deal

While the new $2 million penalty focuses on the 2014 contracts, the biggest deal that the U.S. sanctions shut down was the remarkable 2011ย agreementย that Putin, Sechin, and Rosneft brokered with Exxon and Tillerson. The plum in thisย deal, potentially worth hundreds of billions of dollars, was new exploration for offshore oil and gas in the Russian Arctic. (The drilling deal was facilitated by global warming that hasย melted Arctic icefund efforts to concealย the risks of climate change from the Americanย people.)

Aย 1988 CIA secret report, since declassified, underscores the value of the Arctic deal. According to the report, the Kara Sea, the place where Exxon and Rosneft later targeted their major offshore operations, โ€œcould become one of the major petroleum regions in the USSR early in the next century.โ€ But the agency judged that development was unlikely without joint ventures with Western oil companies. Twenty-three years later, Exxon stepped into the very role the CIAย predicted.

Oil and gas revenue has accounted for upwards of 70 percent of Russiaโ€™s export income andย 40 to 50 percentย of the Russian budget over the pastย decade.

The Russian Arctic alone is said to hold upwards of 90 billion barrels of oil. And Rosneft has exclusive access, granted by Putin. The Rosneft deal was alsoย crucial for Exxonโ€™s future, allowing it to book massive reserves unavailable elsewhere on earth, before the sanctions shut itย down.

A glut of oil on the global market has crashed oil prices and tanked the Russian economy in the last few years. Nonetheless, Russia is now second to the United States in oil and gas production, and only the U.S. fracking boom of the past five years puts the U.S. in the lead. And in brokering the Russian deal, Exxon promised toย teach Rosneft to frack, with made-in-America technology and equipment. This step would inevitably lead to a Russian glut of oil and gas production, just as the U.S. is now experiencing. That would further depress global energy prices, and make U.S. oil and gas less competitive and less profitable on the global market. The dubious โ€œAmerican Energy Dominanceโ€ goal set by Trump would surely beย undermined.

One might ask how allowing this deal to proceed would help the United States anywhere except at Exxon headquarters. But the deal has the potential to make Russia greatย again.

Trump and Tillerson on theย Sanctions

While Trump and Tillerson have appeared to be at odds on a range of policy and personnel decisions since January, the one thing they have seemed to agree upon is opposition to Russiaย sanctions.

Trump as a candidate promised that he โ€œwould be looking intoโ€ recognizing Crimea as part of Russia and lifting the Obama sanctions. A few days later Trumpย told an interviewerthat โ€œthe people of Crimea, from what Iโ€™ve heard, would rather be withย Russia.โ€

On Jan. 16, president-elect Trump returned to the subject, saying he might propose a deal under which the U.S. would end its Crimea sanctions if Russia agreed to a nuclear arms agreement. โ€œRussiaโ€™s hurting very badly right now because of sanctions,โ€ย Trump said, โ€œbut I think something can happen that a lot of people are gonnaย benefit.โ€

(Although Trumpย reportedlyย told Ukrainian opposition leader Yulia Tymoshenko in February that he would not lift the sanctions until Russia withdrew from Ukraine, that could have been a case of the low-knowledge Trump listening to the last interesting person he talked with, or else wishful thinking byย Tymoshenko.)

Buttressing the idea that Trump was preparing to lift the Russia sanctions was his choice for secretary of state. Rex Tillerson had no diplomatic or government experience. Instead, he had spent 41 years atย Exxon.

As an Exxon executive, Tillerson got to know Putin and developedย strong personal tiesย to Rosneft head Sechin, an ex-KGB agent; the two men enjoyedย riding motorcyclesย together. Tillersonโ€™s advancement to be ExxonMobil CEO wasย precededย by his appointment in 1998 to run Exxon Neftegas Limited, the division in charge of anย Exxon-Rosneft projectdrilling for oil near Sakhalin Island off the Siberian coast. The project has produced hundreds of millions of barrels of oil in the last 12 years. Because it doesnโ€™t involve new technology transfer, it has been able to proceed despite the U.S.ย sanctions.

In 2012, Russia awarded Tillerson one of its highest honors, the Order of Friendshipย decoration.

Despite Tillersonโ€™sย denialsย at his confirmation hearing,ย Exxon lobbiedย against Obamaโ€™s 2014ย sanctionsย on Russia andย Sechin.

At Exxonโ€™s annual meeting in May 2014, after the U.S. imposed sanctions on Sechin but before imposing them on Rosneft, Tillerson told reporters, โ€œThere has been no impact on any of our business activities in Russia to this point, nor has there been any discernible impact on the relationshipโ€ with Rosneft. โ€œThe organizations continue to work business as usual.โ€ He added,ย according to the Associated Press, that โ€œhe generally opposes sanctions as imprecise and ineffective. He said he has discussed his view with U.S. officials. He declined to identify them but said, โ€˜Our views are being heard at the highestย levels.โ€™โ€

Tillerson did not know Trump prior to election day. He was, reportedly, recommended to Trump by former Secretary of State Condoleeza Rice and former Secretary of Defense Robert Gates. But those two were not merely national security heavyweights from prior administrations; they now work in the same consulting firm, whoseย clients include ExxonMobil. So the push to make Tillerson Secretary of State could be seen, in part, as consistent with Exxonโ€™s own efforts to influence the Trump administration, including on the issue of the sanctions blocking the Exxon-Russiaย deal.

