Exxon didn’t oppose sanctions – it opposed unilateral sanctions

Published in The Hill

Smart money was always going to be on the side of ExxonMobil chairman Rex Tillerson successfully navigating the Senate confirmation process and taking the reins as our nation’s next secretary of State. Anyone who’s ever spent five minutes with the man could have told you that.

But it certainly hasn’t hurt his chances in recent days to earn the support of both senior officials in the Obama administration (our current secretary of State called Tillerson a “thoughtful” pick) and top Republicans on Capitol Hill, including those who had previously staked out tough positions on Russia.

When someone like Senate Foreign Relations Committee Chairman Bob Corker (R-Tenn.), the lead author of the congressionally enacted 2014 Russia sanctions bill, says that “the concerns people have” about Tillerson and Russia “will subside in the hearings,” that should tell us a lot.

When Sen. Tom Cotton (R-Ark.), another Russia hawk and member of both the Senate Armed Services and Intelligence panels, says that “I look forward to supporting his nomination,” that should tell us some more. What it should confirm for us once and for all is that the caricatured narrative of Tillerson being a stooge for Russia and an opponent of any form of sanctions being imposed thereon, under any circumstance, is pure invention.

Only two years have elapsed since the debate was waged on Capitol Hill about how best to influence the actions and behavior of the Russian state in the wake of its annexation of Crimea. But for some reason, very few in the media seem to remember all that much about how it all went down.

The reality is: no one back then was saying that Russia should be held harmless, or that no economic restrictions should be drawn up or enforced. That wasn’t ExxonMobil’s position on the matter, or anyone else’s. The only thing that was being argued about at the time was what that final package should look like – and how hard we should push our allies in Europe to advance their own policies. What we wanted to avoid was having to act unilaterally — allowing foreign competitors to “backfill” the work our guys were forced to leave behind.

Of course, ExxonMobil wasn’t alone in suggesting to policy-makers that a unilateral approach to sanctions-enforcement had the double-whammy potential of hurting U.S. competitiveness while doing nothing to effect positive strategic outcomes in the region. President Obama made this same case to media while at the G7 summit in March 2014, saying that “if we, for example, say that we are not going to allow certain arms sales to Russia, but every European defense contractor backfills what we do, then it’s not very effective.” No one opposed sanctions. It was unilateral sanctions about which folks were concerned.

The sanctions policy eventually adopted by the United States in late 2014 wasn’t technically unilateral; our friends in the EU did end up implementing their own restrictions. But the two policies couldn’t have been more different in design and enforcement.

For instance, the EU package didn’t include any language preventing companies that had already signed contracts with Russia prior to the new regime coming into effect from moving forward with their previously scheduled work. In contrast, the U.S. package explicitly included retrospective proscription, essentially knocking U.S. companies out of the country while preserving the ability of our foreign competitors to remain in business. Other elements of the EU version, including the scheduled sunsetting of restrictions absent affirmative parliamentary renewal, were similarly absent in the U.S. package.

In the case of energy, this meant that companies from China, Italy, Norway, the Netherlands and other countries were able to continue operating and producing oil and gas right next to the very same tracts previously occupied by Exxon. Given that, it probably won’t surprise you to learn that Russia’s annual oil production has remained steady these past two years, notwithstanding the intent of the dual sanctions policies to put a dent in output and revenues.

If the sanctions didn’t have any effect on Russia, then on who or what did they actually register some impact? In the aftermath of policies’ implementation, James Henderson, a senior fellow at the Oxford Institute for Energy Studies, testified to the fact that “European companies” were “certainly freer” to do business in Russia than their American counterparts, adding that U.S. companies (particularly those in the energy realm) were “hugely disadvantaged” relative to their international peers as a result of the lack of uniformity between the EU’s policy, and that of the United States.

In the end, it’s not clear any of this will actually matter, of course. Mr. Tillerson has in relatively short order secured key endorsements from prominent leaders in both parties. He’s even being lauded by some of the same outlets wrongly characterizing his position on sanctions as a “successful businessman” with a “strong character” who will “command respect” in his new position. Those are the traits that in the end will earn him the approbation of the Senate. And they’re the same ones that, applied in service of our country, will make him a great secretary of State.

George David Banks, a lawyer by training, is the executive vice president of the American Council for Capital Formation. He formerly served as CIA analyst and State Department official based in Brussels.

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George David Banks
George David Banks is Executive Vice President at the American Council for Capital Formation. He is an economist, political consultant, and policy advocate, focusing on energy, environment, and trade. Banks has published reports and opinion editorials on a variety of policy issues, including climate change, civil nuclear power, and energy markets and trade. He is also a fellow at Columbia University’s Center on Global Energy Policy and a member of the ClearPath Foundation’s advisory board. Most recently, he served as President Donald Trump’s Special Assistant for International Energy and Environment at the National Economic and National Security Councils – a position that required him to manage workstreams related to his portfolio across the federal government.