Private Empire: ExxonMobil and American Power

by Steve Coll

  Raymond had told Khodorkovsky that he intended to speak directly with Putin about this; Khodorkovsky had discouraged him. The ExxonMobil team interpreted Khodorkovsky’s warning as only a negotiating tactic, designed to maintain Yukos’s leverage as the exclusive source of communication with the Russian government about the proposed deal.

  Seated in a stock exchange conference room, Raymond told Putin about the negotiations with Yukos. He explained that if ExxonMobil were to make an investment, it would do so only if there was an agreement in advance that the American corporation could eventually take majority control.

  ExxonMobil didn’t necessarily need to own all of Yukos, Raymond continued; if Russia wanted enough local ownership so that the company could be listed on a Russian stock exchange that would be okay. But ExxonMobil required a pathway to at least 51 percent ownership.

  “You can basically decide how you want the other forty-nine percent,” Raymond told Putin, according to an account of the meeting later briefed to ExxonMobil executives. “Do you want the government to own it? Do you want it to be listed on an exchange? But before I get started, I need to have an understanding of our ability to get to fifty-one percent.”

  It turned into a lengthy conversation. Putin talked expansively about the choices he faced in building oil pipelines to China, to feed that economy’s thirst for energy. He put a piece of paper on the table, sketched a map on it, and started drawing lines showing possible pipeline routes. He talked about whether a pipeline should cross to China above or below the Aral Sea. They also talked about coal—it turned out that Putin had studied coal as a graduate student.

  As to ExxonMobil’s proposition, Putin asked Raymond, “If you have fifty-one percent, that means if I want to have Yukos do something, I’m going to have to come and talk to you?”

  “Yeah, that’s not so awful,” Raymond answered. “That’s true in a lot of places in the world.”

  “I’m not prepared to answer that today,” Putin said.

  “I’m not asking you to answer that today,” Raymond told him. “You need to talk to your people.”32

  Khodorkovsky had also kept up his talks with Chevron, alongside those with ExxonMobil. The negotiations involved price and shareholding percentages, among other issues. As Bruce Misamore understood the terms, the discussions with Chevron involved some cross-ownership, whereby Yukos might acquire an interest in Chevron entities. With ExxonMobil, the terms under discussion were more one-sided, with ExxonMobil proposing straight up to buy an interest in Yukos.

  Khodorkovsky asked Misamore which of the two American companies, Chevron or ExxonMobil, he would recommend as a partner. Misamore said that he felt Yukos’s style of operations “was far more analogous to Chevron.” It was more of a “laid-back culture.” Also, if they took on Chevron as a partner it would be “more of a mutual learning concept.” With ExxonMobil, by contrast, it “was going to be much more of a ‘We know what we are doing, we are going to tell you how to do it’ type of an approach.”33

  After the meeting with Putin in New York, according to a former senior ExxonMobil executive, “Raymond spoke quite optimistically about what he thought was going to happen.”34

  Lee Raymond’s remarks about what Russia would have to do to satisfy ExxonMobil may have grated on Putin, however. “The report that we got back later was that Putin perceived him as just totally arrogant and far too aggressive,” Misamore recalled. “And he just really was totally turned off by Lee Raymond—this big U.S. industrialist coming, and his arrogance, and telling the president of a country how things are going to be, almost. . . . Putin just was totally turned off by the guy—that was the report we got.”35

  On September 1, 2003, BP announced a partnership with a Russian firm to jointly hold oil assets as a new entity called TNK-BP. The deal was complicated, but it effectively transformed TNK-BP into Russia’s third- largest oil company, with a London-based private corporation as a major shareholder.

  From Washington, Leonard Coburn, who was at the Department of Energy monitoring the Raymond-Putin talks, assessed that “Putin was a little scared” about what an ExxonMobil purchase of Yukos “would mean for him.”36 Here was an American-headquartered oil giant obviously tied to the Bush administration proposing to follow BP into a strategic Russian industry—the primary source of Russia’s national wealth.

