In June 2008, ExxonMobil CEO Rex Tillerson attended the St. Petersburg Economic Forum, Russia’s answer to Davos, its way of showing itself to the world as the kind of economic powerhouse that can attract executives like Rex Tillerson to its banquets. It was a key and very shaky moment for Russia. Vladimir Putin was bowing out after his second term as president of Russia—the most the Russian constitution allows in a row, though he would figure out a way around it by 2012—and his successor, the relatively liberal Dmitri Medvedev, was debuting at the Forum. Tensions were heating up with Russia’s southern neighbor, Georgia, and would soon spill into war. The Russian economy was already getting shaky, and within a few months it would crater, faring the worst out of all the G20 economies, sinking from eight percent GDP growth, to negative eight percent.
Even after eight years of Putin assiduously taking control of the Russian economy and trying to restore some modicum of Soviet geopolitical power, Russia was still a pretty weak player. It had been relegated to last place among the BRICs, that term coined by a Goldman Sachs banker to connote the emerging markets of Brazil, Russia, India, and China. And despite surging commodity prices—oil at the time was around $130 a barrel—Russia wasn’t making a good case for itself in the world. Gazprom, the Russian state gas monopoly, was rattling European nerves by shutting gas supplies on and off in an effort to control an increasingly independent Ukraine, thus leaving much of Central Europe without heat in the winters. It had only been five years since oil tycoon Mikhail Khodorkovsky was thrown in jail for not bowing to Putin’s will, and two years since the Kremlin unceremoniously pushed Royal Dutch Shell out of a lucrative gas project in the far eastern island of Sakhalin. BP was on the obvious verge of meeting the same fate. The following month, BP chief Robert Dudley would flee Russia, complaining of “sustained harassment.”
When Tillerson mounted the stage in St. Petersburg that summer, he chastised the Russian government for the way it was operating. The Kremlin, he said, “must improve the functioning of its judicial system and its judiciary. There is no respect for the rule of law in Russia today.”
It’s hard to imagine Tillerson, now reportedly the frontrunner for Secretary of State under president-elect Donald Trump, saying something similar today, much less from a stage in Russia’s second capital, Vladimir Putin’s birthplace, and at a high-stakes, window-dressing government function. It’s not that Russia has suddenly acquired a taste for the rule of law—if anything, things have only gotten far, far worse, and Russia’s judiciary has become no more independent. And it’s not even because Tillerson is now ubiquitously identified in the press as being personally close to Putin. As the Wall Street Journal puts it, “Among those considered for the post, Mr. Tillerson has perhaps the closest ties to Russian President Vladimir Putin,” adding that, in 2012, Putin personally bestowed Russia’s Order of Friendship on Tillerson.
It’s hard to imagine Tillerson publicly chiding Putin today because he is now so very dependent on that friendship. In 2011, he negotiated a multi-billion-dollar deal between Exxon Mobil and Rosneft, the Russian state oil giant cobbled out of Khodorkovsky’s seized empire and run by Putin’s former KGB buddy, Igor Sechin. The deal would have allowed Exxon access to the Russian Arctic shelf—which, according to U.S. government estimates, is thought to contain some 22 perceont of the world’s undiscovered oil and gas deposits—in exchange for helping Rosneft, which didn’t have the technological capabilities, drill for the stuff.
In 2014, Russia invaded Ukraine, seized the Crimean peninsula, and started an insurgency in eastern Ukraine, triggering a wave of American and European sanctions. But that summer, Tillerson thought it best to stay away from the St. Petersburg Economic Forum and instead sent his deputy, who, acting on behalf of Exxon Mobil, signed another energy deal with Rosneft and Sechin, who had ended up under sanctions. The deal would expand Exxon-Rosneft offshore drilling in the Arctic Ocean, explore for shale oil in Siberia, and cooperate on a liquefied natural gas plant in the Russian Far East. Other energy companies signed similar deals, and Total’s CEO told journalists at the Forum, “My message to Russia is simple — it is business as usual.” Even Dudley, who had fled Russia and “sustained harassment” six years prior, said, “We have a responsibility to stand with our partners in a difficult time.”
It was a strange twist: Russia had become an international pariah, and its economy—to say nothing of its rule of law or judiciary—were in shambles, but Western companies were bowing and scraping before a man who had just shocked the world by violating international law. Tillerson was at the head of that line. Instead of using their deep ties to Russia—by this point, it is said Tillerson had become buddies with Sechin—to push the Kremlin on the “rule of law” that had so bothered Tillerson six years prior, Russia’s new friends pushed on the White House. Shortly before sending his emissary to St. Petersburg to sign the deal, Tillerson told reporters in Texas that he was lobbying Washington against sanctions. “Our views are being heard at the highest levels,” he said. “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, he added. By fall, he was sharing a stage with Sechin in Moscow at International Petroleum Week.
Eventually, a tightening sanctions regime forced Tillerson and Exxon to shelve their Artic exploration plans. By October 2016, Exxon was reported to have lost $1 billion because of White House sanctions.
Tillerson may have wagged his finger about Russia’s lax relationship to rule of law eight years ago, but he soon learned that that wasn’t the way to improve the business climate for his company in Russia, especially in a Russia that was quickly repositioning itself as a pivotal player on the world stage — becoming the kind of nation that could force the end of a civil war in Syria and help throw an election in the United States. The way to succeed in Russia was to become personally close to Putin and Sechin.
What does that kind of friendship mean? Past experience suggests it is not a relationship of equals. It means that, at the drop of a hat, the Kremlin might discover serious environmental violations at your Sakhalin plant and drive you out of the country, as it did to Royal Dutch Shell, and then give the lucrative access to a better, domestic ally. It might decide to harass you with lawsuits to force you out, as it did to BP. And it might even throw you in jail, as it did to powerful Russian oligarch Vladimir Yevtushenkov in order to take a small oil company, Bashneft, away from you and give it to Sechin. Putin would even arrest his largely popular economics minister, as he did on November 15, to help Sechin retain it.
The lesson of Putin’s 16-year tenure is a lesson that all businesspeople, foreign and domestic, have learned: to do business in Russia, you have to be on good, personal terms with Putin and Sechin. And you have to understand that those two gatekeepers to Russia’s riches are fickle and sadistic, and, as former KGB operatives, know little of real friendship. To do business in Russia—both for Exxon Mobil and for Tillerson’s own massive retirement fund whose fortunes would rise significantly if a Trump White House lifted sanctions—you have to dance to Putin’s tune, and take whatever favors and humiliations he sends your way. Putin may act a friend and pin state medals on your breast, but he is, ultimately, a cynic. And to play ball with him, you have to be a cynic, too. Forget your honor, your rule of law, your independent judiciary, your human rights, your international law, and focus on the gold coins he throws to your feet. And forget looking dignified as you gather them up.
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