Blowout
Page 42
Russia’s way out of this existential conundrum has had two components: one business, one pleasure. The business part is tidy. With the broken-nosed, no-necked ex-spies perched atop the management structure of Rosneft and Gazprom, Russia’s not exactly running a world-class operation when it comes to the production of its one indispensable commodity. Russia’s economic future therefore depends on Putin making deals with major international oil and gas companies who can be counted on to understand his imperatives and to not care at all about ethics and governance and geopolitical consequences of their cozying up to the Kremlin. Those kinds of deals aren’t just beneficial to the Russian economy; they’re critical necessities for Putin’s one-track plan for twenty-first-century Russia. And it turns out that as long as Putin is honoring the “sanctity of contract” and implementing friendly tax laws, industry leaders from the West have shown little hesitation in making those deals. That’s the business part.
The pleasure part is less tidy, but presumably way more fun for its practitioners: if the problem is that Russia’s behavior is too outré to be accepted in the global economy, then change the expectations for what counts as outré. Be the leveler. Corrupt other countries. Gain control over the former Soviet states in the near abroad by owning their politicians, by controlling the range of possibilities their people are allowed to choose for themselves. Ruin exemplars of governance and responsive democracy. Support separatism and the dissolution of bonds and treaties and Western norms wherever they’re vulnerable. Become internationally powerful through force (when you can muster it) or sabotage. Cheating is now Russia’s most viable avenue in world affairs.
And you can mark the precise time when all other avenues were sealed off: the immediate aftermath of Putin’s shocking seizure of Crimea and his drive to forcibly annex much of resource-rich eastern Ukraine. Back in 2014, there was still enough U.S.-led traditional Western governance in the world to punish him with seriously harsh economic sanctions. Even those European countries Putin believed were so dependent on his natural gas supplies agreed he’d gone too far and it was time to say no in a meaningful way.
Those economic sanctions look like a pretty simple crime-and-punishment story from our vantage point, but from the Russian perspective the sanctions were much more gravely threatening. All of a sudden Putin and his siloviki had been stripped of Western oil and gas technology they desperately needed. All of a sudden they were unable to simply buy the fast-developing industry expertise required to stay competitive in the all-shook-up well-fracked new world order. Russia was literally barred by law from tapping that expertise. Even Putin’s friends at ExxonMobil, who had aided Rosneft in making that tantalizing discovery of potentially billions of barrels of oil and oil equivalents off Russia’s Arctic shelf, in the Kara Sea, couldn’t help.
This is the vexing predicament facing the Kremlin: Putin’s thug dream of resurgent Russian dominance—fueled by oil and gas—is one that can’t come true without international help to make his one indispensable industry capable of competing in the global market. And he can’t get that international help as long as he’s recognized as a gangster and treated like one.
Putin and his lieutenants had been defiant when the sanctions first began to bite and ExxonMobil had been forced to pull up stakes in the Arctic. Russians could create their own Arctic-busting technology, they claimed, and promised to fund state-owned oil services companies to match any in the West. “We will do it on our own,” Igor Sechin told reporters back in 2014. “We’ll continue drilling here [in the Kara Sea] next year and the years after that.”
Six months later, sanctions still in place, Sechin was forced to admit Rosneft lacked the equipment and technology to drill in the Arctic in the 2015 season. Six months after that, the Russian Energy Ministry said Rosneft would be lucky to return to a drilling platform in the Kara Sea before 2021. ExxonMobil, through it all, kept signaling to Putin and Sechin that it stood ready and willing to do the drilling for them. Just as soon as those sanctions were lifted.
But until then, the Putin-run oil and gas industry—the single engine powering the Russian economy—would be left to sputter. The country would stagnate and ultimately economically recede as the rest of the world drilled and fracked gas and oil that Russia could only make big, dumb moon eyes at.
So as of 2015, Putin faced a rapidly diminishing ability to use oil and gas as a substitute for legitimate global power, and no way forward without some kind of move—any move, no matter how nutty—to get those sanctions lifted and to relieve Russia of the burden of U.S.-led opprobrium and global Western leadership. It was worth trying almost anything.
