U.S. to Block Potential Russian Move Into American Energy
Trump administration worries that Russia’s Rosneft could acquire oil refineries owned by Venezuela’s Citgo
Ian TalleyUpdated Aug. 31, 2017 11:39 a.m. ET
Venezuelan Nicolás Maduro, left, greeted Igor Sechin, president of the Russian state-owned oil company Rosneft, as the president of Petróleos de Venezuela, Eulogio del Pino, looks on during a meeting in Caracas last year. Photo: miraflores press / handout/European Pressphoto Agency
By
Ian Talley
WASHINGTON—The Trump administration is ready to block a Russian state-owned oil giant from gaining control of critical U.S. energy assets owned by Moscow’s ally in Venezuela, senior American officials say, a move that could feed tensions between the old Cold War foes.
Petróleos de Venezuela SA offered PAO Rosneft nearly half of its Citgo Petroleum Corp. unit’s shares as collateral for $1.5 billion in loans the Russian firm made in 2016 to help prop up cash-starved PdVSA and its owner, the Venezuelan government.
Some U.S. lawmakers, worried the sanctioned Russian oil company could gain a controlling interest in a company that represents roughly 5% of U.S. crude-oil refining capacity, urged the Trump administration to use powers granted under national security laws to prevent the deal from happening.
Rosneft, seeing the potential for its Citgo deal going sour in the U.S., has tried to line up new collateral for its loans, say two people familiar with the matter. Besides arranging interests in major oil-producing operations in Venezuela, President Nicolás Maduro’s government has also promised future crude deliveries as collateral and interest payments, the two people said.
Representatives from the Russian Embassy in Washington, Citgo, Rosneft and PdVSA didn’t immediately respond to requests for comment.
Russia, a major oil and natural gas producer, has long used its heft in global energy markets to leverage its foreign policy goals. The Kremlin’s continued support of Mr. Maduro’s government, which the U.S. declared a dictatorship and targeted with escalating sanctions, gives Russian President Vladimir Putin another channel to assert itself abroad and challenge U.S. power in Latin America.
Washington’s plan to stymie Rosneft’s claim is a sign the two powers are becoming further entrenched in their geopolitical struggle for influence around the globe.
Russia’s continued financing of Caracas is helping to keep the Maduro government on life support as the country’s economic and political crisis deepens, Venezuela’s debts build and its access to U.S. capital markets is constricted.
Amid mounting tensions between Moscow and Washington over a host of issues, the U.S. lawmakers were worried the Kremlin would gain ownership of critical American energy infrastructure if PdVSA defaulted and Rosneft claimed the Citgo collateral.
The latest round of U.S. sanctions against Venezuela targeting the country’s debt have raised default risks. PdVSA has about $60 billion in outstanding debt. Citgo’s chief assets are three major U.S. refineries, two on the Gulf Coast in Texas and Louisiana and one outside of Chicago—with the capacity to refine 750,000 barrels of crude a day. It also has 48 petroleum storage terminals from Texas to Maine and has ownership in nine pipelines.
But senior U.S. officials say Rosneft, a company blacklisted by the U.S. Treasury for Russia’s role in destabilizing Ukraine, wouldn’t be allowed to take over Citgo.
“Should Rosneft assume a majority stake, that could trigger a number of legal implications for Citgo in terms of their status,” one senior administration official said. “Moreover, that would constitute a change in foreign ownership of Citgo, and we would look at that accordingly.”
A second senior U.S. official said Treasury “will ensure that the national security of the U.S. is protected and if it gets to that, I’m sure a very thorough review will be conducted by that panel,” referring to the Committee on Foreign Investment in the U.S. The CFIUS panel has broad powers to stop foreign investments based on potential threats to the country’s security.
Treasury Secretary Steven Mnuchin, whose department plays a pivotal role on the multiagency panel, has already promised lawmakers that CFIUS would investigate the deal.
Should Russia be “foolish enough to go down that path,” a third senior administration official said, Treasury also has powers under its existing sanctions regime against Russia that could also stymie Rosneft’s Citgo deal.
The potential for the U.S. to block Rosneft from collecting on its Citgo collateral has prompted Moscow to try to find other sources of collateral for its loans to Caracas. On Tuesday, PdVSA said Eulogio Del Pino, Venezuela’s new minister of petroleum and former PdVSA president, explored with Russian Ambassador Vladimir Zemskiy new “co-investment plans” with “several Russian enterprises.”
Even if Rosneft sought to collect the Citgo shares or their auctioned value under a default, Russia’s oil giant would have to join a queue of other potential creditors. Many U.S. firms, including ConocoPhillips, are trying to lay claim to Citgo assets as compensation in legal battles with Venezuela’s state-owned oil company for the nationalization of their assets under the nation’s deceased President Hugo Chávez. Legal analysts say Rosneft would normally have legal recourse through U.S. courts as a creditor, but its designation as a sanctioned entity would be a major complication for the firm.
Russia’s involvement with Venezuela comes with financial risks of funding a country on the verge of sovereign default. Moscow also faces the potential for more U.S. punitive actions: Russia’s latest deals could put the Kremlin and its energy firms further afoul of U.S. sanctions.
“If they decided to sink in the billions of billions of dollars it would take in Venezuela, that would be a financial decision for them to take and for them to live with the consequences,” the second senior U.S. official said.
Write to Ian Talley at ian.talley@wsj.com
