Donald Trump’s choice for secretary of state, Rex Tillerson, is an old oil hand; do not be surprised if his statecraft leads to fresh geo-strategic conflagrations
A small spark can light up an entire forest and leave it wreathed in smoke and ashes for days. They say the flapping of a butterfly’s wings translates into weather changes halfway across the world. Nassim Nicholas Taleb pulled out a black swan from his risk bucket to explain hard-to-predict catastrophic events.
Will there be one careless spark, a languid butterfly or a black swan to distinguish 2017? Some events of 2016—Brexit, Donald Trump’s surprise election victory, oil prices creeping up, boardroom brawls at Bombay House and demonetization—will continue to influence developments in 2017. But this being the merry season for compulsive crystal gazing, here’s hazarding a wild guess about one risk element that might set 2017 apart.
It’s called Rex-T: US president-elect Trump’s choice for secretary of state, Rex Tillerson. He’s not to be mistaken for the Jurassic carnivorous dinosaur; but he’s also not quite the cardboard character from a Steven Spielberg movie set. An Exxon lifer and chief executive officer, Rex-T has been described, variously, as a deal-maker, a hard-boiled negotiator, an inveterate networker. In selecting Rex-T for the position, Trump is bringing the oleaginous mix of history and politics back to centre stage after almost a century.
|Exxon Mobil CEO Rex Tillerson, Donald’s Trump’s choice for secretary of state. Photo credit: Reuters|
Anthony Sampson’s classic The Seven Sisters: The Great Oil Companies And The World They Shaped describes how oil multinational corporations exercised inordinate heft in shaping early 20th century geopolitics: “The (US) government…preferred to use the oil companies, at a discreet distance, as the instruments of national security and foreign policy.” Texaco, Exxon, Standard Oil, BP, Shell, Gulf Oil and Mobil carved up vast territories in the Middle East, left behind by a retreating Ottoman empire, between themselves for oil concessions; occasionally, they even helped the US state department or British foreign office redraw political boundaries to suit business interests. Rex-T’s appointment rekindles suspicions of close links between oil and US statecraft.
The first risk arises when the US Senate foreign relations committee meets to confirm Rex-T’s appointment, which will then have to be endorsed by the entire Senate. It is speculated that this could be in jeopardy, given Rex-T’s Exxon background, the company’s business interests in Russia and the man’s proximity to Russian President Vladimir Putin. Many Republican senators have voiced their discomfort with Trump’s choice of the US’ future foreign policy architect: too compromised, too close to the enemy. If the confirmation falls through, events can take a different turn. That’s a risk in the unknown-unknown category because Trump’s backup choice is not known.
Assuming Rex-T obtains the confirmation, the state department can be expected to follow a certain policy trajectory. At this point, it might be safe to assume that part of Rex-T’s foreign policy design will be influenced by three chief factors: his oil background (having worked in Exxon all his life), his company’s Russian assets, rendered uneconomic by US-imposed economic sanctions, and his close friendship with Putin.
It might also be realistic to expect that Rex-T will bring two economic sanctions back into play: Russia and Iran. The US will probably relax economic sanctions against Russia, as Trump has hinted several times. The noose regrettably tightens in Iran’s case. A huge question mark looms over how Trump will follow through with the US’ recent extension of the Iran Sanction Act, which was expected to lapse at December-end. The renewal provides Trump with a window to reimpose punitive sanctions if he is convinced that Iran is violating the Joint Comprehensive Plan of Action signed with the US, France, Germany, China, Russia and the UK. Incensed by the renewal, Iran is already threatening to build a nuclear submarine.
Will Rex-T be the spark that ignites this risk? Consider this: The Organization of the Petroleum Exporting Countries’ (Opec’s) members and non-members (primarily Russia) recently agreed to cut oil output. This had an immediate impact: Oil prices moved up sharply. Also consider this: Trump has promised to revive the US’ shale oil and gas industry, asserting during his campaign that this will create two million jobs. This additional output could potentially depress prices again.
The only way to keep prices up is to take out a large producer from the equation. And that could be Iran. The country’s oil exports, which dropped to a low of almost 1.1 million barrels per day (mbd) in 2013, is now back to almost 2.5 mbd on the back of almost 4 mbd of production. However, low oil prices have deterred revenue from reaching pre-2011 levels. Iran, which has so far refused to heed any Opec call for production cuts, seems to have finally agreed during November’s 171st ministerial conference in Vienna to reduce production marginally.
On the stump, Trump repeatedly railed against Iran and carped about the nuclear deal; vice-president-elect Mike Pence even threatened to “rip” it up. Will Rex-T be the sharp edge of this machete, to keep oil prices high and revive his old company’s sunk investments in Russia? Closer home, high oil prices further compromise India’s fiscal fragility.
There is an even chance that Rex-T will baulk and this risk won’t play out. But, then, Trump has introduced another known-unknown to the equation: Peter Navarro, a well-documented China-baiter, as head of the White House National Trade Council. If Trump’s administration does initiate the promised trade war with China, that’s another future wrinkle for the global economy.
On that note, wish you all a happy 2017!
The above article was first published in Mint newspaper on December 28, 2016. It can also be read here.