Private Empire: ExxonMobil and American Power

by Steve Coll

  “Senator Obama, he’s calling for a windfall profits tax. . . . And when the public sees the kind of profits that the oil companies are making, and ExxonMobil in particular . . . isn’t it fair that they wonder, ‘Why not?’”

  “Well, I guess the question is what’s that going to solve? Are the American people going to be better off from an energy situation because we implement a windfall profits tax? Nowhere in a windfall profits tax do I see anything that addresses the problem. I understand that may be popular with some people because of how they view our current-day profitability. Certainly, again, if you put our profits in perspective, because of our scale and size, Charlie, on a unit-of-sales basis, our profits are way down the list. And so if we’re going to institute, from a philosophic standpoint, a windfall profit [tax] on highly successful companies, who generate high profits, you’re going to have to go after a lot of other industries and parts of our economy. . . .”13

  That summer, Tillerson seemed to be channeling Lee Raymond’s tonal scales. He struggled to find clarity. Televised interrogation about sky-high gas prices favored the inquisitor, and neither Tillerson nor his advisers had figured out quite how to translate their strategic intention—to create an ExxonMobil that was more accessible and more flexible about controversial public policy—into language that would stick or be trusted. The corporation’s gigantic profits spoke amply for themselves. ExxonMobil’s net profits, when expressed as a percentage of corporate revenue, were, in fact, not particularly great; it was the arithmetic of the corporation’s global size that produced gargantuan raw numbers. ExxonMobil’s effective rates of corporate tax paid also fell on the high side, in comparison with other large American-headquartered multinationals.14 The problem was that Tillerson’s reliance on these talking points missed the country’s mood in 2008 by a wide margin: The American people were rapidly losing faith in the integrity of many large corporations, Wall Street banks, and their allies in the Republican Party. They were in debt, falling behind, and fed up.

  Obama and his advisers had the surer sense of the corporation’s political meaning in 2008. “We’re talking about Joe the Plumber,” McCain said during his third and final debate with Obama, on the eve of the presidential vote. McCain’s remark came during a discussion of the tax issue.

  Obama flipped over one of his mental file cards and said, before a television audience made of about a third of all American households: “In order to give additional tax cuts to Joe the Plumber . . . ExxonMobil, which made $12 billion, record profits, over the last several quarters, they can afford to pay a little more, so that ordinary families who are hurting out there . . . They need a break.”15

  In October, Cohen summoned the Democratic corporate responsibility specialist, Bennett Freeman, to another off-site summit meeting with ExxonMobil public affairs executives. Before a room of about a hundred of the corporation’s managers, media, and political specialists, Freeman praised ExxonMobil for implementing the Voluntary Principles in its corporate security operations, and also for joining another voluntary regime, the Extractive Industries Transparency Initiative, which was designed to increase the visibility of oil corporations’ payments to poor, dysfunctional governments in Africa and elsewhere. On the other hand, Freeman continued, the corporation needed to become more visible on human rights issues in Nigeria and Equatorial Guinea. “It’s not your job to be Amnesty International,” he said, but they had to advocate more clearly at the State Department in favor of human rights policies amid dictatorships where ExxonMobil pumped oil.

  Then Freeman turned to climate change. As he spoke, Ken Cohen and other executives took notes.

  “Look, with Lee Raymond, you were in the late nineteenth century,” Freeman said. “With Tillerson, you’ve come a long way, but you’re still just in the late twentieth century. This is the twenty-first century, and on climate change you need to change your tone and change your substance. You need to get behind cap and trade—or somehow advocate for setting and meeting carbon reduction goals. On alternative energy—whatever technological capability you have, whatever is most viable, you have to get on it and do it. This is a carbon-constrained future you’re looking at. Whoever wins the election—probably Obama, but even if it’s McCain—there will be a new landscape on climate change. You need to get into the mainstream on this. You need to send Tillerson to Washington, have him give a speech at the National Press Club. Do it in January. Don’t do it now—it will get buried in election news. But you need to have Tillerson say, ‘Exxon recognizes the reality of climate change.’ And you need him to take a clear policy position, in recognition of that reality.”16

