Energy

Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

"Rex Tillerson" is just about the perfect name for a Texan oil executive. 

I'd venture that its juxtaposition of regal authority with (literally) down-to-earth labor identity also makes it pretty well-suited to working under the populist president-elect.

Making the Exxon Mobil CEO America's next top diplomat, as Donald Trump is reportedly considering, would fit with Trump's instincts in other ways, too. Tillerson is a deal-maker on a global scale, simply by the nature of his current job. As Kevin Book of ClearView Energy Partners puts it, international oil majors in general can be thought of as "diplomats who happen to drill wells." As head of a major U.S. corporation, Tillerson assuming the title of Secretary of State would also be a very Trumpian break with tradition. Plus, of course, Exxon is pleasingly yuge.

If Tillerson is offered the job and accepts, then what would it mean for his company and the wider energy sector? Answering this is tricky, in part, because his potential boss's positions on many things are as slippery as the oil price. And Exxon isn't offering any comment.

And how much influence would Tillerson even have? God knows, although it seems unlikely the head of Exxon would commit to another 24/7 job at age 64 without some sense he could make his own mark. 

The country most often mentioned in the same breath as Tillerson is Russia. His experience in overseeing a large, successful project there in the 1990s both elevated Tillerson's stature at Exxon and provided a solid basis to negotiate what looked like his greatest achievement: 2011's strategic partnership with Rosneft, blessed by President Vladimir Putin himself. As I wrote here, sanctions imposed following Russia's seizure of territory from Ukraine put that partnership in deep freeze, undermining an important growth prospect for Exxon.

Combine Tillerson's long-standing ties to Russia with Trump's clear affinity for Putin, and the probability rises of sanctions being softened or lifted sooner than they might have under a Hillary Clinton presidency (cue shudders in Europe).

In energy terms, the potential full reopening of Russia for investment would be a boon for Exxon, of course. Russia's own majors would also benefit from better access to international finance and technology.

Speaking at Exxon's annual shareholder meeting in 2014, Tillerson criticized sanctions in general because:

We don’t find them to be effective unless they are very well implemented comprehensively, 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 with sanctions and what are their objectives and whether sanctions are really effective or not. 

With the Ukrainian crisis unfolding then, Tillerson was talking Exxon's book. But his position also fits with a broader philosophy of promoting trade in energy. Here he is speaking at an event staged by the Council on Foreign Relations back in March 2007:

Should the United States seek so-called energy independence in an elusive effort to insulate this country from the impact of world events on the economy, or should Americans pursue the path of international engagement, seeking ways to better compete within the global market for energy? Like the Council's founders, I believe we must choose the course of greater international engagement. ... The central reality is this: The global free market for energy provides the most effective means of achieving U.S. energy security by promoting resource development, enabling diversification, multiplying our supply channels, encouraging efficiency, and spurring innovation.

This has important potential implications on at least three fronts.

First: Iran. Trump's campaign rhetoric dovetails with a Republican Congress generally hostile to President Obama's nuclear deal with Iran. As ever, though, it's hard to pin down Trump's position exactly; he has criticized what he called a "bad deal," yet has also spoken of enforcing it strictly.

Rex et Regnum

On this front, Tillerson's comments suggest that, at the State Department, he might countenance against a unilateral U.S. withdrawal from the deal, as it could lead to ineffective sanctions without support from European partners or China -- plus, of course, a resumption of Iranian efforts to develop nuclear weapons. Given Iran's importance to the direction of global oil supply and demand -- it was the only OPEC member to actually get an output increase embedded in the organization's latest agreement -- what happens here is crucial.

A second issue is U.S. exports of crude oil and liquefied natural gas. It's not an issue now, with gasoline and natural gas prices low, but the possibility of a backlash against selling American raw materials abroad, rather than feeding manufacturing at home, hovers over this administration in particular. It seems likely Tillerson would oppose any moves toward reinstating export barriers.

As an adjunct to that, a Tillerson State Department isn't likely to remain an advocate of measures to curb carbon emissions such as the Paris Agreement, leaving a leadership gap that could undermine cooperation altogether or cede leadership on this front to others such as Europe and China.

Finally, one of the biggest risks for the global energy market arising from Trump's election is that he makes good on his threats to China and protectionist rhetoric. Growth in energy demand relies on emerging markets, and they rely on a free-trade regime that depends on U.S. support. Trump's tariff talk marks one of the clearest divides between his populist base and Republican orthodoxy, so how this plays out is anyone's guess. If Tillerson plays a role, however, his public statements suggest he would argue against the risk of a trade war.

OPEC, for one, had best hope he would: Given Trump's willingness to tweet against Boeing Co. over some perceived slight to the American taxpayer, it doesn't take a genius to imagine who will be blamed for rigging things if pump prices increase next year.

Exxon, meanwhile, had best hope the same. Having an old friend at the State Department would be helpful, of course. But only if it upholds the multilateral system that makes being an international oil major possible.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in New York at ldenning1@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net