By Syed Rashid Husain
BIG Oil is now out of shadows – ready to play a more overt role in Washington and in full glare. The inauguration of Donald Trump as the 45th president of the United States and his pick of the team has brought into focus, the grasp of Big Oil on Washington. It also indicates the importance of the energy sector in formulating the US domestic and foreign policy.
With the selection of Rex Tillerson, the former Exxon CEO, as Secretary of State, the political influence of the energy sector on Washington has reached a high point, particularly because ‘it strikes the president-elect and other observers as a sensible, mainstream selection,’ Brian Black writes in ‘The Conversation.’
Big Oil has always been a state within a state. Richard Morningstar says that when he was US ambassador to the Republic of Azerbaijan from 2012 to 2014, “the State Department people and the Exxon people were like two ships passing in the night,” even though both camps were deepening their engagement on energy issues in Russia and the surrounding area.
The level of influence, Big Oil, traditionally enjoyed in Washington could well be gauged from what Lee Raymond, Tillerson’s predecessor at ExxonMobil, told journalist Steve Coll: “Presidents come and go; Exxon doesn’t come and go.”
And Big Oil ensured a tight grip on US policies. As the 20th century closed, Coll in his book, ‘The Private Empire’ described Exxon’s approach to the global issues as follows: “The Corporation’s lobbyists bent and shaped American foreign policy, as well as economic, climate, chemical and environmental regulation. Exxon maintained all-weather alliances with sympathetic American politicians while calling as little attention to its influence as possible.”
Big Oil has been playing an increasingly important role in formulating US policies – at least since the 50s. However, despite enjoying immense influence on the US policies, Big Oil most often functioned behind the scenes, opting to stay in the background. Senior executives of oil corporations were known to be involved informally in US elections, particularly as donors or lobbyists to candidates more friendly to the industry than others since at least the 50s.
Black in his write-up underlines that in the modern era of heightened environmental awareness, Republican administrations typically created policies that benefited the oil companies. It was, for instance, the Reagan administration that sought to undermine the new environmental regulations of the 1970s, particularly with Anne Gorsuch as head of the Environmental Protection Agency and James Watt as secretary of the interior. It was Watt who allowed extensive energy development on federal lands under his jurisdiction.
Through the 1980s, energy resources on federal lands were opened to development, and environmental regulations were curbed to be more “friendly” to corporate interests, Black hence underlines. Most often, Reagan was unabashedly overt in his approach in this regard; however, Big Oil and energy were not cornerstones of his administration, per se.
The tenor and role of oil in government changed more substantially when George H. W. Bush and George W. Bush – both former oil executives – were in office. They prioritized an agenda that, while not confrontational, grew from incredibly close consultation with the energy industry that they knew so well.
Dick Cheney personified the proximity of these energy interests to power during this era. After serving under Reagan and George H. W. Bush, Cheney was the CEO of the world’s largest supplier of drilling and rigging supplies, Halliburton Inc., during the Clinton years before re-emerging as George W. Bush’s vice president in 2000.
The growing clout of leaders from the energy industry was now getting increasingly evident. Yet, this was still not in full public glare. Now, Tillerson’s appointment brings to fore the connection between Big Oil and Washington in full public glare.
Interestingly, the change in fortune comes at a significantly important juncture, at a time of growing national awareness of the importance of energy, both as a source of wealth from the expansion of domestic drilling in the US and as a contributor to climate change from burning fuels.
Black hence points out that while the George W. Bush Republican administration internally pressured government agencies to subdue scientific findings that supported climate change, the Obama administration used regulations and government science to pursue an agenda of mitigating climate change and adaptively planning for a different future. In this approach, climate change was listed by the Department of State as a matter of national security. While Obama worked with over 100 nations to craft the 2015 Paris climate accord, ExxonMobil under Tillerson faced criticism and lawsuits, accusing it of concealing the science that substantiated climate change. Tillerson’s appointment, along with other cabinet appointees, now suggests a major reversal on the nation’s serious treatment of the issue of climate change.
Other variables are coming into play too. With the induction of Two Ts - Trump and Tillerson - Russians are much more confident of the future. In the just concluded Davos Economic Forum, unlike the last few years, Russians were reported to be full of optimism this time round. Underlining, what a difference a year could make, Reuters reported from Davos:
“Twelve months ago, the mood of the Russian delegation at the World Economic Forum in Davos was distinctly gloomy, with oil prices near 12-year lows below $30 per barrel and Western sanctions depressing their economy and financial markets.”
Since then, however, Russian stock and bond markets have risen about 50 percent, boosted by rebounding oil and - more recently - expectations the new US presidency of Donald Trump will ease the sanctions imposed over Moscow’s actions in Ukraine, the report emphasized.
And this meant Moscow expects Tillerson to be soft on Russia. And this could mean more US investments in the Russian energy sector, resulting in increased output. Coupled with growing US shale output, this could add to the pressures on the energy sector – despite the OPEC output cut.
Executive Director of the International Energy Agency Fatih Birol thus has a point when he says, oil prices will be much more volatile in 2017. “I would expect that we will see a rebalancing of the markets within the first half of this year,” he said “but what I want to say (is) that we are entering a period of much more volatility in the market ... the name of the game is volatility,” he told Reuters Television in Abu Dhabi.
Birol said although the OPEC agreement could signal higher oil prices, it would also encourage more production from the United States and elsewhere. Higher prices could also weaken global demand for oil, he added.
“I expect the US shale oil will go back to increasing production this year,” Birol emphasized, adding that the recent trend of declining Chinese oil production due to low prices could be reversed if the market strengthened.
Crude developments would continue pumping adrenaline into the veins into the New Year too, one could say now with considerable confidence.