  The 2008 election results vindicated ExxonMobil’s Washington strategy in at least one respect. A great Democratic wave had swept Obama to the White House. Democrats now controlled both houses of Congress. Yet in the Senate, members historically aligned with the oil industry’s positions on taxation and climate, many of them longtime recipients of ExxonMobil’s financial support, remained numerous enough to block unfavorable legislation. Obama’s windfall tax proposal, in particular, looked dead on arrival—in reality, it had been mainly a tool of campaign rhetoric. On climate, however, there would now be new momentum for cap-and-trade laws that might raise the price of carbon use in the American energy economy and reduce greenhouse gas emissions. Bennett Freeman’s analysis in October rang true, even if Tillerson and Cohen remained uncertain about whether to follow his advice.

  They had been reviewing ExxonMobil’s policy options. Obama clearly would now move a major climate bill, and it would have a fighting chance of passage. Did ExxonMobil want to be on the outside looking in during 2009, undertaking its usual campaign of opposition, in collaboration with the American Petroleum Institute and others? Or would the corporation be better off endorsing a carbon price at last, as Freeman argued, in part to have more credible access to whatever legislative negotiations ensued at Obama’s instigation?

  Dan Nelson and other public affairs executives who had fought alongside Lee Raymond against climate bills for so many years told their colleagues that fall of 2008 that they feared Rex Tillerson might be going weak in the knees. Nelson had worked with John Dingell to encourage the lawmaker to come out in favor of a revenue-neutral carbon tax, with few loopholes. But Dingell and Nelson both knew as the financial crisis descended late that year—the economy contracted more than 8 percent in a single quarter—that such a bill could never pass. Politicians in the Rust Belt would never vote for it while autoworkers faced massive layoffs and their employers stared down bankruptcy. If ExxonMobil changed its position on climate now, it would not actually win any new political friends in Washington, Nelson argued, but the corporation would anger and betray its allies on Capitol Hill and in the oil and coal industries. Such a reversal would be the lobbying equivalent of Rex Tillerson’s summer media tour—not effective enough to change public or Democratic legislative opinion, but a source of unwelcome attention for an unpopular corporation.

  A policy shift on carbon would also repudiate Raymond’s legacy on a visible issue where he had stood firm against conventional wisdom under great pressure, as Raymond’s friends and allies saw it. Why would Rex Tillerson consider such a public betrayal of Lee Raymond, particularly if it was not likely to bring ExxonMobil any real political or bottom-line benefits? Was Tillerson so anxious to be respected and accepted by ascendant Democrats (perhaps temporarily ascendant) that he would undertake such a significant change in corporate policy, one that directly repudiated his former mentor? ExxonMobil succeeds because it does not compromise its core principles and hangs tough even when it is unfashionable: This was the tone of the Raymond camp’s argument inside the corporation that late autumn.

  On the other side stood those—some independent members of the board of directors, younger scientists, and Obama voters at all levels of the corporation, who shared the country’s sense of excitement and anticipation about the new president’s election—who felt just as strongly that Bennett Freeman
was right, that the 2008 election signaled that it was time for ExxonMobil to modernize its political reputation and to break with its past intransigence on climate science. By moving early, the corporation could seek to prove, by accepting cap and trade or a carbon price at least in principle, that its new leadership recognized the seriousness of the risks of climate change, that ExxonMobil’s communication strategy under Tillerson was not mere lip service.