As Special Counsel Mueller and reporters throughout Europe and America have made clear, the Russian Federation ultimately embarked on a deliberate and aggressive campaign to tear apart Western alliances, to rot democracy, and to piss in the punch bowl of free elections all over the civilized world. It continues to this day. And Putin isn’t doing this because of Russia’s strength. Not according to people who have watched the action up close. Russia “gives the impression that I am a lion who walks through the world hitting France with one paw, with the other Britain and America,” says Romanian security expert Dan Dungaciu. “But it is not a lion. It is rather in the role of a hyena, which senses a crisis and goes there and plays on the crisis.” The leaders of actually strong countries who have pushed back against Putin understand too. “I understand why he has to do this—to prove he’s a man,” Germany’s chancellor, Angela Merkel, has said. “He’s afraid of his own weakness. Russia has nothing, no successful politics or economy. All they have is this.”
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Putin has no one to blame but himself. He chose a future for Russia in which neither the economy nor the polity would be free. And that choice made Russia a weakling, a second-rate, second-world piker. Russia competes by shoveling toxic matter into the rest of the world’s proverbial food supply, hoping to make everyone else as sick as possible, or at least as sick as it is. When the people of Ukraine stand up and make a rational decision for themselves, and toss out the fantastically corrupt Viktor Yanukovych and Putin’s other henchman in Kyiv, the natural gas middleman Dmitry Firtash, all Putin knows to do is turn to a different type of corruption. He attacks with lies and disinformation, because those are the only cards he has to play to prevent the Ukrainian people from making rational decisions in their own national interest. Russian-speaking Ukrainians are being lynched, Putin’s lying internet trolls scream, and so they’re only rising up to defend themselves. Ukraine’s Orange revolutionaries are neo-Nazis. Yulia Tymoshenko is the real natural gas swindler. Don’t you agree, U.S. public relations firms, U.S. political consultants, U.S. banks, U.S. white shoe law firms? If the price is right, would you agree?
If that kind of corrupting is your best card, if that is your only real shot at international influence, or at least meting out some sort of punishment for the debilitating sanctions regime that followed the grab in Ukraine, then get hacking. It’s cheap. It’s doable, and it doesn’t require making anybody think better of Russia. The agents of the Kremlin just have to tell the lies often enough and loud enough to sow doubt and dissension, to prove that leaders and governments and institutions in the United States are just as crappy as Russia’s. And if Putin learned anything observing the winning-is-all oil and gas executives at ExxonMobil and BP and Chevron, or enablers at Morgan Stanley, or Davis Manafort Partners International, or Skadden, he learned that there are plenty of folks in the West who are happy to be part of it, happy to pitch in. Useful idiots can be found.
They’re not even particularly hard to find, judging from a couple little emails that Vladimir Putin or any other sentient person on the planet could google and read at his leisure today. “[Russian pop singer] Emin [Agalarov] just called and asked me to contact you with something very interesting,” an entertainment publicist had written to Donald Trump Jr. on June 3, 2016, whe
n Putin’s disinformation campaign in the United States was well under way. “The Crown prosecutor of Russia met with his father Aras this morning and in their meeting offered to provide the Trump campaign with some official documents and information that would incriminate Hillary and her dealings with Russia and would be very useful to your father.”
“If it’s what you say,” Trump junior replied, a mere seventeen minutes later, “I love it.”
On the incongruously sun-splashed late winter morning of March 2, 2016, on a remote strip of roadway north of Oklahoma City, the charred body of Aubrey McClendon was pulled lifeless from the driver’s seat of his 2013 Chevy Tahoe. There were no skid marks to suggest McClendon had bothered to hit the brakes as he piloted his SUV across the traffic-less oncoming lane and into a concrete bridge abutment—at seventy-eight miles per hour. “He pretty much drove straight into the wall,” Captain Paco Balderrama of the Oklahoma City Police Department explained. “There was plenty of opportunity to correct or go back to the roadway. That didn’t occur.”
