Dr. Cohen Commenting on Tillerson

Forbes

Exxon’s Sanctioned Russian Oil Deal Threatens Rex Tillerson As Trump’s Secretary Of State

Kenneth Rapoza

December 15, 2016

http://www.forbes.com/sites/kenrapoza/2016/12/15/trump-russia-exxon-tillerson/#67f899363a63

President-elect Donald Trump wants him. But many Russia-phobic Republicans rind arguably not a single Democratic in the Senate will vote for Exxon CEO Rex Tillerson as Secretary of State.

Tillerson announced his retirement Wednesday as CEO of Exxon after 41 years at the oil giant following Trump’s nominating him to replace John Kerry at the State Department. Tillerson brings years of experience in dealing with foreign leaders in oil rich nations, including unsavory ones in the Middle East. But of most concern is likely to be Tillerson’s relationship with Vladimir Putin. Exxon has a $720 million joint venture with Rosneft, run by Putin’s friend Igor Sechin. That deal has been put on ice since the White House sanctioned Russian oil and gas companies in July 2014.

In 2013 and 2014, both Rosneft and Exxon established various entities to conduct exploration and research activities throughout Russia. Each joint venture remains on hold based on rules and regulations set in the sectoral sanctions policies of both the U.S. and E.U. Exxon says that its maximum before-tax exposure to loss from these joint ventures as of December 31, 2015, was $1 billion.

Exxon is not commenting on Tillerson’s nomination.

Anti-Putin Republicans led by John McCain will likely vote against Tillerson’s appointment in the Senate Foreign Relations Committee. No date has been set for that vote. McCain’s office did not return requests for comment either.  But Republican Senator and Chairman of the Committee, Bob Corker, called Tillerson “a very impressive individual” who “has an extraordinary working knowledge of the world. I congratulate him on his nomination and look forward to meeting with him and chairing his confirmation hearing.” Corker was also in the running for cabinet post.

While Corker’s nomination may be Trump transition team’s way of buttering up the Senator to get their man through committee, Corker will have to do the same with McCain and another Putin skeptic, Lindsey Graham. Both may put the position on hold in committee, meaning it never gets to the Senate floor.

“Tillerson’s nomination reflects Trump’s comfort with top tier CEOs and other business people. He is a great example of the businessman-statesman,” says Ariel Cohen, a senior fellow for the Atlantic Council in Washington.

“He succeeded in cutting an unprecedented oil deal with Rosneft and has an outstanding working relationship with the Kremlin. But his nomination may run into some headwinds,” he says. “Some Republicans on the Hill are concerned about the perceived threat of Russia. They may oppose his nomination precisely because of his business dealings with the Kremlin.”

Tillerson has a long history in Russia. He was involved in negotiating the sale of exiled Russian oligarch Mikhail Khodorkovosy’s Yukos Oil in a bidding war with Chevron. The Rosneft joint venture to drill in the Kara Sea made sense at the time when oil was $85 a barrel, but drilling through ice and rough, cold northern seas for hydrocarbons may not look as attractive with oil in the $50s.

It is not unheard of for the Senate to reject a president’s nomination for a cabinet position. In 1989, George H.W. Bush’s candidate for Secretary of Defense, John Tower, was blocked in a senate vote for serving under the president. It was the first time the senate blocked a presidential nominee in 30 years. Tillerson could face a similar fate because of the Russia factor.

If Tillerson is not confirmed, then it will be back to the drawing board for Trump.

Generally speaking, the President of the United States has the authority to impose and remove sanctions using the International Emergency Economic Powers Act. According to the State Department, the President can delegate administration of a sanctions regime to State or Treasury to determine which individuals and organizations meet the criteria for sanctions. But congress also has the authority to legislate sanctions and despite it being a Republican congress, it is more or less a Cold Warrior congress that considers Russia a natural enemy. George W. Bush and Russia had good working relations and Obama called for a reset of Russia relations in his first term.

Oil Markets Waiting

Tillerson’s appointment was applauded by Russian fund managers and some oil industry investors who are hopeful that sectoral sanctions get removed at some point next year.

“I think sanctions will be lifted within one month after inauguration of Trump,” says an overly optimistic Arent Thijsen, CEO and partner at Blauwtulp Wealth Management in The Netherlands. Thijsen invests in the Russian market. “It feels to me like Trump has made his geo political analysis and has concluded that Russia will never be able to compete with the U.S. as superpower. The might of Russia is based on the past, Soviet nuclear weapons. Their economy is small and there is messy leadership. The only country which can really U.S. power is China.”

Oil industry investors and physical oil traders in Russia say that Tillerson provides more hope of sanctions relief sooner rather than later. On the margins, if Tillerson is sworn in, which is not necessarily a given, a less antagonistic attitude towards Moscow could lead to a re-pricing of Russian assets.

Market consensus is that sanctions are retained next year, and that an Executive Branch controlled by Trump wouldn’t give Russia sanctions relief without getting something in return.