Category Archives: Industry Jobs Oil Economics

Ah…Rex Tillerson has Another Special Friend in Russia

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We are supposed to dislike the NYT’s for many reasons, but there are times when researchers do good work even if some truths hurt. Such is the case with Rex Tillerson and Igor Sechin.

 HuffPo

MOSCOW — It’s June 2014. War is underway in eastern Ukraine, and Russia has recently annexed Crimea. Western countries are introducing sanctions against Russian companies and the people in President Vladimir V. Putin’s inner circle. It seems that Russia will soon be completely isolated from the rest of the world.

But the 21st World Petroleum Congress is taking place in Moscow. The atmosphere at the Crocus Expo International Exhibition Center, where the congress is being held, is decidedly nonconfrontational. On a stage, two men in suits hold an amicable conversation, addressing each other as “my friend.” The men are captains of the global petroleum industry: Rex W. Tillerson, the chief executive of Exxon Mobil, and Igor I. Sechin, the head of Rosneft, Russia’s state oil company, and one of Mr. Putin’s longtime allies.

Mr. Sechin is not just the chief executive of Rosneft, he is also one of the heroes of contemporary Russian politics. He is believed to have served as a K.G.B. agent in Africa and had no real experience in the business world until he was over 40. He didn’t come to lead the state oil company because of his business acumen; he earned his position through his loyalty to Mr. Putin.

After the collapse of the Soviet Union, Mr. Sechin aligned himself with Mr. Putin, another former K.G.B. officer, as he began consolidating power in post-Soviet politics. Everywhere Mr. Putin went, Mr. Sechin was by his side as a trusted aide and adviser.

In 2003, Russian authorities arrested Mikhail Khodorkovsky, the owner of Yukos, a huge oil company. At the time, Mr. Sechin was working as Mr. Putin’s deputy chief of staff, and though he had no formal judicial or investigatory authority, Mr. Khodorkovsky accused him of initiating his arrest — and the campaign that followed to nationalize Yukos. It’s impossible to know, but it seems likely. Following Mr. Khodorkovsky’s arrest, Rosneft absorbed Yukos’s assets. In 2004, Mr. Sechin was appointed to head Rosneft’s board.

Mr. Sechin isn’t just a businessman, though. He’s an influential political figure and a crucial Putin ally who has demonstrated his power. The arrest last month of Aleksei Ulyukayev, the minister of economic development, on charges of bribery was widely viewed as an act of revenge by Mr. Sechin. With the arrest, the first of an active government minister in post-Soviet Russia, he again confirmed his image as the most sinister man in the president’s inner circle.

Earlier this year, Mr. Sechin’s expansion was so aggressive that it seemed plausible that Mr. Putin himself would get tired of him, and would try to rid himself of such an odious comrade in arms.

Now Mr. Sechin has nothing to fear. A gift has arrived from across the ocean. This man, whose international experience up to this point has been limited to his friendship with Hugo Chávez, the deceased president of Venezuela, has an exclusive international trump card that even Foreign Minister Sergey V. Lavrov lacks. More here.

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Judicial Watch says it this way, ‘Rex and the Russian Swamp’:

Amid controversy over the extent of Kremlin penetration into the American electoral system (detailed last week in Investigative Bulletin), Donald Trump has doubled down on the Russian connection with his nomination of ExxonMobil CEO Rex Tillerson to become the next secretary of state.

Mr. Trump has been signaling a new Russia tilt for months and Mr. Tillerson seems an excellent candidate to carry it out. Whether this is sound policy or sheer folly remains to be seen, but from an anti-corruption perspective—taking Mr. Trump at his pledge to “drain the swamp”—the Tillerson nomination is strange indeed.

Mr. Tillerson is up to his eyeballs in Russian oil deals with Vladimir Putin, whose kleptocratic regime makes the Washington swamp look like the pool at Mar-a-Lago. Last week, U.S. intelligence leaked a new estimate of Mr. Putin’s personal wealth: $85 billion.

His Kremlin salary: $144,444.

You lie down with dogs, you get up with fleas. Mr. Tillerson’s role in the Rosneft oil deal is a case in point. Rosneft is a Russian energy giant closely allied with Mr. Putin. Mr. Tillerson negotiated a deal with Rosneft giving ExxonMobil access to vast Russian oil reserves in the Arctic and Black Sea. ExxonMobil pledged millions to provide the technology and expertise for exploration and drilling. In return, it received a one-third stake in the venture. Successful exploitation of the oil fields could bring more than $100 billion into ExxonMobil coffers.

