by Steve Coll
“The central reality is this: The global free market for energy provides the most effective means of achieving U.S. energy security,” Tillerson said. “In the global market, the nationality of the resource is of little relevance. . . . Energy made in America is not as important as energy simply made wherever it is most economic.” Punishing sanctions and uneconomic supply lockups such as those sometimes pursued by China did undermine American security, but only because the United States should be “enlarging this global energy pool, not dividing it.”27
The economic interests of ExxonMobil and other international oil companies lay squarely in the realm of Douglas Feith’s idealized vision of oil globalization, not in the realization of Mearsheimer’s pessimism. ExxonMobil’s oil and gas holdings were so widely scattered around the world that the corporation and its shareholders were at least as vulnerable to transport and production disruptions as China’s government.
This understanding of risk shaped some of ExxonMobil’s lobbying on foreign policy issues in Washington. The corporation promoted free-trade philosophies at every turn and opposed economic sanctions against oil producers, except in the most egregious cases; until September 11, ExxonMobil lobbyists in Congress had opposed oil sanctions imposed on Libya, Iran, and Syria. The corporation’s economic self-interest on the sanctions issue was obvious, but the policy arguments mounted on PowerPoint slides by its in-house advocates were broad: The creation of a free-flowing global oil pool, one shaped to the greatest possible degree by market incentives, would promote American national security, ExxonMobil’s representatives insisted.
Are people in your industry salivating over the possibility of gaining access to Iraqi oil?” an interviewer asked Lee Raymond as the war deteriorated.
“Oh, I don’t think salivating, no.”
“How would you describe it?”
“Well, I think there’s a lot of caution in our industry about it. . . . I think everybody is interested, but you need to have security. You need to have a tax structure. You need to have a legal structure. . . . And there’s no confidence that that’s going to be there for some time. So I would describe it that we’re all interested, because we know the resources are there. Whether or not there’s the framework to develop those resources in an economic fashion—the jury is out on that one.”28
There was more concern within ExxonMobil about the corporation’s ability to keep replacing its reserves than Raymond let on. The numbers the corporation was reporting to Wall Street at this time were not impressive: At best, ExxonMobil seemed to be churning in place, finding only enough new oil each year to replace that which it had pumped and sold. A former manager recalled a 2004 meeting at which the message was: “We can’t get enough new assets to replace our reserves.” As a result, geologists and scientists throughout the upstream division took a fresh 360-degree review of reserve prospects worldwide. They revisited old assumptions. “They looked everywhere,” the manager recalled.
Iraq offered a potential breakthrough in ExxonMobil’s access to equity reserves, but Raymond counseled patience. ExxonMobil had owned oil in Iran and Iraq for decades during the twentieth century. It did not own oil in those countries in 2003, but twenty years into the future, as Tillerson put it, “we’ll have another set of circumstances in some of those countries.”29 One attribute of a nation-state ExxonMobil lacked was an army or a navy of its own. China could “free ride” on the United States Navy’s control of the open seas; Lee Raymond had no choice but to free ride on the Bush administration’s efforts to subdue Iraq.
Raymond had been a friend of Vice President Cheney’s for more than a decade. He was not immune, however, to the disillusionment that set in among many conservative Republicans as the Iraq War deteriorated and the Bush administration’s overreach and incompetence in the conflict became increasingly exposed. As a global business leader whose corporate profits depended on international stability, Raymond identified more with Republican realists such as George H. W. Bush or his former national security adviser Brent Scowcroft than with the more idealistic activists and democracy promoters around Bush’s son. ExxonMobil and its generations of home-bred executives felt they had learned long ago to deal with the world as it was, to bargain as needed with dictators and authoritarian emirs and revolutionary leaders. The transformational, Wilsonian streak in Bush’s democracy promotion in the Middle East after September 11 increasingly discomfited Raymond. The ExxonMobil chairman still trusted Cheney and saw him frequently, and he admired greatly Bush’s second Energy secretary, Samuel Bodman, a former oil industry executive. Throughout his cultivation of the Bush administration, however, Raymond purposefully kept ExxonMobil at arm’s length from the administration’s attempts to remake post–Saddam Hussein Iraq. It was not in ExxonMobil’s interests to become tainted by failed nation-building projects in a country that held one of the world’s largest unproduced oil and gas resource bases. American neoimperial ambition in Iraq might fail, but ExxonMobil’s private empire had its own enduring interests, and these should not be rushed.
Midlevel State Department officials continually summoned ExxonMobil executives to meetings about the planned revitalization of Iraq’s oil sector after mid-2003 and urged the corporation to open a Baghdad office. The Bush administration officials who ran these meetings seemed to believe that only security concerns stood in the way of ExxonMobil’s making an immediate big push for Iraq oil contracts; the State officials tried to assure the corporation that security in Iraq would soon improve, even when the daily newspaper headlines suggested otherwise.
