Deepening Ties Between Exxon and Russia Run Counter to U.S. Efforts to Punish Putin

As its interests deepen in Russia, Exxon also stands to profit from the U.S. effort to fast-track oil and gas exports to 'stick it' to Putin.

Russian President Vladimir Putin is seen here awarding ExxonMobil Chairman and CEO Rex Tillerson with the Order of Friendship last year. Exxon stands to profit from both sides of the Russia-U.S. dispute. Credit: Presidential Press and Information Office

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As tensions mount and U.S. lawmakers push for stiffer sanctions on Russia for its role in the Ukraine crisis, oil giant ExxonMobil wants no part of it.  

On the contrary, America’s second-largest public company recently deepened its ties to Russia and its vast energy deposits with a new natural gas export venture and by providing Russian President Vladimir Putin with enthusiastic—and very public—support.

The incongruity of Exxon’s business-as-usual approach in Russia while U.S. officials talk of punishing Putin highlights a reality that politicians and the public tend to overlook: Corporate interests and the needs of the nation can—and do—sometimes diverge. Barring legal prohibitions, Exxon and other public companies are duty-bound to put shareholder interests first.  

It’s a reality that remains obscured as energy lobbyists and Congressional lawmakers campaign for sweeping policy shifts and controversial projects, such as construction of the Keystone XL oil import pipeline, fast-tracking natural gas export plants and removing limits on domestic oil exports.

Lately, politicians have used Russia’s annexation of Ukraine’s Crimean peninsula to press for those changes. By allowing the unfettered export of U.S. natural gas and crude oil, they argue, we could free Europe and the Ukraine from their reliance of Russian supplies.

“Why not export to friends and be a threat to Putin?” By doing so, the United States can “tell Russia to go stick it” is how Michigan Congressman Fred Upton, chairman of the House Energy & Commerce Committee, put it earlier this year

But the truth is that the LNG and other export projects are not effective weapons for loosening Putin’s energy stranglehold on Europe. Once LNG projects get approved, for instance, it takes years for them to start exporting. In addition, many of the U.S. LNG plant owners already have deals with Asian buyers, and they’re unlikely to break those contracts to supply Europe. Finally, even though U.S. LNG exports could lower world prices, European buyers have to turn the LNG back into gas, making those supplies far more expensive than buying pipeline gas from nearby Russia.

“Decisions about whom to export to and import from are made by commercial entities, not by governments,” Michael Levi, a senior fellow at the Council on Foreign Relations, wrote last March in an opinion piece called “An Energy Weapon vs. Russia?

Patriotism is simply not part of the culture at a multinational corporation like Exxon. Years ago, the company’s then-chief executive Lee Raymond was asked about building more U.S. refineries to protect the economy and consumers from fuel shortages. Raymond’s response, memorialized in a book about Exxon by Steve Coll, was this: “I’m not a U.S. company, and I don’t make decisions based on what’s good for the U.S.”

For Exxon, its shareholders and other energy companies, Russia’s allure is a simple matter.

The country, already the world’s top oil producer and the largest exporter of natural gas, has promising fossil fuel prospects in shale formations, heavy oil, the Arctic seas and elsewhere. That bounty has led to Russian deals with Exxon and most of its global brethren, including BP, Shell, Chevron, Eni (Italy), Total (France), Statoil (Norway), PSVSA (Venezuela), Petrobras (Brazil) and plenty of others.

They are all doing business with Russian oil and gas companies and Putin, the man House Speaker John Boehner has called a “thug.” BP even owns nearly 20 percent of Rosneft, the state-controlled oil company that is now subject to U.S. and European economic sanctions.

“Vladimir Putin may not be politically correct these days, but he has a lot of oil and he probably isn’t going away anytime soon,” Daniel Jennings wrote for the investment blog Seeking Alpha. “Making friends with Putin and sticking by him is a good business decision.”

It’s a tricky situation for Exxon, though, according to Amy Myers Jaffe, an expert on the energy geopolitics and executive director of the University of California Davis Program on Energy and Sustainability.