Rosneft was formerly known as the Yukos Oil Company, Russia’s largest energy enterprise. In 2003, Mr. Putin decided he wanted it.

Yukos’s founder, the oligarch Mikhail Khodorkovsky, was becoming a threat to Mr. Putin. He jailed Mr. Khodorkovsky on bogus fraud charges, seized Yukos assets and bankrupted the company. Mr. Khodorkovsky served ten years behind bars. Other Yukos officials were jailed or fled the country. American and Russian investors were robbed. The Permanent Court of Arbitration at The Hague awarded investors $50 billion in damages, but the decision was later overturned.

Some might say Mr. Khodorkovsky got off easy. Here’s a list of Putin critics who ended up dead.

Yukos was raped and pillaged and its assets were transferred to Rosneft. Control of the company was given to a key Putin lieutenant, Igor Sechin. Like Mr. Putin, Mr. Sechin is a former KGB agent. Mr. Sechin is a leading figure in the siloviki—literally, “strongmen”—faction of former law enforcement, military and intelligence figures around Mr. Putin.

In 2012, Mr. Tillerson struck his deal with Rosneft. “Today really is a historic day,” Mr. Tillerson said at the signing ceremony.

Former Yukos officials and shareholders felt differently. When the Mafia or a drug cartel washes its ill-gotten gains into a new, “clean” financial entity, that’s called money laundering. “Through today’s agreement with Exxon,” the Committee for Russian Economic Freedom declared, “Rosneft has finally managed to give an aura of legitimacy to the theft of assets stolen from Yukos.” The former CFO of Yukos wrote in the Moscow Times that “Exxon is investing with a company whose largest assets were stolen from Yukos shareholders by the Russian government.”

Mr. Tillerson has a long history with Mr. Sechin. In 1998, Mr. Tillerson ran ExxonMobil’s oil and gas enterprise on Sakahalin Island, off the coast of Siberia. Mr. Sechin took over the Russian side of the project in 2004. Mr. Tillerson’s ExxonMobil predecessor as CEO tried to buy into Yukos but was driven off by the jailing of Mr. Khodorkovsky.

Mr. Tillerson persisted. The Rosneft deal giving ExxonMobil access to Arctic and Black Sea oil fields elevated the relationship between Mr. Tillerson and the Kremlin leadership. Mr. Tillerson calls Mr. Sechin a “friend.” Mr. Sechin says he wants to come to the United States to ride motorcycle with Mr. Tillerson. In 2013, Mr. Putin awarded Mr. Tillerson the Russian Order of Friendship for his “big contribution to developing cooperation in the energy sector.”

The bromance hit a rough patch in 2014 when the U.S. government sanctioned Russian officials and entities—including Mr. Sechin and Rosneft—for annexing Crimea and sending forces into Ukraine. The Rosneft deal was put on hold. Losses to ExxonMobil are estimated at more than $1 billion. In 2015, Mr. Tillerson declared at a conference, “We’ll await a time in which the sanctions environment changes or the sanctions requirements change.”

He may not have to wait much longer.

Chinese Spy Caught Stealing Military Documents

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If you don’t think that our country is full of foreign spies and operatives engaged in industrial espionage, perhaps this case will change your mind. One has to ask why foreign nationals are employed by domestic corporations that are government contractors in the first place.

Long Yu Criminal Complaint

Related reading: Russian Spies and Espionage in NATO and USA

Chinese National Admits to Stealing Sensitive Military Program Documents from United Technologies

Yu Long, 38, a citizen of China and lawful permanent resident of the U.S., waived his right to be indicted and pleaded guilty today in New Haven federal court to charges related to his theft of numerous sensitive military program documents from United Technologies and transporting them to China.

The announcement was made by Acting Assistant Attorney General for National Security Mary B. McCord, U.S. Attorney Deirdre M. Daly of the District of Connecticut, Special Agent in Charge Patricia M. Ferrick of the New Haven Division of the Federal Bureau of Investigation, Special Agent in Charge Matthew Etre of Homeland Security Investigations (HSI) in Boston, Special Agent in Charge Craig W. Rupert of the Defense Criminal Investigative Service (DCIS) Northeast Field Office, and Special Agent in Charge Danielle Angley of the U.S. Air Force Office of Special Investigations.

