The Cable

Is Russia Trying to Take Over America’s Energy Infrastructure?

Venezuela's fragile state could have ramifications for oil in the United States.

citgo

Russia might be able to snap up a piece of America’s energy infrastructure — thanks to Venezuela’s economic meltdown.

It all starts with PdVSA, Venezuela’s state-owned oil company. PdVSA owns CITGO, an oil refiner in the United States. And PdVSA last year put up about half of CITGO as collateral for a $1.5 billion loan from Rosneft, the Russian state-owned oil giant.

PdVSA, like pretty much everything else in Venezuela, is broke, and is having trouble meeting its bond payments. (The market figures it has a better than 50-50 chance of defaulting in the next year.) If it defaults on the loan, the Russian state would have 49.9 percent of the U.S. refiner — and could grab outright control, if, as many suspect, Rosneft has gobbled up other CITGO bonds on the open market.

That has lawmakers from both parties and energy experts worried.

Sens. Bob Menendez (D.-N.J.) and Marco Rubio (R.-Fla.) sent a bipartisan letter to Treasury Secretary Steve Mnuchin, who chairs the Committee on Foreign Investment in the United States, or CFIUS, which examines foreign investments to see if they have any national-security implications for the United States.

This could leave Rosneft, a Russian company controlled by oligarchs with close ties to Vladimir Putin, in control of critical energy infrastructure in the United States,” they wrote.

“We are extremely concerned that Rosneft’s control of a major U.S. energy supplier could pose a grave threat to American energy security, impact the flow and price of gasoline for American consumers, and expose critical U.S. infrastructure to national security threats.”

CITGO operates 48 petroleum product terminals in 20 states, three refineries, three fully-owned Texas pipelines, and six partially-owned pipelines. It produces about 750,000 barrels per day of refined products like gasoline. It’s been wholly-owned by the Venezuelan state since 1990, and despite plenty of tensions between Washington and Caracas, has never been a Trojan horse inside the U.S. energy system.

Still, the possible Russian connection has spooked a Washington that is on high alert for signs of further Russian meddling in the United States, after last year’s successful attempt to interfere in the election to boost Donald Trump’s chances.

Right now, Rosneft (and its boss Igor Sechin) are still under U.S. sanctions for Russia’s annexation of Crimea, so it can’t gobble up CITGO assets at present.

But Rosneft made the risky loan last November expecting that sanctions at some point would be lifted, said Jennifer Harris, an energy expert at the Council on Foreign Relations. Rex Tillerson, formerly head of ExxonMobil and now U.S. Secretary of State, spent years lobbying Washington to ease sanctions on Russia, where Exxon did business, and President Donald Trump campaigned on restoring closer ties with Moscow.

If sanctions are lifted, and if the Venezuelans default at some point as the market expects, Rosneft could be gifted control of the U.S. refiner on the cheap. (CITGO was estimated to be worth between $8 billion and $11 billion when it was on the block a few years ago.) CITGO’s new owners could alter refinery production or limit distribution of products like gasoline — or they could operate it as a normal company focused on the bottom line.

That gives Moscow “passive leverage,” she said. “We could wake up tomorrow if this deal goes through and everything would be the same, but it’s a card they hold.”

Photo credit: Tim Boyle/Getty Images

Emily Tamkin is a staff writer at Foreign Policy covering ambassadorial and diplomatic affairs in Washington. @emilyctamkin

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