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Business media reported last month that ExxonMobil has been in secret negotiations with Russian officials about a possible return to the country.
Earlier this month, ExxonMobil’s CEO told the Financial Times the company has no plans to go back to Russia, and the meeting was to discuss recovering more than $4 billion in assets that had been seized by the Kremlin.
For many observers, it beggars belief that any major Western company would consider returning to Russia under the current circumstances, especially a company that had to write off $4 billion in the aftermath of Russia’s full-scale invasion of Ukraine in February 2022.
Since ExxonMobil is denying a potential return, it is worth reflecting on what such a turn of events would have entailed for the world’s largest wholly non-government owned oil and gas company.
ExxonMobil has earned its reputation for technological leadership and prowess in executing some of the most challenging energy projects around the globe. It is among the safest of financial investments, deemed a “widow and orphan stock” for its high dividend yield and long-term capital gains, and does not waste money in areas outside of its field of expertise.
While the company is a favorite target of environmental activists and on occasion of state attorneys general, ExxonMobil has labored diligently to overcome the baleful legacy of the 1988 Exxon Valdez oil spill and has since set the standard for operational integrity in some of the most challenging environments on earth.
The Sakhalin I project, located in Russia’s far east, was a textbook example of good project management and financial discipline. The company was rightfully proud of having brought it online without an environmental incident nor cost overruns.
It made former Exxon CEO Rex Tillerson’s reputation, which likely led to his appointment as secretary of State, albeit short-lived, in the first Trump administration. The success of Sakhalin I also led to a deeper partnership between ExxonMobil and Russia’s state-owned Rosneft, including a major oil discovery in Russia’s Kara Sea.
Problems began when Russia occupied and annexed Crimea in 2014, resulting in sanctions that put the kibosh on the Kara Sea project, though Sakhalin I continued to operate.
However, following the full-scale invasion of Ukraine and the imposition of sanctions on the whole Russian energy sector, including Rosneft and its CEO Igor Sechin, ExxonMobil pulled out of the country completely.
Russia reacted by seizing and eventually expropriating the company’s stake in Sakhalin I. The company rolled with the punch, dusted itself off and went on to undertake other major projects elsewhere to great financial success.
What would it have meant to go back to Russia?
First, the U.S. would have had to lift sanctions against the Russian energy sector and major Russian financial institutions. Some of those sanctions are enshrined in legislation and would require congressional action to remove them.
Even if this were to occur, ExxonMobil would have had to weigh the risk of violating sanctions still upheld by countries where the company has significant business interests: the European Union, the United Kingdom, Canada, Australia, Japan and others.
Those countries would have had to choose between taking legal action against U.S. sanctions violators or allowing their own oil and gas companies to return to Russia.
Second, the business environment in Russia is toxic, even for Russians. Investors would have been subject to the whims of Vladimir Putin, who does not hide his dislike of Western businesses who left the country.
He has said that investors from “unfriendly countries” are not welcome back, and others who are allowed to return must submit to majority ownership and control by Russian firms. That tends to be a non-starter for companies like ExxonMobil.
Third, profit-motivated companies rarely make capital-intensive, long-term investments on the strength of good relations between two political leaders, especially Trump and Putin, who are famous for changing their minds and both term-limited by law or by the actuarial table.
ExxonMobil already has experienced Russia’s contempt for contract sanctity: Sakhalin I was prevented from selling its gas to the highest bidder, even though this was explicitly guaranteed in its production sharing agreement.
Fourth, ExxonMobil would have risked its reputation by going back to Russia despite the problems noted above. Putin would certainly insist on a public signing ceremony to show the global business community that Russia’s pariah status was over. In which case, ExxonMobil’s current CEO would have been seen shaking the hand of an indicted war criminal.
It was hard for the company to recover its reputation after the Exxon Valdez catastrophe. That was oil; now it is blood that is being spilled. ExxonMobil made the right call by continuing to stay out of Russia’s latest disaster.
Edward Verona is a nonresident senior fellow at the Atlantic Council’s Eurasia Center and a former vice president of government relations for ExxonMobil Russia.