“Long admitted to stealing and exploiting highly sensitive military technology and documents, knowing his theft would benefit China’s defense industry and deliberately contravene the embargo on U.S. Munitions List technology the United States has imposed on China,” said Acting Assistant Attorney General McCord. “Export laws exist as an important part of our national security framework and disrupting and prosecuting this kind of economic espionage is one of the National Security Division’s highest priorities.”

“In an effort to further his own career, this defendant stole an extraordinary amount of proprietary military program information from United Technologies and transported much of that stolen information to China,” said U.S. Attorney Deirdre M. Daly.  “His actions, which he knew would benefit China, not only violated his employment agreement and damaged the company, but have threatened our country’s national security interests.  U.S. companies continue to be targeted by those who seek to steal intellectual property, trade secrets and advanced defense technology – whether through a computer hack or cyber intrusion, or through a rogue employee.  Working closely with our nation’s defense contractors, we will relentlessly investigate and prosecute those who steal, or attempt to steal, trade secrets and sensitive military information, whether for their own personal gain or for the benefit of foreign actors.”

“This case highlights the complexity in which the FBI and law enforcement are being challenged to keep the integrity of our industry intellectual property intact,” said Patricia M. Ferrick, Special Agent in Charge of the New Haven Division of the Federal Bureau of Investigation.  “Investigating criminal activity of this nature will continue to be a priority.”

“These sophisticated technologies are highly sought after by our adversaries,” said Special Agent in Charge Matthew Etre of HSI Boston.  “They were developed to give the United States and its allies a distinct military advantage, which is why HSI and our law enforcement partners will continue to aggressively target the individuals who steal the ideas of others and sell these items.”

“Today’s plea demonstrates the commitment of the Defense Criminal Investigative Service (DCIS) and our federal law enforcement partners to identifying those who illegally export sensitive defense information to adversarial Foreign governments,” said Craig W. Rupert, Special Agent in Charge, DCIS, Northeast Field Office.  “DCIS will continue to safeguard sensitive technology and to shield America’s investment in national defense by disrupting efforts of groups and individuals who try to illegally acquire our national security assets.”

“This case was enabled by the outstanding teamwork of the FBI, DCIS, HSI, AFOSI and the U.S. Attorney’s office,” said Danielle Angley, Special Agent-in-Charge with the Air Force Office of Special Investigations.  “In addition, it demonstrates the focus of law enforcement agencies to protect our nation’s critical resources.”

According to court documents and statements made in court, from approximately May 2008 to May 2014, Long worked as a Senior Engineer/Scientist at United Technologies Research Center (UTRC) in Connecticut. Long’s employment at UTRC included work on F119 and F135 engines. The F119 engine is employed by the U.S. Air Force F-22 Raptor fighter aircraft, and the F135 engine is employed by the U.S. Air Force F-35 Lightning II fighter aircraft.

Beginning in 2013, Long expressed his intent to individuals outside UTRC to return to China to work on research projects at certain state-run universities in China using knowledge and materials he had acquired while employed at the UTRC. To that end, Long interacted with several state-run institutions in China, including the Chinese Academy of Science (CAS) and the Shenyang Institute of Automation (SIA), a state-run university in China affiliated with CAS.

During 2013 and 2014, Long was recruited by SIA and other state-run universities, during which he leveraged information that he had obtained while working at UTRC to seek employment in China, culminating in his travel to China in the possession of voluminous documents and data containing highly sensitive intellectual property, trade secrets and export controlled technology, which he had unlawfully stolen from UTRC.

In December 2013, after Long agreed in principle to join SIA, an SIA-CAS Director and an SIA-CAS Recruiter asked Long to provide documents from his work at UTRC and examples of projects on which he had worked to substantiate the claims Long made in his application, and interview with SIA.  Long agreed.

On Dec. 24, 2013, Long emailed several documents to the SIA-CAS Director, including a document that contained the cover page of an export controlled UTRC presentation on Distortion Modeling dated Sept. 30, 2011.

While negotiating with SIA, Long also continued to explore other opportunities at other state-run institutions in China. In one email, Long stated: “I have made my mind to return to China, so have prepared a research plan based on my industry experience and current projects.” In the research plan, Long stated: “In the past five years, I have been working with Pratt Whitney, also other UTC business units, like UTAS (including Hamilton Sundstrand and Goodrich), Sikorsky, CCS (including Carrier and Fire & Security), and Otis. These unique working experiences have provided me a great starting point to perform R&D and further spin off business in China. I believe my efforts will help China to mature its own aircraft engines.”