  Tillerson said later that he struggled over the question and went back and forth in his thinking as late as the Christmas break. He made one firm decision during the postelection period: He decided to clear out Dan Nelson from the Washington office and to replace him with Theresa Fariello, the registered Democrat who had served in the Department of Energy during the second Clinton term. From Irving after 2001, Fariello had served as Cohen’s principal liaison to Democratic lobbyists such as Senator John Kerry’s former chief of staff, David Leiter, and as a general source of Democratic-leaning political intelligence. By choosing Fariello, Tillerson made it clear that ExxonMobil would adapt to the Obama era, not fight it from the trenches. How far Tillerson was prepared to move was not clear. A change in communication and tone was one thing; a change in policy advocacy about carbon pricing would be something else altogether. Tillerson at least wanted a Washington office that would not actively resist him if he decided to move decisively on carbon. Tillerson offered Nelson the lead role in ExxonMobil’s effort to win access to Iraqi oil fields, but Nelson decided to retire. Tillerson approved a lucrative retirement package; the former marine saluted and departed quietly. He remained loyal to Lee Raymond and told friends and colleagues privately that he feared Raymond’s achievements and principles at the corporation might be at risk.17

  Twenty-four

  “Are We Out? Or In?”

  Anton Smith, who was the chargé d’affaires at the United States embassy in Malabo, Equatorial Guinea, when Barack Obama was elected president, possessed a streak of independence that sometimes made it difficult for him to accept the conformity required by government service. He was a tall, lean, athletic man in his early forties, with green-gray eyes and a flattened nose that looked as if it might have been broken in a fight or a scuba-diving accident, possibilities that would not have surprised his friends. Smith had grown up in Arkansas, where he earned a bachelor’s degree in English at Henderson State University. Later, he earned a master’s degree at Georgetown University in Washington, D.C., as well as a second graduate degree at the U.S. Army War College, and he joined the foreign service. His political views were difficult to categorize, but he tended toward libertarianism and spoke favorably with friends about Representative Ron Paul, a member of Congress who did not often attract even glancing admiration from American diplomats. Smith moved through diplomatic postings in war zones such as Iraq and the Balkans. He also served for a year as a fellow on the staff of Senator Richard Shelby, a conservative Republican from Alabama who held an influential position on the U.S. Senate Committee on Banking. Although Smith had never served in Africa, his exposure to economic matters helped to qualify him for a posting in Equatorial Guinea. Malabo job openings, in any event, did not attract the swarm of internal State Department applications typical of, say, postings at the Barcelona consulate.

  In 2007, Smith arrived as deputy chief of mission at the two-story rented concrete house that served as the U.S. embassy in Malabo. The ambassador, Donald C. Johnson, departed his posting before its scheduled end, leaving Anton Smith as chargé d’affaires, a designation that gave him the role of ambassador without its salary or full rank.

  Equatorial Guinea remained a troubled country, but it was no longer the isolated, poor, malarial place that had seemed to induce occasional bouts of madness in previous generations of international diplomats. Modern hotels, housing complexes, hospitals, and freshly painted government compounds had sprung up in the tropical forests; the island capital and the mainland coast resonated with the mechanical roar of construction equipment. Internet connections were slow and balky, but they nonetheless brought Equato-Guineans into contact with worlds of information previously beyond reach. Oil-funded scholarships allowed more and more young people to study abroad. Many of the recipients were handpicked by the regime, but Western education endowed them with new ideas. When they returned to Malabo in polo shirts and baseball caps, they formed businesses or took up positions of responsibility in government ministries. The country remained anomalous in a number of respects—its government’s failure under Teodoro Obiang, even after the resolution of the Riggs Bank fiasco of 2004, to adhere to international banking rules meant, for example, that Equatorial Guinea had no access to credit card facilities and therefore almost all local commerce arising from the oil boom had to be conducted in cash. Organized political opposition to Obiang remained virtually nonexistent, and the president periodically tried, jailed, and executed real and imagined conspirators against him.

