Particularly worrying on this front is Secretary of State Rex Tillerson’s relationship with ExxonMobil, one of the oil giants that would benefit most directly from a price spike. Yes, Tillerson agreed to divest from the company, and to recuse himself from decisions that specifically relate to ExxonMobil for one year. But his ties to the company remain deep. Not only was Tillerson at Exxon for forty-one years, his entire working life, but ExxonMobil has agreed to pay him a retirement package worth a staggering $180 million, a sum so large (especially given how far the company’s fortunes fell under his leadership) that it may well inspire some feelings of gratitude in the secretary of state. (How would you feel about a corporation that provided you with a $180-million exit package?) As Tom Sanzillo, director of finance at the Institute for Energy Economics and Financial Analysis, puts it, “You can take the boy out of Exxon but you cannot take the Exxon out of the boy.”
Moreover, while Tillerson may be excluded from decisions relating to infrastructure in which ExxonMobil has a clear interest (such as approval of the Keystone XL pipeline), he cannot recuse himself from the many foreign policy decisions that could impact oil prices—decisions potentially worth billions to the company. That, after all, would mean recusing himself from any discussion of military conflict in oil-rich regions, or direct discussion with the leaders of petrostates. We have already seen that Tillerson is doing no such thing.
The link between war and oil prices is not hypothetical. When oil prices go down, instability increases in oil-dependent countries such as Venezuela and Russia. Conversely, when conflict breaks out in countries with considerable oil assets—whether Nigeria or Kuwait—the price of oil shoots up as markets anticipate a contraction in supply. (The price of oil even got a small bump when Trump ordered the April missile strike on Syria.) “There is a close correlation between oil prices and conflict,” explains Michael Klare, professor of peace and world security studies at Hampshire College. Exhibit A of this phenomenon was the 2003 invasion of Iraq, which helped send the price of oil soaring from around $30 a barrel at the start of the invasion to above $100 by 2008. That, in turn, is what triggered the boom in tar sands investment and the rush to the Arctic. And this dynamic could be repeated. A war that takes large state-owned oil reserves offline, or which significantly weakens the power of OPEC, would be a boon for the oil majors. ExxonMobil, loaded with tar sands reserves and with megaprojects pending in the Russian Arctic, would have a huge amount to gain.
Perhaps the only person who would have more to gain from this kind of instability is Vladimir Putin, head of a vast petrostate that has been in economic crisis since the price of oil collapsed. Russia is the world’s leading exporter of natural gas, and its second-largest exporter of oil (after Saudi Arabia). When the price was high, this was great news for Putin: prior to 2014, fully 50 percent of Russia’s budget revenues came from oil and gas. But when prices plummeted, the government was suddenly short hundreds of billions of dollars, an economic catastrophe that has had tremendous human costs. According to the World Bank, in 2015 real wages fell in Russia by nearly 10 percent; Russia’s currency, the ruble, depreciated by close to 40 percent; and the population of people classified as poor increased from 3 million to over 19 million. Putin plays the strongman, but this economic crisis makes him vulnerable at home.
Which is why many have speculated that Russia’s high-risk military involvement in Syria is partly driven by a desire to get oil prices back up. This theory has been floated most prominently by Alexander Temerko, a right-wing, Ukrainian-born British businessman who works in the oil industry. In 2015, Temerko wrote in the Guardian:
Prolonged war in the Middle East would serve Putin’s interests perfectly. The deeper and more widespread the conflict, the more world oil and gas prices are likely to rise, helping him stage an economic recovery at home and render the sanctions useless.
Ushering in better times at home is therefore Putin’s ultimate aim as he seeks to prop up a system that takes advantage of people’s patriotism and public spirit. The grand plan is for his vital oil and gas revenues to recover so he can buy the loyalty of Russia’s 140 million-strong population.
(This is something of an oversimplification: Putin has other reasons for being in Syria as well, including a desire to access the country’s ports and potentially its oil and gas fields—and war, as ever, is a great distraction from the misery at home.)
We’ve also heard a lot about how ExxonMobil made a massive deal with the Russian state oil company Rosneft to drill for oil in the Arctic, which Putin bragged was worth half a trillion dollars. That deal was derailed by US sanctions against Russia imposed under the Obama administration. It is still eminently possible, despite the posturing on both sides over Syria, that Trump could lift those sanctions and clear the way for that deal to go ahead, which would quickly boost ExxonMobil’s flagging fortunes. (Months after Trump took office, the company requested a waiver from the US sanctions, and was denied.)
But even if the sanctions are lifted, there is another factor standing in the way of the project moving forward: the depressed price of oil. Tillerson made the deal with Rosneft in 2011, when the price of oil was soaring at around $110 a barrel. Their first commitment was to explore for oil in the sea north of Siberia, under tough-to-extract, icy conditions. Since the oil price collapse, other oil majors, including Shell and France’s Total, have backed away from Arctic drilling, in part because frozen conditions drive up costs so much. (The break-even price for Arctic drilling is estimated to be around $100 a barrel, if not more.) So even if sanctions are lifted under Trump, it won’t make sense for Exxon and Rosneft to move ahead with their project unless oil prices are high enough. In other words, both parties have significant and multi-layered reasons for wanting the price of oil to shoot back up.
Which is why we need to be very clear that a state of instability and uncertainty is not something that is feared by core figures in and around the Trump administration; on the contrary, many will embrace it. Trump has surrounded himself with masters of chaos—from Tillerson to Mnuchin. And chaos has a long track record of sending the price of oil up. If it rises to $80 or more a barrel, then the scramble to dig up and burn the dirtiest fossil fuels, including those under melting ice, will be back on. A price rebound would unleash a global frenzy in new high-risk, high-carbon fossil fuel extraction, from the Arctic to the tar sands. If that is allowed to happen, it really would rob us of our last chance of averting catastrophic climate change.
So, in a very real sense, preventing war and averting climate chaos are one and the same fight.
Economic Shocks