On May 30, 2014, Long left UTRC. In June 2014, Long traveled to China and began working for SIA. Beginning in July 2014, digital evidence and forensic analysis indicated that Long brought with him and accessed in China a UTRC external hard drive that had been issued to him and that he unlawfully retained.

In July 2014, Long was listed as the project leader on a lengthy research plan for CAS involving fourteen other individuals.  The plan was replete with references to how the proposed research and development would benefit China. The plan stated: “The three major engine companies in the world, i.e. GE, Pratt & Whitney in the US and Rolls-Royce in the UK, are all using this technology. . . Our nation lacks the ability to process high performance components, such as airplane wings, tail hooks on carrier aircrafts, and blisks . . . Because of the technology embargo imposed by western developed countries, it is very difficult for us to obtain more advanced design and manufacturing technology . . . This research project will increase our independent ability, efficiency and quality in key component manufacturing.”

On or about Aug. 12, 2014, the Document on Distortion Modeling – the same document from which Long had sent the cover page to the SIA-CAS Director on Dec. 24, 2013 – was accessed on the external hard drive. Travel records and forensic analysis confirmed that both Long and the external hard drive were in China when this file was accessed.

On Aug. 19, 2014, Long returned to the U.S. from China through John F. Kennedy International Airport in New York. During a secondary inspection screening by U.S. Customs and Border Protection (CBP) officers, Long was found in the possession of a largely completed application for work with a state-controlled aviation and aerospace research center in China. The application highlighted certain parts of Long’s work related to the F119 and F135 engines while at UTRC.

On or about Aug. 20, 2014, Long emailed an individual at a university in China, attaching an updated “achievement and future plan.” In the plan, Long discussed his work related to the F119 and F135 U.S. military fighter jet engines and stated that he also had knowledge of unpublished UTRC projects in which the U.S. Air Force had shown interest.

On Nov. 5, 2014, Long boarded a flight from Ithaca, New York to Newark Liberty International Airport in Newark, New Jersey, with a final destination of China. During Long’s layover in Newark, CBP officers inspected Long’s checked baggage and discovered that it contained sensitive, proprietary and export controlled documents from another defense contractor, Rolls Royce.

Further investigation determined that the U.S. Air Force had convened a consortium of major defense contractors, including Pratt and Rolls Royce, to work together to see whether they could collectively lower the costs of certain metals used. As part of those efforts, members of the consortium shared technical data, subject to restrictions on further dissemination. Rolls Royce reviewed the documents found in Long’s possession at Newark Liberty Airport and confirmed that it provided the documents to members of the consortium, which included Pratt. Rolls Royce further confirmed that Long was never an employee of Rolls Royce. A review of UTRC computer records indicated that Long had printed the documents while employed at UTRC.

Long was arrested on a federal criminal complaint on Nov. 7, 2014. A review of Long’s digital media seized at the time of his arrest revealed voluminous files protected by the International Traffic in Arms Regulations and Export Administration Regulations, and voluminous files proprietary to various U.S. companies. In short, the investigation revealed that Long took his laptop and the UTRC external hard drive with him to China in 2014, at which time there was a substantial body of highly sensitive, proprietary and export controlled materials present on that digital media. UTRC has confirmed that the hard drive that Long unlawfully retained and accessed in China contained not only documents and data from projects on which Long worked while employed at the company, but also from projects on which he did not work to which he would have had access.

Long pleaded guilty to one count of conspiracy to engage in the theft of trade secrets knowing that the offense would benefit a foreign government, foreign instrumentality or foreign agent, an offense that carries a maximum term of imprisonment of 15 years. He also pleaded guilty to one count of unlawful export and attempted export of defense articles from the U.S. in violation of the Arms Export Control Act, an offense that carries a maximum term of imprisonment of 20 years.

Long, who has been detained since his arrest, will be sentenced by U.S. District Judge Robert N. Chatigny in Hartford.  A sentencing date has not been scheduled.

This investigation is being led by the FBI in New Haven in coordination with Homeland Security Investigations in New Haven and Newark; the Defense Criminal Investigative Service in New Haven; the U.S. Air Force’s Office of Special Investigations in Boston, Massachusetts; and, the Department of Commerce’s Boston Office of Export Enforcement. U.S. Attorney Daly and Acting Assistant Attorney General McCord also thanked the FBI in Newark, Ithaca and Syracuse, New York, the U.S. Customs and Border Protection Service in New York and Newark, and the U.S. Attorney’s Offices for the Northern District of New York and the District of New Jersey, for their efforts and assistance in this matter.