  Khodorkovsky’s private chartered jet pulled into a fueling terminal at the airport in Novosibirsk, in Siberia, in the early hours of October 25, 2003. The Yukos chairman was en route to inspect an oil field; he planned to gas up his plane and take off again. Masked agents in camouflage dress from the F.S.B., the successor to the K.G.B., stormed aboard in the darkness, their guns drawn. They grabbed Khodorkovsky and placed him under arrest. They flew him to Moscow, where prosecutors charged him with six counts of personal income tax evasion, overseeing corporate tax evasion, document forgery, theft, and other crimes.

  The Prosecutor General’s Office announced that Khodorkovsky’s alleged crimes had cost Russia at least $1 billion in lost revenue. Khodorkovsky’s spokesman at Yukos called the accusations “absurd” and said the “brute force” used to arrest the chairman had been “humiliating for the whole Russia law enforcement system” in the eyes of the world.37

  The U.S. embassy in Moscow judged that Khodorkovsy’s arrest “almost certainly must have been done with Putin’s implicit or explicit approval,” and it showed “that the authorities may want not only to humble Khodorkovsky but to destroy him and even drive him out of the country.” Vershbow urged the White House to take action.

  “The timing of the latest investigations . . . amid rampant speculation of an imminent deal with ExxonMobil or ChevronTexaco, and immediately following Putin’s U.S. visit—does not appear coincidental,” the ambassador wrote in late October. “Khodorkovsky has refused to back down from the start, and for a while thought that he had beaten back his persecutors. . . . He was wrong.”38

  Less than eight weeks after their meeting at the New York Stock Exchange, Vladimir Putin had given Lee Raymond his answer. Why did Putin authorize Khodorkovsky’s arrest? The latter’s maneuvering to buy allies in the Duma in advance of parliamentary elections scheduled for December 2003 was probably the biggest factor. “There was clear information that Yukos supported candidates who could have formed a real, sizable faction,” Milov recalled. “Putin is a person who is very influenced by these threats.” The TNK-BP merger announcement on September 1, followed almost immediately by Raymond’s discussion with Putin at the New York Stock Exchange, in which he sought a path to majority control, may also have inflamed Khodorkovsky’s rivals at the Kremlin. Khodorkovsky was negotiating with Chevron, too, the siloviki knew. “I saw these notes saying, ‘We might be losing our oil industry to foreigners in a couple of months completely,’” Milov said. “It was a kind of scare like that. This factor was involved. I wouldn’t say it was the ultimate trigger, because this is a very complex story. . . . It was a competition for influence in the country, for control over the country.”39

  Raymond spoke placidly in public about Khodorkovsky’s downfall. “Everyone ought to take a deep breath,” he said after the arrest. “Rome wasn’t built in a day. ExxonMobil wasn’t built in a day. This is a long-term industry.” He conceded that ExxonMobil had been interested in Yukos and had engaged in talks, but as to why it had fallen apart, “There are some things there I’m not privy to, in terms of the Putin-Khodorkovsky relationship. You know, I’ve got enough problems.”40

  In private, with colleagues and friends, Raymond could be more reflective, and even a little guilt stricken. He wondered if the advanced state of his talks with Yukos might have prompted or influenced Putin’s move against Khodorkovsky, he told friends and colleagues. The reality almost certainly was that Putin and Khodorkovsky were on a path of irreconcilable conflict, no matter what. For ExxonMobil, the arrest placed a punctuation mark on two bold but costly failures: The corporation’s search for shoot-the-moon purchases of oil and gas
reserves in Russia and Saudi Arabia had now produced back-to-back zeros. There were those who blamed Raymond’s truculence and ExxonMobil’s general arrogance for contributing to the strikeouts, but even if Raymond were Prince Charming and his corporation played well with others, that would not alter the fact that Saudi Arabia had no trove of nonassociated gas reserves to sell and Russia’s government had no stable plan to secure foreign investment in its oil fields. If even one of these two plays had panned out, ExxonMobil’s reserve replacement challenges might have lessened in the decade ahead. Now the corporation would have to continue to scrap, and its reliance on places such as tiny Qatar and unstable West Africa would not ease anytime soon.

