Big oil’s Russian dealings watched
Exxon Mobil faces $2 million fine for violating sanctions
WASHINGTON — International energy companies, which have long eyed the vast oil and gas reserves of Russia, are coming under increased scrutiny for their interactions with Moscow as U.S.-Russian relations become increasingly fraught following Russian interference in last year’s presidential election.
The U.S. Treasury Department on Thursday leveled a $2 million civil fine against Exxon Mobil for violating sanctions against Russia three years ago, when Secretary of State Rex Tillerson led the Texas oil company. At the same time, Congress is debating a package of expanded sanctions that would prohibit American companies from engaging in deals in which Russian firms are also involved — whether the project is in Russia or not. That could keep oil companies with significant U.S. operations out of oil and gas projects from Turkey to Venezuela.
The actions don’t appear to be directly linked. But their close proximity indicates the increasing risks to the U.S. oil industry from its long-standing ties with Russia, potentially leading companies to pull back
from dealings with Moscow, said Richard Sawaya, a former oil lobbyist who now represents some of the country’s largest corporations for the National Foreign Trade Council.
“Only (a naive person) would say that the risk threshold for U.S. companies hasn’t increased when it comes to the Russian Federation,” he said. “With oil prices where they are and the opportunities such as they are in the U.S., in places like the Permian Basin, and the risk threshold going up, what would you do?”
‘Reckless disregard’
The potential danger was made evident Thursday when Treasury’s Office of Foreign Assets Control said Exxon demonstrated “reckless disregard” when it didn’t voluntarily disclose its dealings with Rosneft CEO Igor Sechin to the U.S. government — despite the Obama Administration’s move to block American dealings with Sechin, Rosneft and other Russian officials and companies amid Russia’s annexation of Crimea and other military aggression in Ukraine.
But in a lawsuit filed in federal court in Dallas on Thursday, Exxon argued it followed guidance set out by the Obama Administration that U.S. firms could work with Sechin in his capacity as Rosneft CEO, as long as his personal business was not involved. The company cited the precedent that Bob Dudley, the American CEO of the British oil major BP, which owns a fifth of Rosneft, was allowed to keep working on Rosneft’s board of directors alongside Sechin.
Treasury “is trying to retroactively enforce a new interpretation of an executive order that is inconsistent with the explicit and unambiguous guidance from the White House and Treasury,” Exxon said Thursday.
The spotlight on Russian dealings follows reports from U.S. intelligence agencies that the Russian government was behind the hacking of Democratic Party servers ahead of last year’s presidential elections and a widening investigation of possible collusion between the Trump campaign and the Putin government. The investigation, led by a special prosecutor, former FBI Director Robert Mueller, is focusing on the inner circle of President Donald Trump, including his son Donald Jr. and son-in-law, Jared Kushner.
‘What a gift’
Legislation under consideration in Congress, which would expand earlier sanctions placed on Russia and Iran, has some of the world’s largest companies, from Exxon and Chevron to General Electric and Honeywell International, fiercely arguing that prohibiting business deals with companies like Rosneft would keep them out of hugely lucrative projects worldwide. Among the projects that could be affected is the Southern Gas Corridor project, which would move natural gas from the Shah Deniz field in Azerbaijan to southwestern Europe once completed.
The 2,200-mile pipeline has been promoted as a means to give Italy, Turkey and other European nations another alternative to the Russian natural gas upon which they have long relied. But the Russian firm Lukoil is one of the 11 energy companies involved in the project. Other partners include BP, the French oil major Total, and the Norwegian national oil company Statoil. All have a significant presence in Houston.
“Even the threat of sanctions could seriously affect the project,” said Richard Morningstar, a former U.S. ambassador to Azerbaijan and founding director of the Atlantic Council’s Global Energy Center. “What a gift to give to the Russians to eliminate a source of competitive gas.”
The sanctions have implications for U.S. majors, too. Exxon is partnered with Rosneft on an exploration project off the coast of Mozambique. And earlier this year the Venezuelan state oil company Petróleos de Venezuela SA offered Rosneft a 10 percent stake in an oil project there.
Oil industry lobbyists, however, seemed to be gaining ground in Washington on Thursday. House Majority Leader Kevin McCarthy, R-Calif., said there’s “broad consensus” among lawmakers from both parties to change that provision, and the House could move forward on an altered sanctions bill next week.
Russia, global markets
Trade between Russia and the United States is relatively small. The $38.1 billion in 2013 ranked Russia behind 22 other countries, according to the Office of the U.S. Trade Representative. But for the energy industry around Houston, the scale of Russia’s resources and its demand for energy make dealings fairly frequent.
“Russia isn’t just some rinky-dink, one-stoplight country somewhere. It’s got a real economy,” said Chris Tucker, senior managing director at FTI Consulting, whose clients include oil and gas companies, “It’s linked up with global markets, and especially energy markets, in a pretty inextricable way.”
For instance, Trump’s pick for Russian ambassador, Jon Huntsman Jr., has ties to Russia through his seat on Chevron’s board and his family’s chemical company based in The Woodlands.
Huntsman has a stake in Huntsman Corp., which maintains at least five facilities in Russia, including locations in Moscow and St. Petersburg. He is not actively involved in running the company founded by his father, Jon Sr., and run by his brother, Peter, the CEO.
Huntsman sits on the board of California-based Chevron. One of the companies Chevron does business with in Russia is stateowned Transneft, one of the companies targeted by U.S. sanctions in recent years.