This case is being prosecuted by Assistant U.S. Attorneys Tracy Lee Dayton and Stephen B. Reynolds of the District of Connecticut, and Trial Attorneys Brian Fleming and Julie Edelstein of the National Security Division’s Counterintelligence and Export Control Section.

Trump’s Pick for Sec. of Army, but Tillerson is Still a Problem

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For the most part, the team leading the auditions for Cabinet posts in the Trump administration are pretty good. It was announced on December 19, that Trump’s choice for Secretary of the Army is Vincent Viola. Viola is a billionaire and a West Point graduate. Formerly an air borne ranger, Viola is in fact a military patriot as he helped fund the ‘counter-terrorism’ center.

Hat tip on this choice.

Upon continued deeper dives however on Rex Tillerson, there is an iceberg ahead on this as his Russian ties are even more robust than previously reported.

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ExxonMobil helped defeat Russia sanctions bill

The company’s formidable lobbying operation cleared the way for outgoing CEO Rex Tillerson to help restore a program worth billions of dollars as secretary of state.

ExxonMobil successfully lobbied against a bill that would have made it harder for the next president to lift sanctions against Russia, clearing the way for the oil giant to restart a program worth billions of dollars if Donald Trump eases those restrictions as president.

The company’s effort could be helped by outgoing CEO Rex Tillerson, who, if confirmed as secretary of state, would be a key adviser on the decision.

The bill, known as the STAND for Ukraine Act, would have converted into law for five years President Barack Obama’s measures punishing Russia for annexing Crimea, making it more difficult for Trump to roll them back. The Senate left town on Monday without acting on the bill, making it easier for Trump to end the sanctions with a stroke of the pen.

The sanctions forced Exxon to step back from a drilling project in Russia’s Arctic, a loss that the company valued in a regulatory filing at as much as $1 billion. Exxon also lobbied the Senate Foreign Relations Committee against previous bills punishing Russia for the invasion of Ukraine, according to a person familiar with the company’s efforts on Capitol Hill.

Exxon’s intervention against the sanctions bill could add to concerns among senators — including Republicans John McCain, Lindsey Graham and Marco Rubio — that Tillerson is too chummy with Vladimir Putin. Exxon’s business partner in Russia is state-owned Rosneft, led by Igor Sechin, a close Putin ally who was sanctioned by the Treasury Department in 2014. Tillerson and Putin personally concluded the joint venture in 2011.

In a statement, Exxon spokesman Alan Jeffers said the company “sought and provided information” about its activities in Russia and Ukraine and disclosed its lobbying as required. “Our contacts were reported per congressional requirements, but were mainly in the first half of 2014,” when the Russia sanctions were first imposed, he added. More detail here from Politico.

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Yes there is more:

Leak reveals Rex Tillerson was director of Bahamas-based US-Russian oil firm

Documents from tax haven will raise more questions over suitability of Donald Trump’s pick for US secretary of state

Rex Tillerson, the businessman nominated by Donald Trump to be the next US secretary of state, was the long-time director of a US-Russian oil firm based in the tax haven of the Bahamas, leaked documents show.

 Mediaite

Tillerson – the chief executive of ExxonMobil – became a director of the oil company’s Russian subsidiary, Exxon Neftegas, in 1998. His name – RW Tillerson – appears next to other officers who are based at Houston, Texas; Moscow; and Sakhalin, in Russia’s far east.

The leaked 2001 document comes from the corporate registry in the Bahamas. It was one of 1.3m files given to the Germany newspaper Süddeutsche Zeitung by an anonymous source. The registry is public but details of individual directors are typically incomplete or missing entirely.

Though there is nothing untoward about this directorship, it has not been reported before and is likely to raise fresh questions over Tillerson’s relationship with Russia ahead of a potentially stormy confirmation hearing by the US senate foreign relations committee. Exxon said on Sunday that Tillerson was no longer a director after becoming the company’s CEO in 2006.

ExxonMobil’s use of offshore regimes – while legal – may also jar with Trump’s avowal to put “America first”.

Tillerson’s critics say he is too close to the Russian president, Vladimir Putin, and that his appointment could raise potential conflicts of interest.

ExxonMobil is the world’s largest oil company and has for a long time been eyeing Russia’s vast oil and gas deposits. Tillerson currently has Exxon stock worth more than $200m.

