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Rex Tillerson comes from "Exxon system" not Washington

Tillerson's plan
How will Rex Tillerson shape U.S. diplomacy? 02:29

WASHINGTON -- As Republicans in Washington bashed President Barack Obama’s efforts to secure an Iran nuclear deal last year, Exxon Mobil was watching.

The oil giant’s European competitors were preparing to enter Iran’s oil business - something the company legally could not do with American sanctions still in place stemming from Iran’s nuclear program. Exxon hired lobbyists to monitor the fight in Washington, though the company said it never took a position on whether the sanctions were appropriate.

Given Chief Executive Rex Tillerson’s position on sanctions in general, it was scarcely needed.

“We always encourage the people who are making those decisions to consider the very broad collateral damage of who are they really harming with sanctions,” Tillerson said at Exxon’s 2014 shareholder meeting. Generally, “we don’t find them to be effective,” he said.

Announced Tuesday as Donald Trump’s choice for secretary of state, Tillerson has no deep history of diplomatic experience so it’s unclear how he’ll handle the job if confirmed. But he’s not a blank slate.

How will Rex Tillerson deal with Russia as secretary of state? 03:03

His work at Exxon has sometimes put him at odds with U.S. policy under Obama - and with key Republican positions on Iranian sanctions and Vladimir Putin’s Russia.

Trump has promised his “number one priority” will be to either rigidly enforce or dismantle the Iran nuclear accord and treat the country as “the biggest sponsor of terrorism” worldwide.

But observers of Tillerson’s business career say they expect his aversion to sanctions to stay in place.

“He’s a product of the Exxon system,” said Fadel Gheit, an energy industry analyst for Oppenheimer & Co. Inc. “He believed in a free market. And if you have a contract, you have to meet your obligation.”

As part of the Exxon approach, the company adopted a strict policy that it deemed staying out of politics. If a government was stable - regardless whether it was corrupt - Exxon would work with it under strict contractual terms, said Gheit.

“What Rex Tillerson says is ‘that’s none of my business,’” he said.

That approach was crucial in Tillerson’s dealings in Russia, according to an oft-cited history of Exxon by journalist Steve Coll. Over the course of Tillerson’s tenure there, Exxon succeeded where many of its rivals failed in working with Russia’s government.

Key among the company’s choices was avoiding a partnership with Mikhail Khodorkovsky, an oil oligarch who went on to spend a decade in jail after challenging Putin. Tillerson helped Exxon broker a partnership with oil giant Rosneft to “be on the same side of the table” as the government.

After Exxon struggled to work with local government officials, Putin told the company he would clear the way by executive order.

Tillerson said no - on the grounds that Putin didn’t have legal authority. Exxon would need laws changed. The demand initially infuriated Putin, according to Coll’s reporting - but the project went ahead.

The cordial relations continued after Tillerson ascended to Exxon’s top job in 2006. When other oil companies saw relationships sour to the point that executives fled the country, Exxon continued to sign deals in Russia. Tillerson received an honorific - the Order of Friendship - from Putin’s government in 2013.

When Exxon Mobil ran into trouble in Russia in 2014, it came from Washington, not Moscow. As punishment for Russia’s annexation of Crimea and support for pro-Russian Ukrainian rebels, the U.S. imposed sanctions.

Exxon wasn’t initially affected, and Tillerson said he didn’t believe Russia would lash out at its American partner.

“I think it’s a very valued relationship by both parties,” he said at a May 2014 Exxon shareholder meeting.

As the crisis in Crimea deepened, however, the Obama administration extended sanctions to the Russian oil industry, hitting a partnership between Exxon and state-owned Rosneft to drill for oil in the Arctic. The sanctions - which Exxon lobbied against- cost the company as much as $1 billion, according to financial filings.

Though still bound by the prohibitions, Exxon executives have spoken of a desire to re-engage on the project. Should sanctions be lifted, Exxon and its stockholders would directly benefit - and Tillerson owns around $300 million in Exxon stock and options. Under federal conflict of interest rules, he will have to sell off his holdings if confirmed as secretary of state.

Exxon has not always abided by America’s diplomatic desires. In 2011, the U.S was trying to resolve a fight between Iraq’s central government and a Kurdish regional government over oil money, a dispute that American diplomats saw as threatening Iraq’s future as a single country.

Negotiating in secret, Exxon struck a major oil deal directly with the Kurds. American officials were enraged.

“I had to do what was best for my shareholders,” Tillerson told the diplomats in a conference call explaining the company’s move.

The approach was emblematic of Exxon’s culture and Tillerson’s leadership, said CFRA Research analyst Stewart Glickman, noting that Tillerson has effectively managed Exxon’s diplomacy as part of his 40-year career. The same skills could be of use as secretary of state, though Tillerson would have to adjust to working for the American public.

“Now,” Glickman said, “he’s got to be remembering whose hat he’s wearing.”

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