The medical examiner determined that McClendon was likely killed on impact as a result of “multiple blunt force trauma.” The death, as per the ME report, was ruled an accident. The extenuating circumstances, though, were strongly suggestive of suicide by automobile. The afternoon before McClendon’s fatal crash, a grand jury in Oklahoma City’s federal courthouse had weighed in on the quality of the evidence turned up in a long and intense investigation into Aubrey’s business practices. “Beginning at least as early as December 2007 and continuing until at least as late as March 2012,” read the fresh criminal indictment, “the defendant, Aubrey K. McClendon, and his co-conspirators knowingly entered into and engaged in a combination and conspiracy to suppress and eliminate competition by rigging bids for certain leasehold interests and producing properties.” The Feds were trying to hang on Aubrey what they hung on John D. Rockefeller, a violation of the Sherman Antitrust Act. Aubrey began his defense that evening, and defiantly: “I am proud of my track record in this industry and I will fight to prove my innocence and clear my name.” He was bolstered by some of the best legal counsel money can buy. “The prosecutors have wrongfully singled out Aubrey McClendon and have wrongly charged an innocent man,” said his attorneys Abbe Lowell (who would go on to front for the Trump administration crown prince Jared Kushner in his various legal snarls) and Emmet Flood (who would sign on to protect President Trump himself from legal jeopardy arising from the special counsel’s probe). “Starting today, Aubrey gets his day in court where we will show that this prosecutorial overreach was completely unjustified.”
The next morning, shortly after receiving word that the biggest investor in his new oil and gas venture was not going to be putting another dime into the enterprise, McClendon got into his SUV and drove, alone, into eternity.
Thousands paid their respects in the days that followed; the encomiums were widespread and heartfelt. “The quality of life we have come to enjoy in Oklahoma City is due in no small part to his vision and generosity,” said the chairman of the city’s chamber of commerce. Aubrey was chiefly remembered, in public anyway, as the spur and the engine that had pushed OKC to finally, after decades of effort, realize its major-league aspirations. There were the boathouses on the Oklahoma River to point to, the dorms and athletic facilities at OU, the world-beating cancer treatment center, the beautiful Chesapeake Energy campus, the Whole Foods. And, of course, the large and happy NBA crowds at Chesapeake Energy Arena. Kevin Durant and his teammates were thundering up to the playoffs once again.
And all of it was true. But the dark side of Aubrey McClendon’s career was not easily elided. The apologists referred to Aubrey as “embattled”; others less charitable called him “disgraced.” There was that federal criminal indictment for starters and a raft of civil suits left to his estate to defend. His new oil and gas venture shuttered in a matter of weeks after his death—more than a hundred people out of work. The company he had founded and run for two decades was still staggering three years after his forced departure, unable to dig itself out from McClendon-led financial shenanigans. Chesapeake Energy had shed two-thirds of its employees in the previous five years, and its stock had recently sunk to $1.59 per share—capping a spectacular swoon from $70 a share at the height of the natural gas bubble. Bloomberg Businessweek’s ominously titled postmortem on McClendon, “The Shale Reckoning Comes to Oklahoma,” noted that Standard & Poor’s had downgraded Chesapeake’s credit rating “for the fourth time since October, calling its $9.8 billion debt load ‘unsustainable.’ ” Word on the street was that Chesapeake was headed toward bankruptcy. Analysts were beginning to ask this head-scratching question: For all the Aubrey-led hype and excitement about the wonders of natural gas in the fracking age, had anyone actually proved it out as a profitable venture? Aubrey McClendon certainly hadn’t. The “better, brighter and more prosperous future” he conjured had turned out to be a mirage.