Since his nomination, Tillerson’s Russia ties have become a source of bipartisan concern. In 2013, Putin awarded him the Russian Order of Friendship. Tillerson is close to Igor Sechin, the head of Russian state oil company Rosneft and the de facto second most powerful figure inside the Kremlin. A hardliner, Sechin is ex-KGB.

Tillerson’s award followed a 2011 deal between ExxonMobil and Rosneft to explore the Kara Sea, in Russia’s Arctic.

It was put on hold in 2014 after the Obama administration imposed wide-ranging sanctions against Russia. The sanctions were punishment for Putin’s Crimea annexation that spring and Russia’s undercover invasion of eastern Ukraine.

The ban covers the US sharing of sophisticated offshore and shale oil technology. Exxon was supposed to halt its drilling with Rosneft. The firm successfully pleaded with the US Treasury department to delay the ban by a few weeks, with the Kremlin threatening to seize its rig. In this brief window Exxon discovered a major Arctic field with some 750m barrels of new oil.

Tillerson has criticised the US government’s policy on Russia. In 2014 he told Exxon’s annual meeting that “we do not support sanctions”. He added: “We always encourage the people who are making those decisions to consider the very broad collateral damage of who they are really harming.”

It is widely assumed by investors that the new Trump administration will drop sanctions. This would allow the Kara joint venture to resume, boosting Exxon’s share price and yielding potential profits in the tens of billions of dollars. According to company records, Tillerson currently owns $218m of stock. His Exxon pension is worth about $70m. The complete summary is here from the Guardian.

 

Secretary of State Tillson: Kremlin Order of Friendship

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In 1994, Boris Yeltsin ordered by decree an award known as the ‘Order of Friendship’. Yeltsin emerged to power under the perestroika movement and under his reign, he terminated the Russian Constitution, the Parliament and widespread corruption spread through his term due mostly on industries dealing with oil commodities.

In 1989, Yeltsin visited Texas to better understand the fossil fuel industry and return to his motherland to stop the country from falling into economic collapse yet failed. Crime, protests and prices of basic needs saw inflationary prices such that the Soviet Union soon fell.

With the country in chaos and corruption spreading Yeltsin forged a relationship with Rex Tillerson of Exxon Mobile, the top candidate for Secretary of State in the new Trump administration. Yeltsin bestowed an award to Tillerson known as the ‘Order of Friendship’. Then came the deployment of the business partnerships.

Exxon’s landmark 2011 joint venture with Kremlin-controlled Rosneft calls for upwards of $500 billion in investment over the coming decades. The companies are planning an offshore drilling campaign in Russia’s frozen Chukchi Sea, Laptev Sea and Kara Sea, as well as the Black Sea. They’ll also be drilling onshore in western Siberia, where the Bazhenov and Achimov formations are thought to be many times bigger than the Bakken shale of North Dakota. In addition, Exxon and Rosneft are working to finalize designs for an LNG project in Russia’s far east.

As in any good bromance, they hang out in each others’ neighborhoods. To balance out the geographic breadth of the partnership, Rosneft has joined with Exxon to invest in 20 deepwater exploration blocks in the Gulf of Mexico, as well as onshore projects in Texas and Alberta, Canada. Exxon has also given Rosneft the option to acquire a 25% stake in the Port Thomson Unit, which is estimated to hold a quarter of the natural gas and condensate reserves on Alaska’s North Slope. Back in 2007, amid Putin’s moves to reassert state control over Russia’s energy industry, Exxon’s Sakhalin-1 JV with Gazprom was thought to be a target. But CEO Rex Tillerson made it clear back then that he wouldn’t be pushed around and that he expected Russia to abide by contracts. As the Financial Times reported at the time:

Mr Tillerson said Russia had moved past its phase of trying to regain control of resources. “They want foreign participation because they know there’s technology capability that they need access to and there’s know-how that they need access to.”

Future investment by Exxon would depend on that contract being honoured, he said. “As long as they say, ‘We don’t like that deal we signed back then, but we’ll honour it’, that doesn’t stand in the way of our investments – we can proceed.”

Although Exxon did eventually accede to Gazprom’s wishes that it, not Exxon, control the destination of gas from Sakhalin-1 (Exxon wanted to sell directly to China), what Exxon got in return for its flexibility was an even bigger deal with Rosneft — that big new LNG project being engineered now, which could end up costing $15 billion or more.

