The Republican Chairman and the Ranking Democrat on the Western Hemisphere House Committee on Foreign Affairs sent a letter to Treasury Secretary Steven Mnuchin a few days ago. Mnuchin sits on the Committee of Foreign Investment and lawmakers wanted to bring a troubling fact to his attention.
We write with concern over potential vulnerabilities in critical U.S. energy infrastructure, and we respectfully urge the Committee on Foreign Investment in the U.S. (CFIUS) to undertake an immediate review of a recent asset transfer between Venezuela's state-owned oil company, Petroleos de Venezuela (PDVSA), and a Russian oil company, Rosneft, which is under U.S. sanctions. This situation, if left unchecked, could severely undermine U.S. national security and energy independence.
The Venezuelan government is the largest foreign owner of U.S. domestic refinery capacity through Citgo. According to numerous reports and Congressional testimony from a Subcommittee hearing we held on March 28, 2017, Venezuela's PDVSA gave Russia's Rosneft a lien on almost 50 percent of Citgo (the U.S. based subsidiary of PDVSA) in exchange for a $1.5 billion loan. Through Citgo, the Venezuelan government owns three U.S. refineries, including the sixth-largest refinery in the U.S., and a large network of pipelines. Citgo refineries are located in Texas, Louisiana, and Illinois, and the network of pipelines and terminals runs across 24 states.
In the event that the Venezuelan government defaults on its debt obligation to Rosneft, the Russian government could readily become the second-largest foreign owner of U.S. domestic refinery capacity. Such a development would give the Russians more control over oil and gas prices worldwide, inhibit U.S. energy security, and undermine broader U.S. geopolitical efforts.
The long and short of it is that Russia’s Rosneft supplied a very large loan to Venezuela, whose economy is something of a catastrophe right now. It is not unreasonable to believe that Venezuela’s ability to pay back the loan might come to an end by the fall of this year, which would allow Russia the chance to take a controlling interest in the oil-supplier.
"The Russians can't hold the US hostage," says John LaForge, an energy expert and head of Real Assets strategy at Wells Fargo. He says Citgo handles about 800,000 barrels of oil a day.
While it's not miniscule, that's just a small fraction of the nearly 20 million barrels of petroleum the US consumes daily. If Rosneft stopped refining oil at Citgo's three US refineries, LaForge says, "Other refineries would love to pick up the slack."
Russia buying a stake in Venezuela’s oil is not Trump’s fault. However, it will be interesting to see what a Trump administration may or may not do if this issue does indeed come to a head, as the U.S. can create issues in foreign buyouts under the umbrella of “national security.” At the very least it might reignite a lot of this recent speculation of Russia’s web of money-ties to Trump and the people Trump has surrounded himself with.