The Internet is alive with speculation that Exxon Mobil (XOM) could be badly hurt by any sort of conflict between the U.S. and Russia over Crimea.
The gist of the speculation is that some of Exxon Mobil's bold ventures, such as its $500 billion Arctic drilling deal with Rosneft (OTC:RNFTF), could be in danger if President Obama implements sanctions to punish Vladimir Putin's regime. Going after Exxon Mobil would be a good way to send Putin a message.
Putin needs foreign investment, particularly in energy, to keep his economy going. In particular, Russia needs the kind of technical know-how that Exxon Mobil can provide to develop new oil and gas fields and keep old ones going.
Exxon Mobil has been the only major oil company able to work with Putin's regime. Putin's relationship with Exxon Mobil CEO Rex Tillerson is so close that Forbes writer Christopher Helman described it as a "bromance" Tillerson's cultivation of Putin is an astute long-term move but a risky strategy.
Obama could reap some political capital from such sanctions; environmentalists, corporate-hating leftists, and neoconservatives that are spoiling for a Cold War II would like them. Sanctioning Exxon Mobil would be a cheap way to get votes in a country where corporations are unpopular.
Could Sanctions Really Hurt Exxon Mobil?
When you take a look at the numbers, it is hard to see how sanctions would hurt Exxon Mobil. The company reported a trailing annual revenue figure of $438.51 billion on December 31, 2013.
Any sanction would have to be a huge one to hurt Exxon Mobil. The oil giant also reported a quarterly gross profit margin of 27.84% and a diluted quarterly earnings per share ratio of 7.37% on the same day. Exxon Mobil would probably have little to no problem absorbing any losses created by sanctions.
The real damage for Exxon Mobil might be in public relations, and Exxon Mobil really doesn't care about public relations. If it did, Tillerson wouldn't have gotten into bed with Putin in the first place.
Public relations is not a big concern for Exxon Mobil because it sells a product people cannot live without-energy, specifically oil. The people that are fuming about Russian moves in Crimea are not going to stop driving, and Tillerson knows it.
How Likely Are Sanctions?
Sanctions against Exxon Mobil are not likely, because they are just as likely to hurt Obama and Democrats as Vladimir Putin. Exxon Mobil, as Mr. Obama undoubtedly knows, is sitting on a ton of cash.
If the Obama Administration sanctions Exxon Mobil, Exxon Mobil could strike back by giving large amounts of that cash to Republican congressional candidates or anti-Obama Democrats. An April 2 U.S. Supreme Court ruling allows private contributors to donate money to as many Congressional candidates as they want.
To make matters worse for Obama, this crisis is coming right at the start of the Congressional election season. The Democrats already face an uphill battle this year because of the unpopularity of Obamacare. They're going to need all the money they can get.
The U.S. Senators who are set to vote on sanctions are also aware of this. Politico reported that Senators from both parties were trying to slow a sanctions measure and aid bill for the Ukraine by adding a potentially controversial change to the International Monetary Fund to it. In other words, they're already trying to kill sanctions with a political ruse.
It is highly unlikely that Obama will pick any sort of fight with one of America's largest and richest corporations at this time. Members of Congress are even less inclined to do so in an election year.
Any sanctions against Russia are likely to be symbolic and tailored to avoid hurting Exxon Mobil. The cash Exxon Mobil could potentially dump into elections (the company had $4.64 billion in cash on Dec. 31, 2013, according to Ycharts.com) could offset any political gains Obama or Congress would get from bashing big oil.
The Real Danger to Exxon Mobil
Warren Buffett is right about Exxon Mobil: even with the threat of sanctions, it is still a great classic value investment. The company still has a huge amount of cash and tremendous resources.
Exxon Mobil's Russian adventure is still a sound strategy despite the ongoing crisis in the Ukraine. The oil and gas will still be in the ground if the crisis gets resolved peacefully. Things could still go real badly for Exxon Mobil if the crisis doesn't get resolved peacefully.
The real danger for Exxon Mobil is that this crisis could lead to Vladimir Putin's downfall. Putin's position is far shakier than many observers realize. Around 100,000 people attended a protest against Putin just before his last election in 2012. Yet a protest in August, 2013, only attracted between 10,000 and 15,000 participants.
Putin's last presidential election in 2012 was marred by massive protests. The protests included allegations of vote fraud anger at Putin's decision to seek a third term.
These protests show that there is serious opposition to Putin and he is worried about it. Eight protestors are facing sentences of to eight years in prison in an attempt to send a message to the opposition Reuters reported. Putin has also tried to buy off the opposition by releasing some political prisoners including tycoon Mikhail Khodorkovsky whom he has sent into exile.
What Happens to Exxon Mobil After Putin?
War in the Ukraine could reignite the protests by giving the demonstrators a reason to attack Putin. The Russian people seem to like Putin's brand of nationalism and imperialism when it leads to bloodless wars. It isn't clear if that appeal would survive if Russian soldiers start returning from the Ukraine in body bags.
Economic discomfort caused by US sanctions could also harm Putin. The Russian people seem to be complacent as long as they can buy Western consumer goods and use their credit cards. That complacency could quickly vanish if the Russians find they cannot participate in the global economy.
If the crisis leads to a wider conflict that turns the Russian people against Putin, Exxon Mobil could be one of the casualties. Putin's replacements might try to punish the company for doing business with him. Given the Russian government's stormy past relationships with Western oil companies particularly Shell it's likely.
The bottom line is that Exxon Mobil has taken a really serious gamble by getting into bed with Vladimir Putin. So far that gamble has paid off, but this crisis shows how quickly the political situation could change for everybody involved.
The question investors need to ask themselves is will there be a place for Exxon Mobil in a post Putin Russia or not? That might be the real threat to Exxon Mobil's Russian adventure.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.