“You’re a multinational corporation, and your shareholders are paying you to do things that are profitable,” Jaffe said in an interview. To that end, the company also wants to avoid provoking Putin into seizing Exxon assets in Russia.

“But you still have to consider the image of the company…and it’s not just about how does it look to the Congress or politicians who might go on CNN, it’s also about what’s your appetite for risks that might come to you for really sticking your neck out [for Russia]?”

ExxonMobil’s Close Ties

Exxon’s links to Russia stretch back more than two decades, but in recent years, the relationship has grown beyond typical joint ventures into a long-term global partnership.

In 2011, the company and Rosneft signed a strategic cooperation agreement that included joint exploration and production in Russia, the United States and other parts of the world. That led to joint projects to extract hard-to-access oil in Siberia and export Russian LNG, the founding of an Arctic research center, and the targeting of 150 million acres in the arctic for joint development.

The two companies also share technology and expertise, and conduct staff exchanges for Rosneft and Exxon technical and management employees. In March 2013, a Rosneft subsidiary acquired a 20 percent stake in 20 Exxon prospects in deepwater Gulf of Mexico. 

A few months later, Putin presented Exxon Chief Executive Rex Tillerson with the Order of Friendship award.

All of that may put Exxon in an awkward spot—but it stands to profit from both sides of the dispute.  

So far, Western sanctions have not interfered with Exxon’s projects with Rosneft and other Russian partners—though an Exxon spokesman said the latest sanctions are still under review. Barring changes on that front, the oil giant can continue with business-as-usual in Russia.

At the same time, Exxon can reap substantial benefits if the anti-Russia push in Washington helps bring about something U.S. oil and gas companies covet: Free rein to export domestic oil and liquefied natural gas. Recent streamlining of government review procedures have already boosted prospects for a domestic Exxon LNG project.

Here’s a snapshot of the major energy-related developments in the Ukraine crisis and Exxon’s Russian interactions since the conflict began:

  • April 29, 2014—The United States accused the Kremlin of arming pro-Russia rebels in Ukraine and imposed sanctions on some of Putin’s close allies, including Rosneft chief executive Igor Sechin. The move bars him from traveling to the U.S. and prohibits American citizens from doing business with him (not Rosneft itself, though).

  • May 23, 2014—Putin hosts the annual St. Petersburg International Economic Forum. Under pressure from the Obama Administration, PepsiCo, U.S. banks and others with interests in Russia skipped it. Attendance by Exxon and other energy companies “salvaged what would have otherwise been an embarrassing event for the Kremlin,” according to

    During the forum, Exxon signed an agreement with Rosneft to build an LNG terminal on Russia’s pacific coast. BP signed a major shale exploration deal with Rosneft the following day. “We are very pleased to be a part of [the] Russian energy complex,” BP CEO Bob Dudley said at the event.

  • May 26, 2014—Exxon Chief Executive Rex Tillerson told reporters, “There has been no impact on any of our business activities in Russia to this point, nor has there been any discernible impact on the relationship” with Rosneft. Tillerson said he opposes sanctions, and that his views “are being heard at the highest levels.”

  • Mid-July 2014—The United States imposed new sanctions that prohibit “U.S. persons” from providing new medium-term or long-term financing to two of Russia’s major energy companies: Rosneft, Russia’s largest petroleum company and OAO Novatek, the country’s biggest independent natural gas producer. No new debt of longer than 90 days maturity.

  • Aug. 9, 2014—Just weeks after the Obama Administration imposed sanctions on Rosneft, executives from Exxon and Rosneft appeared aboard an oil platform in the Arctic to celebrate the launch of exploratory drilling for a joint project worth billions. The platform is part of a 2013 agreement that predates the sanctions, Exxon spokesman Alan Jeffers said.

    Russian President Vladimir Putin, who participated via video link, applauded the accomplishment. “In spite of the difficult current political situation, pragmatism and common sense still have the upper hand, and that is very gratifying,” Putin told a bundled up Glenn Waller, president of Exxon Russia. “ExxonMobil is our old, reliable partner, and we greatly value our relationship.”