In signing agreements with Rosneft last June, Tillerson remarked, “Experience tells us that a good foundation is critical for success in the Arctic and elsewhere. ExxonMobil’s Sakhalin-1 project with Rosneft is an example where we have put this experience to work.”

Last summer Putin made it official; he awarded Tillerson Russia’s Order of Friendship. Friends, joined in their shared respect for just how hard it is to keep their oil and gas empires humming. Commiserating in the challenge of figuring out how to find growth when you’re already the biggest in the world.

Just as Putin is unlikely to give back Crimea, you can forget about a company as growth-hungry as Exxon willingly backing away from its Kremlin connections out of some perceived patriotic American duty. As Tillerson’s predecessor Lee Raymond famously said (quoted in Steve Coll’s book Private Empire: ExxonMobil and American Power): “I’m not a U.S. company and I don’t make decisions based on what’s good for the U.S.” More here from Forbes.

The U.S. military is quite concerned about Russia’s aggression in the Artic as the Russians are using the oil exploration as a dual use mission, the other being espionage while it appears Tillerson and Putin have come to an accommodation on joint operations. Will this affect national security? Already has and includes China.

The U.S. intelligence focus is chiefly aimed at Russia’s military buildup in the far north under President Vladimir Putin. The country’s Northern Fleet is based above the Arctic Circle at Murmansk.

The Russian government announced plans in March 2014 to reopen 10 former Soviet-era military bases along the Arctic seaboard, including 14 airfields, that were closed after the end of the Cold War. A shipyard in northern Russia also is constructing four nuclear-powered submarines.

Alaska Gov. Bill Walker complained that the Pentagon is closing bases and shedding troops while Moscow has begun rebuilding a military force that was eviscerated after the collapse of the Soviet Union.

“It’s the biggest buildup of the Russian military since the Cold War,” Walker told reporters during Obama’s visit to his state. “They’re reopening 10 bases and building four more, and they’re all in the Arctic, so here we are in the middle of the pond, feeling a little bit uncomfortable with the military drawdown.” More here from the LATimes.

In 2014: Russia’s state-run OAO Rosneft said a well drilled in the Kara Sea region of the Arctic Ocean with Exxon Mobil Corp. struck oil, showing the region has the potential to become one of the world’s most important crude-producing areas. The discovery sharpens the dispute between Russia and the U.S. over President Vladimir Putin’s actions in Ukraine. The well was drilled before the Oct. 10 deadline Exxon was granted by the U.S. government under sanctions barring American companies from working in Russia’s Arctic offshore. Rosneft and Exxon won’t be able to do more drilling, putting the exploration and development of the area on hold despite the find announced today. More here from Bloomberg.

Related reading: For Putin and Russia it is Articulus (Crisis)

In summary, going back to perestroika, perhaps Tillerson and Trump need to apply it beginning now. The implications going forward are huge and no one can predict the consequences due to all the moving parts. We do know the U.S. sanctions and those of Europe applied to the Russian oil company Rosneft have had some affect and should in part due to Crimea and Ukraine. The balance of the Baltic States stability remain in question due to the continued aggression by Russia in the region. Russia has sold off some ownership in Rosneft to raise capital, $11 billion worth of capital. It is most interesting Qatar is a financial player now in Rosneft. Qatar is the satellite Taliban headquarters and it was where the Taliban 5 were shipped to from Guantanamo Bay. A Qatari official said of the Gitmo detainees:

A Qatar official said the Taliban men, who have been granted Qatari residency permits, will not be treated like prisoners while in Doha and no U.S. officials will be involved in monitoring their movement while in the country.

“Under the deal they have to stay in Qatar for a year and then they will be allowed to travel outside the country… They can go back to Afghanistan if they want to,” the official said. More from Reuters in 2014.

It all got complicated real fast eh? Order of Friendship could take on a wider definition beginning in 2017 if Tillerson is confirmed as Secretary of State. What say you?

 

General Kelly Pegged to Head DHS

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This is going to take another waiver…. I hope that early on in the Trump administration there will be a final act to list and designate drug cartels as terror organizations. Fair warning however, the economies of Latin American countries could financially collapse.

 FreeBeacon

It is also notable that General Kelly lost a son to the enemy known as the Taliban in 2010 in Afghanistan.

WaPo: Donald Trump has chosen retired Marine Gen. John F. Kelly to run the Department of Homeland Security, turning to a blunt-spoken border security hawk who clashed with the Obama administration over women in combat and plans to close the prison at Guantanamo Bay, according to people familiar with the decision.