“Nobody at ExxonMobil wants to get killed for an oil well,” Raymond’s representatives explained at these meetings, “but our greater concern is political risk.” Would there be an agreement guaranteeing the long-term presence of American troops in Iraq? What oil laws would a legitimate Iraqi government approve? Any investment ExxonMobil made in Iraqi fields would require multidecade commitments. Was Lee Raymond interested in Iraqi oil? Of course: Every corporation in the global oil industry was interested. But it was obvious that the Bush administration lacked the capacity to create conditions for ExxonMobil or any other serious international player to make a politically secure, economically rewarding deal in Iraq anytime soon.
Raymond had, in the meantime, joined the Bush administration as a partner in an oil play that might, in a single stroke, resolve ExxonMobil’s reserve replacement conundrum for years to come. Of the four nation-states with oil reserves sizable enough to transform ExxonMobil’s position—Saudi Arabia, Iraq, Iran, and Russia—one looked more plausible than the others. Quietly, without anything like the fanfare that surrounded Iraq, Raymond and his allies in Bush’s first-term cabinet had developed an opportunity on a grand scale: in hopeful partnership with Vladimir Putin.
Twelve
“How High Can We Fly?”
On Wednesday evening, November 14, 2001, Vladimir Putin and his wife joined George W. Bush; the president’s wife, Laura; and about two dozen friends and cabinet officials for dinner at Bush’s ranch in Crawford, Texas. The guests wore jeans and boots; the menu included southern fried catfish. Putin stood to deliver a toast. Referring to his host, he said that the United States “was fortunate at this critical time in its history to have a man of such character at its helm.” Bush returned the compliments. In June, when he had met Putin for the first time, in Slovenia, Bush said that he had “looked the man in the eye” and had discerned “a sense of his soul.” Bush had been mocked for this claim, but in Crawford he again mentioned his respect for Putin’s soul, and he told the Russian president that he sought to “transform the relationship between our two countries.”1
After a dessert of pecan pie and ice cream, members of the group drifted outside to warm themselves around a fire pit. Putin sought out Don Evans, the president’s close friend, who had served as the chairman of Bush’s 2000 presidential campaign and was now his secretary of commerce. Evans had run an oil and gas company prior to joining the Bush administration. He t
old Putin that he appreciated the toast he had delivered about his friend the president. Putin raised the subject of oil and gas production. Evans figured that the Russian president, a former K.G.B. career officer, had probably read an intelligence file describing Evans’s background. He welcomed the conversation, nonetheless; the new Commerce secretary was drawn to the prospect of a renewed energy partnership between Moscow and Washington. He and Putin talked about the possibilities.
“How has America accomplished so much in only two hundred years?” Putin asked him at one point.
Evans spoke about American freedoms, economic competition, innovation, and the rule of law. “People in America are good people,” he said. “They wake up every morning trying to do the right thing. I don’t care what kind of system you have, if the people aren’t good, decent people, it won’t work.” But even moral citizens need a system of law and governance so that they will be treated fairly and, eventually, perhaps find financial reward, Evans continued. Putin had the opportunity to build such a system for Russia, as a legacy of his leadership, Evans and Bush believed. The United States could help by delivering technology, capital, and experience of the rule of law in international business.
In the oil industry, in particular, Russian requirements and American capabilities overlapped. Oil and gas production made up a large share of the Russian economy, so free-market reforms in the oil sector might provide a transformational catalyst for the entire country. Russia possessed at least 60 billion barrels of proved oil reserves, according to Oil & Gas Journal, and 1,680 trillion cubic feet of natural gas reserves, a quarter of the world’s total and more than any other nation. For American oil companies, ownership of even a modest percentage of that bounty could be transformational.2
The fireside chat between Putin and Evans that night marked the start of an oil romance between the Russian and American governments, one that would soon draw in Lee Raymond and ExxonMobil. From the beginning it was an engagement marked by exceptional optimism on the American side, shadowed by a long history of mistrust rooted in the cold war—“old think,” as Bush’s ambassador to Russia, Alexander “Sandy” Vershbow, put it in a cable to Washington.3 The hypothesis Evans and others in the Bush administration pursued after the Crawford dinner was that a strategic campaign to deepen commercial ties between oil companies in the United States and Russia might transform Russia’s internal politics, remake U.S.-Russian relations, and even alter the global geopolitics of oil. President George H. W. Bush had seen oil-for-friendship as a critical element of his campaign to build a partnership with Mikhail Gorbachev as the Soviet Union cracked up; Bush persuaded Gorbachev to endorse Chevron’s pioneering, lucrative entrance into the Tengiz oil project in the then Soviet Republic of Kazakhstan. George W. Bush intended something similar with Putin, whose intentions as a political leader and as a sponsor of market-led modernization were at best enigmatic.