  Anton Smith took to Equatorial Guinea with a passion. Its remoteness and its lush landscapes spoke to his sense of adventure. On weekends he dove into the Atlantic to scuba dive or snorkel or swim through the warm saltwater lagoons. He made friends with an international cocoa farmer who spent weekends on a colonial-era seaside estate. Smith would turn up on some Sunday afternoons to help cook up paellas for eclectic bands of relaxing expatriates and Equato-Guineans. He spoke enthusiastically about introducing Equatorial Guinea to the international sport of bungee jumping. He met regularly with the country representatives of the American oil companies whose operations enriched Obiang’s regime—ExxonMobil, Marathon, and Hess—and he tried to support their investments and policy priorities within the country and back in Washington. He developed friendships across the local community as well. Smith’s long marriage was ending when he arrived in Malabo. He fell in love with an Equato-Guinean woman; she became pregnant, and they moved in together. (They later married.) Smith could occasionally speak about Africa in ways that struck some of his friends as misguided, but his intimate connection to a local family deepened his knowledge of the country he was professionally assigned to understand. Smith was self-conscious about the possibility that he was “going native,” as diplomats refer to the tendency of envoys sent abroad to identify with their host countries, potentially at the expense of clarity about American interests. Yet if Anton Smith did seem, as the months passed, increasingly to resemble a character in a Graham Greene novel, this did not come at the expense of his professional devotion. He brought the same restless energy and willingness to defy convention to his role as America’s principal liaison to the oil-endowed government of Equatorial Guinea as he did to the rest of his life. And the more time Smith spent in Malabo, the more he believed that American policy—its one-dimensional focus on past and present human rights abuses, its unwillingness to respond seriously to Equatorial Guinea’s security needs, its reluctance to engage fully with Obiang’s regime—was misguided, hypocritical, and self-defeating.1

  Smith pointed out in sometimes-heated exchanges with colleagues at State Department headquarters that since the Second World War, during its search for oil security, the United States had entered into deep alliances with Saudi Arabia, Kuwait, and the United Arab Emirates, among other Middle Eastern oil producers. All were authoritarian states with dismal human rights records, particularly in the realms of free speech and assembly. Yet a diverse number of American presidents continually sold these regimes jets, tanks, and missiles so that they could protect their oil inheritance in an unruly neighborhood, and by doing so, assure supplies would be available to the United States. American military forces intervened directly to liberate Kuwait after Iraq’s 1990 invasion, and the U.S. military provided an ongoing de facto defense of Saudi Arabia’s oil fields. These geopolitical bargains had endured despite evidence that the Saudi government tolerated financial flows to violent anti-American Islamist radicals.

  How did the case of Equatorial Guinea measure up by comparison? Rather well, Smith argued. Its government pledged full coo
peration with American foreign policy. Its oil flowed a shorter distance across safer seas to American refineries. Its political economy was unattractive and its human rights record was poor, true, but at least Equatorial Guinea had the excuse that it had enjoyed a basis for economic modernization for only a decade—Saudi Arabia had been rolling in oil revenue since the 1960s, and it still had not liberalized its politics. Moreover, and perhaps most important, in Smith’s judgment, the situation in Equatorial Guinea was improving. Obiang had made heavy investments in the social sector, particularly in housing. He had accepted international police training on human rights.

  Yet the State Department seemed congenitally unwilling to acknowledge these incremental changes and the positive direction that they might suggest. In the Middle East, generations of diplomats had operated on the assumption that it was necessary to accept the limitations of Persian Gulf political economies in order to fuel America’s economy with reliable, relatively cheap oil supplies. In Africa, by contrast, generations of diplomats had operated on the assumption that all that mattered were the continent’s large, often intractable problems, such as disease and low-grade civil wars. When it came to setting policy priorities for Equatorial Guinea during interagency meetings at the National Security Council in Washington, human rights issues figured more heavily than they did in the cases of America’s longtime Gulf allies. Saudi Arabia’s oil production dwarfed Equatorial Guinea’s, and the dangers of losing even unreliable allies such as Riyadh’s royal family in a region where Iran’s radical revolutionary government continued to foment upheaval might justify the different approach Washington took in the Middle East. But the policy differences were not subjected to careful scrutiny—the assumptions undergirding America’s regional foreign and defense policies had become deeply embedded.