Although Tillerson has been notablyย missing fromย key Trump meetings and his views often overruled, he was the only other U.S. official in the room when Trump met with Putin at the G20 meeting in Hamburg earlier thisย month.

As president, Trump has continued to push back on pressure from all sides, including Republicans in Congress, to accept the overwhelming evidence that Russia sought to hack the U.S. election, which was the basis for the last round of Obama sanctions on Russia. Some days Trump grudgingly admits it, sort of. And other days he rebels. Last Sunday on CNNโ€™s โ€œState of the Union,โ€ energetic new White House communications director Anthony Scaramucci cited the argument of an unnamed expert that if it had been the Russians who hacked the U.S. election, we never would have found out, because the Russians are so smooth at hacking. Pressed by host Jake Tapper as to the identity of the expert, Scaramucci said: It was Trump. It turned out thatย Trump got that talking point from Vladimir Putin.

It seems clear that Trumpโ€™s resistance to blaming Russia for the hack arises in part from his obsession with proving that he won the election overwhelmingly and in legitimate fashion. But thereโ€™s also that powerful hold that Putin seems to have overย him.

The New Sanctions Legislation and Putinย Response

As evidence has mounted that Russiagate is real โ€• that Putin sought to influence the election, that Trump campaign officials had a web of ties and meetings with Russian government officials and other powerful Russians, that Trump officials have repeatedly failed to disclose such interactions, and that Trump pressured FBI director James Comey to drop the Flynn investigation and then fired Comey when he didnโ€™t โ€• Congress has been moved to commit the U.S. to the opposite course on sanctions from what Putin hasย sought.

On Tuesday, the House of Representatives, by a vote of 419 to 3, passed legislation to tighten U.S. sanctions on Russia, as well as Iran and North Korea, and to constrain the ability of the president to soften or waiveย them.

The Senate passed similar sanctions legislation in June, by a vote of 98 to 2, and Senate Foreign Relations Committee chairman this monthย backed offย some previous objections to the Houseย version.

The Trump White House lobbied aggressively against the sanctions bills, in particular a provision that would require Congress to approve any steps to loosen the sanctions onย Russia.

Tillerson, although he committed to Senators during his confirmation process to recuse from matters relating to Exxon, hadย publicly arguedย against sanctions legislation, saying it would undercut the administrationโ€™s flexibility in making deals withย Russia.

The legislation was weakened in recent days, as the Washington Postย explained, โ€œto address some administration concerns, including its potential effect on overseas oil and gas projects that include Russianย partners.โ€

ExxonMobil, as well as other energy companies,ย also had lobbiedย against these provisions, on the sameย grounds.

According to a Wall Street Journalย report: โ€œLobbyists for Exxon and other oil industry players have expressed dismay to lawmakers about several provisions in the legislation, including measures to prohibit partnerships with Russian individuals or companies under sanctions around the world, and to add congressional review of certain sanctions exemptions โ€ฆ Exxon spokesman Alan Jeffers said the company doesnโ€™t have a position on sanctions but has provided legislators with information about how the bill could โ€˜disadvantage U.S. companies compared to our non-U.S. counterparts.โ€™โ€ Exxon was reportedly concerned, among other things, about the fact of its joint projects with Rosneft in New Mexico andย Canada.

But the bill, even as modified, remains a barrier to the easing of Russia sanctions that Putin has sought, and thus, in particular, a barrier to the lucrative Exxon-Rosneft Arcticย deal.

The White House hedged for week as to whether Trump would sign or veto the legislation. Press Secretary Sarah Huckabee Sanders said last week that Trump โ€œhas been very vocal about his support for continuing sanctions on those three countries.โ€ But she added that Trump โ€œwants to make sure we get the best deal for the American people possible โ€ฆ Congress does not have the best record on that. .โ€‰.โ€‰. Heโ€™s going to study that legislation and see what the final product looksย like.โ€

Vladimir Putin, unlike Trump, could count votes, and knew that even a Trump veto would likely be overridden by Congress. So Friday morning, Putin tried a new take, implementing the retaliation he put on hold in December. Russia seized two U.S. diplomatic properties in the Moscow area โ€• a warehouse a collection of rustic cottages โ€• and ordered the U.S. to cut its staff in Russia down to 455, matching the number of Russian diplomats in the U.S. โ€œItโ€™s impossible to endlessly tolerate this kind of insolence toward our country,โ€ Putin saidย Friday.

Friday afternoon the White House announced that Trump would sign the bill, tightening the grip of the Russia sanctions โ€• the opposite of what candidate Trump hadย proposed.

Still, Putin and Trump seem unlikely to stop pursuing their bromance, seemingly driven by a mutual love of autocratic government, ofย pressuring the mediaย andย judiciaryย to do their bidding, of their white nationalist fans, and of mingling theirย financial interestsย with theirย government power, as well as their agreed-upon liquids of choice, oil andย gas.

Whatever the fate of its former CEO Tillerson in the Trump government, and despite its current tiff with Treasury, ExxonMobil, along with Sechin and Rosneft, will be waiting in the wings, hoping that a new era of detente will unleash boundless new fossil fuel production andย profits.

Kert Davies directs the Climate Investigations Center. David Halperin, a lawyer, formerly worked at the National Security Council and the Senate Intelligence Committee. This article also appears onย Republic Report.

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