By 2016, Oklahomans were awake to the obvious and continuing costs of the last decade’s oil and gas production frenzy and to their state government’s willingness to give big companies like Chesapeake and Continental and Devon and New Dominion something approaching free rein. In 2016, as America prepared to vote in what would turn out to be its strangest presidential election ever, as the shale era—having reordered international geopolitics and driven Russia to the brink and pushed the environmental envelope so hard it scared even some of its pioneers, notably George Mitchell—wended deeper into its second decade, Oklahomans found themselves headed for trouble. Between the man-made seismic activity literally rattling the state and the barren state coffers that could no longer be dismissed as just an ideological talking point, Oklahoma was barreling toward a dangerous slick in the state’s glorious, oil-soaked history.
There were more than a hundred magnitude 3.0 or above earthquakes in Oklahoma in February 2016 alone, which followed on the state’s annual record of nine hundred in 2015. Oklahoma was outpacing California for seismic activity by a multiple of six. Anybody who still suggested the increased seismicity in Oklahoma was a naturally occurring phenomenon was either a fool or a paid liar. Meanwhile, thanks largely to the ongoing cash giveaways to horizontal drillers, the state’s accounts were so depleted that Moody’s rated it as among the three states in the Union least capable of riding out a recession. Expenditures on public education had further shriveled. Reuters reporters Luc Cohen and Joshua Schneyer were already digging into the ugly numbers in the winter and spring of 2016. In May 2016, they noted that while North Dakota, the other great shale boom state, had increased its spending per student by 26 percent in the previous eight years, Oklahoma had gone in the opposite direction in that same period—down by a nation-leading 24 percent. “Among the hardship measures being implemented, according to recent school surveys: bigger class sizes, teacher pay cuts and hiring freezes, cutbacks in arts, athletics and foreign language instruction, fewer offerings for special needs and gifted students, and a moratorium on field trips,” wrote Cohen and Schneyer, right before noting this telling fact: “The Oklahoma oil industry is publicizing the role energy taxes play in helping fund schools. In March, a poster in the lobby of driller Continental Resources’ headquarters featured a smiling boy and read, ‘Oklahoma oil & gas produces my education.’ ” Yeah, you bet it does. They then quoted the spokeswoman for Harold Hamm’s Continental Resources, who gets no points for originality but plenty for consistency and team spirit. “We don’t have a revenue problem in Oklahoma,” she said. “We have a spending problem.”
More and more underpaid teachers in Oklahoma were spending their own pocket money on classroom supplies while taking second and third jobs to make ends meet. Dozens of districts across the state had cut back to a four-day school week, because that’s all they could afford. The prospect of ever building safe tornado shelters in public schools appeared worse than unlikely, more like dead in its tracks.
But then something hap
pened in Oklahoma. What happened was democracy. “In politics, money most always trumps merit,” says Mike Cantrell, the independent Oklahoma oilman who finally got fed up with the lousy funding in education and bucked Big Oil in his state. “But constituency trumps everything.” After years of killing cuts, the constituency finally started to kick up enough of a fuss that pols started to worry about the damage to their elective selves if they stuck to the status quo. Starting in early 2018, months of walkouts, strikes, and rallies by students, teachers, and parents across the state finally gave Oklahomans in elective office enough courage to punch the bully in the nose. Or at least to be seen trying to throw that punch if they wanted to keep their seats.
In the spring of 2018, the legislature approved a series of tax raises (with the needed three-quarters majority in both houses) to increase funding in public education, including a teacher pay raise of close to 15 percent, across the board. Key was a hike in the energy production tax from 2 percent to 5 percent. And then, miracle of miracles, the doomsday Oklahoma’s big horizontal drillers warned of did not come to pass. The minimal tax increase did not depress the economy. Drillers did not flee the state for more tax-friendly environs. The November 2018 revenue from gross production taxes, according to the Oklahoma state treasurer’s report, was 125 percent higher than in the previous November. The overall receipts for the previous twelve months represented an all-time record. School districts were expecting another bump in funding. The state had yet to diversify its economy in any significant way, which meant it still has to ride out the ups and downs of oil and natural gas pricing. But Oklahoma now appeared to have resources enough to cushion the hardest blows—a projected budget surplus of $612 million.