Bush did not see Russia only through the prism of oil, but he did regard energy policy as critical to his ambitions for his relationship with Putin. Bush’s national security advisers, led by Condoleezza Rice, an academic specialist on Russia, and her deputy, Stephen Hadley, sought to construct a more cooperative relationship with Moscow, one that might coax Putin’s government toward an embrace of democratic capitalism and diplomatic normalcy within Europe. They knew there inevitably would be tensions and disagreements that would drag them back toward rivalry. To prevent or at least limit that recurrence of old think, Bush and his advisers concluded that they needed to find three or four shared projects that would invest Putin and the Kremlin in a broad, pragmatic, ongoing pattern of U.S.-Russian cooperation. Space programs, and particularly the management of the International Space Station, offered one such pathway. Counterterrorism and preventing nuclear proliferation after the September 11 attacks also appeared to be promising. But the project with the greatest potential—the one that might literally invest the United States in Russia’s success, and vice versa—involved Russia’s oil and gas production. “I think all of us at the senior level thought this was a real moment to seize, from the president to Don Evans at Commerce to me to the vice president as well,” recalled Spencer Abraham, then Bush’s Energy secretary.4
Russia not only held the world’s second-largest combined oil and gas reserves, after Saudi Arabia, it was rising again as an oil producer and exporter. The political chaos and economic freefall that followed the collapse of the Soviet Union had caused Russia’s oil production to fall from a high of more than 10 million barrels per day to about 6 million in 1996, about half of which was exported.5 As Putin took office on the last day of 1999, the industry had started to recover. Domestic consumption remained steady at about 3 million barrels per day, while exports were rising toward 7 million barrels per day and headed higher year by year. Most of the exports went to Europe, particularly to major economies such as Germany and the Netherlands. Yet Russian oil companies required new investment to reach their full production potential.
The question was whether the Bush administration’s push for a strategic oil partnership with Moscow after the Crawford dinner was at all realistic. Energy policy specialists in the Clinton administration hadn’t thought so; they had been working on the same issues of energy cooperation with Russia throughout the late 1990s and had concluded, as a former White House official put it, that “there was no discernible forward progress” toward free-market reform in the Russian oil sector under Putin, and “the pendulum was swinging markedly” against Western oil corporations that sought to own Russian reserves. If anything, from 1998 onward, there had been a “very, very clear trend in Russian policymaking toward the U.S. . . . of growing suspicion.” The prize was so alluring that all of the major Western oil corporations persisted in Moscow, nonetheless. For all of Russia’s traps—unpredictable politics, Mafia-like cliques in business and government who used murder and vendettas as negotiating tactics, prosecutors and judges subservient to shadowy powers, and a general absence of the rule of law—there was no other country on Earth with so much oil that offered even the pretense of a capitalist-friendly opening. The numbers—the challenge of annual reserve replacement, the scale of Russia’s holdings—argued for risk taking.
“How high can we fly?” Ambassador Vershbow, a career foreign service officer who had long studied Russia, asked in a cable to Washington a few months after the Crawford dinner. Very high, he wrote. In developing a new strategic oil supply partnership in Moscow, the United States “will need to be sensitive to the reaction of other energy-producing states, both in the region (i.e., the Caspian) and outside it (notably Saudi Arabia).” Nonetheless, there was potential to change global economics and politics. Strategic energy cooperation between Washington and Moscow, he wrote, “is a deal. . . . Russia improves along market lines and continues to divorce politics from commerce, and we help it get what it wants—markets, investment, and stature. But the deal can be broader. If successfully developed, it can serve as a paradigm as well as a driver for cooperation and market-driven behavior in a variety of sectors, a trend that will only help Russia integrate into the world economy.”6
The United States owned no oil companies, however. To forge the deal Vershbow had in mind, the Bush administration would need to encourage America’s largest private oil firms, particularly ExxonMobil and Chevron, to cooperate.
Like a section of the American public, some in Putin’s cabinet seemed to believe that the Bush White House made all the decisions for America’s largest multinational oil companies, or vice versa. Putin himself seemed to understand how the American system worked, but some of his advisers projected what they knew about the Russian government’s influence over its own oil and gas companies onto Washington, assuming it was the same there. German Gref, the Russian minister of economics, with whom Don Evans worked closely, would occasionally make points during their energy talks suggesting that he thought that Evans or Bush had heavy influence at ExxonMobil.
“Exxon writes their own checks and they are
accountable to their shareholders—they’re not accountable to me,” Evans told Gref. “I don’t write their checks for them.”
Evans tried to explain that no matter what sort of agreement Washington and Moscow might forge about energy policy, no American oil company was likely to risk large amounts of investment capital if it feared that Russia’s political and tax environment was unreliable. Evans quoted an aphorism often repeated by Bush’s Treasury secretary, Paul O’Neill: “Capital is a coward, and capital is not going to go any place that is unfriendly.” His argument was undermined by the fact that all of the major oil companies—ExxonMobil, Chevron, Shell, BP, Total, and Statoil—had already risked capital in Russia, even though its political economy was dangerous and highly unsettled. But it was Evans’s job to make the case for Russian legal, tax, and policy reforms. On specific transactions, he encouraged the Russian government to deal directly with the American corporations, particularly ExxonMobil and Chevron, and he always spoke highly of Lee Raymond.7