  After Khodorkovsky’s arrest, Raymond telephoned Cheney and asked for a meeting. He had kept the Bush administration out of his negotiations during the summer of 2003. He now told the vice president’s office he didn’t want anything from the administration, but he felt he owed them an explanation about what had happened, from ExxonMobil’s perspective. Cheney suggested they meet away from the White House, at the vice president’s official residence on the grounds of the U.S. Naval Observatory, on Massachusetts Avenue. He and Raymond spoke for about ninety minutes. Raymond recounted the history of the failed deal; he and the vice president exchanged assessments.

  When Bush administration officials contacted the Kremlin to raise concern about Khodorkovsky’s detention, Putin said that the rule of law in Russia had to run its course—wasn’t that what the United States said it favored?

  On January 29, 2004, a Russian commission denied licenses to ExxonMobil and Chevron for drilling in offshore blocks around Sakhalin, blocks that they had leased in 1993. Secretary of State Colin Powell met with his Russian counterpart, Sergey Lavrov, and handed over a letter of protest on behalf of the U.S. oil companies. The Bush administration was still fighting for the companies’ prospects in Russia, but its campaign looked increasingly like a rearguard action, fought while in retreat.

  “ExxonMobil and ChevronTexaco have invested approximately $60 million in exploration activities,” Powell pleaded. He continued:

  The Russian government’s failure to issue a license to ExxonMobil and ChevronTexaco would hurt the climate for U.S. and other foreign investment in Russia’s energy sector and cast a shadow over Russia’s reputation for fulfilling its commitments. It would also raise serious questions about Russia’s commitment to our bilateral energy partnership. . . . It has been two years since our two presidents launched a strategic energy relationship. Since that time, we have not seen the concrete progress in the foreign investment climate for energy that our partnership was intended to promote.41

  As the months passed and Putin’s authoritarian retrenchment spread from media to oil deals to the direct suppression of democratic opposition, Bush and all of his advisers realized, sheepishly, that they had “drunk the Kool-Aid a little,” as Don Evans told his colleagues. Global oil prices rose; Russia’s government profited and felt less pressure to change. The Bush team concluded that as soon as Putin realized that rising global oil prices meant he did not need American or European capital to finance improvements in the oil sector, he reverted to autocracy.

  After Evans left Bush’s cabinet, in 2005, his telephone rang at his office in Midland, Texas, where he had returned. German Gref, his former counterpart in the Commercial Energy Dialogue, during the years of optimism, told him that Vladimir Putin would like him to fly to Moscow for a visit. Evans agreed.

  He found Putin alone in his office, except for his interpreter.

  “I would like you to be chairman of Rosneft,” Putin said. Rosneft was the state-owned oil company Lee Raymond had examined and rejected on the grounds that it was a political labyrinth. Igor Sechin, the former leader of the Kremlin siloviki with which Mikhail Khodorkovsky had tangled, now served as an influential figure at the company. He was a beefy man with short, cropped hair.

  Evans said that he was flattered and that he would think about it; he flew back to Midland. Putin called Bush to tell him about the job offer he had made.

  This was the Putin they had all underestimated in 2001—the K.G.B. man whose idea of how to build an oil partnership with the United States was to provide a lucrative job to one of the American president’s best friends, at the head of a Russian oil company heavily influenced by the Kremlin. Putin’s offer also suggested ambivalence; he wanted both control and international credibility.

  Evans thought about the offer for a few days, but never spoke to Bush about it. Some friends told him he was crazy to even think about it; others advised that he give it serious consideration. Evans told his friends that he did think a more globally integrated Russian energy industry could spur economic growth worldwide. He was also mindful of appearances. Gerhard Schroeder, the former chancellor of Germany, had embarrassed himself and his country by accepting a position on the board of Gazprom, the Russian gas giant, days after he left political office; he created the appearance that he and Germany were being paid off by Putin.

  After a short period of reflection, Evans decided that working for Rosneft was not right for him. He telephoned Sechin, thanked him, but said he would have to decline.

  Later, John Snow, Bush’s second Treasury secretary, found himself in a meeting with Putin where the subject of the job offer to Evans came up. Putin marveled at Evans’s refusal.

