Energy

Russia could soon take over a chunk of U.S. oil infrastructure

Russia may soon take control of American oil and gasoline infrastructure in a deal U.S. lawmakers warn represents a threat to energy security.

Rosneft, Russia’s state-controlled oil company, could end up with a majority stake in Texas-based Citgo after the entity that owns Citgo, Venezuela’s state-owned oil and natural gas company PDVSA, used almost half of Citgo’s shares as collateral for a loan from Rosneft.

In the midst of Venezuela’s ongoing economic crisis, PDVSA is reportedly in danger of defaulting on that loan. That means Rosneft, a company specifically named in U.S. sanctions levied against Russia after its 2014 annexation of Crimea, is poised to become one of the biggest foreign owners of American oil refining capacity.

Rosneft is headed by Igor Sechin, a powerful crony of Russian President Vladimir Putin, and is often seen as a proxy for the Kremlin’s energy policies.

PDVSA put up as collateral about 49.9 percent of Citgo shares in exchange for a $1.5 billion loan from Rosneft in December. It had used the other half of Citgo as collateral for a bond deal two months before that. Should PDVSA default on its Russian loan, the Russians could relatively easily end up with a majority stake in Citgo by acquiring more PDVSA bonds on the open market.

While the exact details and time-frame of the Rosneft loan remain murky, PDVSA successfully made $2.2 billion in payments on notes that matured April 12, sending ripples of relief through financial markets.

Still, the possibility of default has set off alarm bells in Congress, where Republican and Democratic members of the House and Senate told Treasury Secretary Steven Mnuchin they see Russia’s potential acquisition of Citgo as a threat to the country.

“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 security threats,” six senators wrote in a letter to Mnuchin dated April 10. Those senators include Democrat Robert Menendez of New Jersey and Republicans Marco Rubio of Florida and Ted Cruz of Texas.

The senators asked Mnuchin, who also chairs the Committee on Foreign Investment in the United States, the interagency body that investigates the national security implications of foreign investments, to pursue a “thorough, conflict-free, and expedient review” of the deal in the event PDVSA defaults.

“We cannot play Russian roulette with America’s energy infrastructure.”

Another letter sent to Mnuchin and signed by Republican Rep. Jeff Duncan of South Carolina and Democratic Rep. Albio Sires of New Jersey warned that “this situation, if left unchecked, could undermine U.S. national security and energy independence.”

Citgo owns three large U.S. oil refineries in Louisiana, Illinois, and Texas with a combined capacity of almost 749,000 barrels a day, or a bit more than 4 percent of the total U.S. refining capacity of 18.6 million barrels a day. Citgo-branded fuel is available at more than 5,000 locally owned retail gas stations in 29 states. The company also controls pipeline networks and 48 oil product terminals.

Russia, one of the world’s largest producers and exporters of oil and natural gas, has frequently been accused of using its enormous state-controlled energy companies, including Rosneft and natural gas giant Gazprom, as levers of foreign policy. Over the past decade, for example, Russia has repeatedly cut natural gas supplies to neighboring Ukraine in the dead of winter, prompting fears that homes would go unheated and factories would be idled.

Though Moscow has maintained those cuts were related to gas pricing and payments, they also came in the midst of years of diplomatic and, eventually, military conflict between the two countries.

Ellen Wald, a consultant on energy and geopolitics and professor at Jacksonville University in Florida, said that while Putin may seek to use his country’s energy assets to pursue policy goals, Rosneft would have limited opportunities to use Citgo to disrupt the flow of U.S. energy.

“I don’t see there would be very much they could actually do with control of Citgo,” she said. “They could potentially shut down the refineries, and that would definitely cause a rise in gasoline prices. But other refineries would eventually pick up the slack. Rosneft would lose a lot of money, and other companies would make money. That would be bad for business.”

Energy security has been a key concern of U.S. policymakers ever since the 1973 oil crisis, when a group of Arab oil-producing countries declared an embargo against the United States in response to U.S. support for Israel during the Yom Kippur War.

“The risk to our national security and our economy is not one I’m willing to take,” Menendez said at a press conference Monday. “We cannot play Russian roulette with America’s energy infrastructure.”

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