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Trump's secretary of state pick bodes well for a top Putin priority

Note: Rex Tillerson’s confirmation hearing will begin at 9:15 ET on Wednesday, January 11.

Russian President Vladimir Putin wants few things more than the removal of Western sanctions that are restricting outside investment in Russia, hurting his friends, and generally hampering the country’s economy.

President-elect Donald Trump’s choice for secretary of state, ExxonMobil CEO Rex Tillerson, feels Putin’s economic pain.

Then-Russian Prime Minister Vladimir Putin and Rex Tillerson, ExxonMobil's chief executive, smile during a signing ceremony in the Black Sea resort of Sochi, Russia on Aug. 30, 2011.
Then-Russian Prime Minister Vladimir Putin and Rex Tillerson, ExxonMobil’s chief executive, smile during a signing ceremony in the Black Sea resort of Sochi, Russia on Aug. 30, 2011.

ExxonMobil, America’s largest oil company, saw business in Russia largely stall as the US implemented increasingly strict sanctions after Russia annexed Ukraine’s Crimea peninsula in March 2014 and fomented civil war in the country. While Exxon can still operate some projects in Russia, other lucrative deals worth billions of dollars can only go forward if US sanctions are lifted.

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A career Exxon employee, Tillerson helped establish the oil giant’s presence in Russia during the 1990s and became ExxonMobil’s CEO in 2006. Company filings from this year state that Tillerson, who is set to retire from Exxon next year, owned $218 million in ExxonMobil stock while his pension plan was worth nearly $70 million. The Wall Street Journal recently noted that Tillerson “could benefit from such potential department actions as the lifting of sanctions on Russia.”

Tillerson, 64, visited the White House several times to discuss the sanctions. As the nation’s top diplomat — and the first oil executive to lead the State Department — Tillerson would have significant leverage over whether the Trump administration keeps current sanctions and how sanctions are implemented.

“The chances that he will view Russia with ExxonMobil DNA are close to 100 percent,” Robert Weissman, president of the public interest group Public Citizen, told The New York Times.

The effect of sanctions imposed on Russia.
The effect of sanctions imposed on Russia.

‘Mr. Tillerson, I am very happy to see you’

Sanctioned individuals include Igor Sechin, president of the oil company Rosneft and a close confidant of Putin, who has served as a primary negotiating partner for Tillerson over the years. Konstantin von Eggert, a former Exxon vice president in Russia, told Bloomberg that Putin and Sechin both consider Tillerson “a quintessential no-nonsense Texan with a very businesslike attitude.”

In April 2012, Tillerson met with Sechin and Putin to unveil a now-stalled deal between Rosneft and Exxon to explore vast Russian energy reserves in the Arctic and the Black sea. A couple of months later, Putin hosted Tillerson again for another Rosneft deal signing and offered rare public praise for an American.

“Mr. Tillerson, I am very happy to see you,” Putin said. “This is already our second meeting in a short span of time, and there is a good explanation for this: increasingly close relations are being forged between your company and Russian market players.”

During the meeting, Tillerson stated: “I agree, as you point out, that nothing strengthens relationships between countries better than business enterprise. And these agreements will serve to strengthen our relationship between our two countries and obviously our two companies.”

Putin subsequently presented Tillerson with Russia’s Order of Friendship, an award presented to foreign nationals whose work improves relations with Russia.

Russian President Vladimir Putin and Exxon Mobil CEO Rex Tillerson shake hands at a signing ceremony of an agreement between state-controlled Russian oil company Rosneft and Exxon Mobil corporation at the Black Sea port of Tuapse, southern Russia, Friday, June 15, 2012. At left is CEO of state-controlled Russian oil company Rosneft Igor Sechin. (AP Photo/RIA-Novosti, Mikhail Klimentyev, Presidential Press Service)

Tillerson against sanctions

In May 2014, as the initial sanctions on the personal dealings of Sechin and others kicked in, Exxon signed another deal with Rosneft involving several more joint projects.

A few days later, while addressing Exxon’s annual meeting, Tillerson said: “We do not support sanctions, generally, because we don’t find them to be effective unless they are very well implemented comprehensibly, and that’s a very hard thing to do. So we always encourage the people who are making those decisions to consider the very broad collateral damage of who are they really harming.”

The Obama administration has consistently stated that sanctions will remain in place as long as Russia does not meet its commitments under the Minsk agreements, which are meant to end fighting in eastern Ukraine.

In October Putin pulled out of a plutonium disposal treaty with the US and demanded that sanctions be lifted, among other stipulations, to restore the pact.

“From Russia’s point of view, sanctions represent the same threat to national security as nuclear weapons,” Andrei Frolov, a defense specialist at the Moscow-based Center for the Analysis of Strategies and Technologies, told Bloomberg.

Consequently, the lifting of “restrictions on exports of technology, software, things that really help their energy industry extract oil and gas,” would be a top priority, Boris Zilberman, a Russia expert at the Center on Sanctions and Illicit Finance at the Foundation for Defense of Democracies, told the AP.

Trump has indicated that he would consider recognizing Russia’s annexation of Crimea and lifting sanctions. Trump also said that “the people of Crimea, from what I’ve heard, would rather be with Russia than where they were.”

Screenshot 2016-12-13 08.01.34
Screenshot 2016-12-13 08.01.34

Russia, which the CIA accuses of attempting to tip the US presidential election in Trump’s favor, kept contacts with Trump’s campaign and generally welcomed Trump’s election.

Putin “was seriously impacted by the sanctions because it targeted his closest friends and now they think Trump is going to change that,” Robert Amsterdam, an international attorney with Russian clients, told AP.

Trump and Putin subsequently spoke over the phone, and on Dec. 1 Putin stated that he hoped to normalize relations with the US under the Trump administration.

“We are ready for cooperation with the new American administration,” Putin said. “It’s important to normalize and develop our bilateral ties on an equal and mutually beneficial basis.”

‘Trump continues to amaze’

All things considered, the possibility of sanctions being lifted will come up under the Trump administration.

“We would therefore see a subjective 35% probability of Russia sanctions being lifted by the US in 2017/18,” Morgan Stanley analysts wrote in a Nov. 11 note. “Note that US sanctions were imposed by the Executive Order and do not require legislation to lift them. And without US support, we think it would be harder to keep the parallel EU sanctions in place.”

The EU is expected to review sanctions against Russia by Jan. 31, 2017.

In another note, Morgan Stanley analysts stated that “the Trump presidency may weaken the EU consensus to keep Russian sanctions in place. Still, we expect economic sanctions to be extended by six months in January 2017 and assume sanctions in place through the whole of 2016-17.”

Preident-elect Donald Trump. REUTERS/Lucas Jackson
Preident-elect Donald Trump. REUTERS/Lucas Jackson

Importantly, for the US, “it is surprisingly easy to remove sanctions on Russia should President-elect Trump choose to do so,” Deutsche Bank economist Elina Ribakova said.

And if Tillerson’s nomination is confirmed by the Senate — which is not a given — the prospect of the Trump administration eventually lifting sanctions looks even better for Putin’s Russia.

“The choice of Tillerson is sensational. Trump continues to amaze,” Russian senator Alexei Pushkov tweeted over the weekend. “This choice confirms the seriousness of Trump’s intentions.”

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