  “You know,” he told Snow, “if he had taken that, you could have cut your C.I.A. budget in half!”42

  Putin misunderstood the American system as much as American analysts misunderstood him. Russian oil companies cut their deals from a position that was clearly subordinate to the state. In Putin’s worldview, the recruitment of a Bush friend like Evans to Rosneft made perfect sense. The converse proposition—the idea that ExxonMobil would recruit a Putin consigliere to its senior-most executive ranks in Irving, in order to solidify U.S.-Russian relations—was highly unlikely. ExxonMobil had never been an arm of the Bush administration’s Russia reset after 2001, events had demonstrated; it was a private global empire that would choose to align with Bush, or not, as its enduring interests required.

  Thirteen

  “Assisted Regime Change”

  Theresa Whelan joined the Defense Intelligence Agency out of college in 1987. She served as a junior analyst of Africa as the cold war ended. During the George H. W. Bush administration, Whelan came to the attention of what was known to insiders as O.S.D.-Policy, a mixed civilian and uniformed staff that reported to the under secretary of defense for policy, and through that officeholder, to the secretary of defense. Whelan moved to O.S.D.-Policy’s Africa desk and served there through the tumult of the early 1990s—the withdrawal of American troops from Somalia and the genocide in Rwanda. Later she worked on Balkans issues during the Kosovo conflict. When she returned as office director of the Pentagon’s Africa policy unit in 2001, she was a seasoned manager of the Defense Department’s overseas programs to train foreign militaries, to support international peacekeepers, to patrol ocean waters, and to covertly attack terrorists. A year after the September 11 attacks, George W. Bush promoted her again, naming her as the deputy assistant secretary of defense (or “Das-D,” in Washington’s vernacular) in charge of the Pentagon’s Africa policy.

  On November 19, 2003, a warm and rainy day in the capital, Whelan rode after work across the Potomac to a hotel conference room to deliver a speech. The occasion was the annual meeting of the International Peace Operations Association, a trade association of private security companies that had determined that “peace operations” was a better branding strategy than “corporate mercenaries.” Many of the executives in the audience had an interest in whether Pentagon policy might encourage more contracts for private security firms, particularly in regions like Africa, given that America’s uniformed military was increasingly overtaxed in Afghanistan and Iraq. Whelan spoke about the limitations of relying on contractors for military missions, but also about some of the advantages that private security firms offered in t
raining armies in poor countries, such as the fact that corporate trainers could stay in the targeted nation for years at a time, building local expertise and long-lasting relationships.

  She answered some questions after her formal remarks, received a round of applause, and then, “as often happens at those kinds of things,” she recalled, about fifty people gathered around her “shoving business cards in my face, chitchatting.” One man with a distinctly British accent caught her attention. He introduced himself as Greg Wales. He said he was an independent “security consultant” who worked with oil companies in West Africa, around the Gulf of Guinea. They talked about the region; Wales seemed knowledgeable.

  “I’m going to be in town,” Wales said. “Would you be interested in sitting down and talking more?”

  “Sure,” Whelan said. “Fine.” She met regularly with security firms that worked with American oil companies in Africa, or their consultants. It helped her keep up with details about politics and violence in countries where American intelligence and diplomatic reporting could be very limited.1

  Not too long afterward, Wales made an appointment to visit Whelan in her Pentagon office. She did not research his background. If she had, it might not have helped much; Wales was an elusive figure. He was an accountant by profession who had collaborated during the 1990s with private security and mercenary corporations active in diamond-rich regions of Africa.

  During that autumn of 2003, Wales was involved, as it happened, in a conspiracy organized by British and South African military veterans to overthrow the government of Equatorial Guinea. ExxonMobil Corporation was the largest oil company invested there. The conspirators intended to replace the current president, Teodoro Obiang Nguema, with whose government ExxonMobil had signed its contracts, with an exiled opposition leader, Severo Moto, who lived in Spain, the former colonial power in the country. Moto had gone so far as to sign his own contract with the mercenaries, guaranteeing cash payments and future security contracts to be paid for by the country’s oil wealth, if the coup plan succeeded.