Kelly, who retired in February as chief of U.S. Southern Command, would inherit a massive and often troubled department responsible for overseeing perhaps the most controversial part of Trump’s agenda: his proposed crackdown on illegal immigration. DHS is the third-largest Cabinet department, with more than 240,000 employees who do everything from fight terrorism to protect the president and enforce immigration laws.

Kelly, 66, is a widely respected military officer who served for more than 40 years, and he is not expected to face difficulty winning Senate confirmation. Trump’s team was drawn to him because of his southwest border expertise, people familiar with the transition said. Like the president-elect Kelly has sounded the alarm about drugs, terrorism and other cross-border threats he seems as emanating from Mexico and Central and South America.

Yet Kelly’s nomination could raise questions about what critics see as Trump’s tendency to surround himself with too many military figures. Trump has also selected retired Marine Gen. James N. Mattis for defense secretary and retired Lt. Gen. Michael T. Flynn as national security adviser, while retired Army Gen. David Petraeus is under consideration for secretary of state.

Kelly, a Boston native, was chosen over an array of other candidates who also met with Trump after his surprise election victory last month. Those in contention included Frances Townsend, a top homeland security and counterterrorism official in the George W. Bush administration; Milwaukee County sheriff David Clarke and Kansas Secretary of State Kris Kobach. Clarke and Kobach are vocal Trump backers, with Kobach being nationally known for his strong views on restricting illegal immigration. More here.

 MilitaryTimes

**** Why is General Kelly a stellar choice for the Department of Homeland Security? In 2015, in part his testimony before the Senate Armed Services Committee gives us a huge clue:

Last year, almost half a million migrants1 from Central America and Mexico—including over 50,000 unaccompanied children (UAC) and families—were apprehended on our border, many fleeing violence, poverty, and the spreading influence of criminal networks and gangs. Assistant Secretary of State Roberta Jacobson testified that the “UAC migration serves as a warning sign that the serious and longstanding challenges in Central America are worsening.”2 In my opinion, the relative ease with which human smugglers moved tens of thousands of people to our nation’s doorstep also serves as another warning sign: these smuggling routes are a potential vulnerability to our homeland. As I stated last year, terrorist organizations could seek to leverage those same smuggling routes to move operatives with intent to cause grave harm to our citizens or even bring weapons of mass destruction into the United States. Mr. Chairman, Members, addressing the root causes of insecurity and instability is not just in the region’s interests, but ours as well, which is why I support President Obama’s commitment to increase assistance to Central America.

These and other challenges underscore the enduring importance of U.S. Southern Command’s mission to protect our southern approaches. We do not and cannot do this mission alone. Our strong partnerships with the U.S. interagency—especially with the Department of Homeland Security (DHS), the U.S. Coast Guard, the Drug Enforcement Administration (DEA), the Federal Bureau of Investigation (FBI), and the Departments of Treasury and State—are integral to our efforts to ensure the forward defense of the U.S. homeland. We are also fortunate to have strong, capable partners like Colombia, Chile, Brazil, El Salvador, and Panama, regional

leaders and outstanding contributors to hemispheric and international security. Given our limited intelligence assets, interagency relationships and bilateral cooperation are critical to identifying and monitoring threats to U.S. national security and regional stability.

I am also troubled by the financial and operational overlap between criminal and terrorist networks in the region. Although the extent of criminal-terrorist cooperation is unclear, what is clear is that terrorists and militant organizations easily tap into the international illicit marketplace to underwrite their activities and obtain arms and funding to conduct operations.4 It’s easy to see why: illicit trafficking is estimated to be a $650 billion industry—larger than the GDP of all but 20 countries in the world—and less than 1 percent of global illicit financial flows is currently being seized or frozen.5 The terrorist group Lebanese Hezbollah—which has long viewed the region as a potential attack venue against Israeli or other Western targets—has supporters and sympathizers in Lebanese diaspora communities in Latin America, some of whom are involved in lucrative illicit activities like money laundering and trafficking in counterfeit goods and drugs. These clan-based criminal networks exploit corruption and lax law enforcement in places like the Tri-Border Area of Brazil, Paraguay, and Argentina and the Colon Free Trade Zone in Panama and generate revenue, an unknown amount of which is transferred to Lebanese Hezbollah. Unfortunately, our limited intelligence capabilities make it difficult to fully assess the amount of terrorist financing generated in Latin America, or understand the scope of possible criminal-terrorist collaboration. You can read his presentation and testimony here.