Jeff Duncan represents the 3rd District of South Carolina and is the chairman of the House Committee on Foreign Affairs Subcommittee on the Western Hemisphere. James Conway, a retired United States Marine Corps four-star general, was the 34th commandant of the U.S.M.C. He is co-chairman of Securing America’s Future Energy’s Energy Security Leadership.
This article was originally published in The Hill on July 11, 2017.
Recent news that Venezuela may soon default on a $1.5 billion loan from Russian state oil company Rosneft has once again shed light on the dangers of U.S. foreign oil dependence. In 2016, Venezuela’s state oil company, PDVSA, secured this loan from Russia by using 49.9 percent of its shares in Texas-based subsidiary Citgo as collateral.
This move has attracted very little mainstream media attention even though Citgo owns substantial energy assets in the U.S., including three oil refineries, 48 terminal facilities and multiple pipelines across 24 U.S. states. Moreover, Venezuela is the third-largest source of U.S. imports of oil, and it has some of the largest proven oil reserves in the world. In the event that Venezuela defaults on its loan to Rosneft, the Russians would assume control of critical U.S. energy infrastructure.
Russia would also become the second-largest foreign owner of U.S. refining capacity—posing a very serious risk to U.S. energy security.
Russia could become the second-largest foreign owner of U.S. refining capacity—posing a very serious risk to U.S. energy security.
The subcommittee on the Western Hemisphere held a hearing a few years ago to examine the growing Russian engagement in the Western Hemisphere and its threat to U.S. interests. Russian activity in our neighborhood, especially in its potential acquisition of Citgo, presents a very real threat to U.S. interests.
Lest we forget, Venezuela is spiraling toward social, political and economic collapse, which is creating a severe humanitarian crisis in the Western Hemisphere. The country is facing severe shortages in basic goods and medicine. Inflation is estimated at 800 percent, and it is dealing with some of the highest murder rates in the world.
Over 75 people have died in three months of protests, and thousands have been jailed, including political prisoners. Businesses have been ransacked and the country has experienced the wholesale deterioration of public institutions. The Venezuelan government relies on Russia and China for loans to help them survive. China alone has lent Venezuela $60 billion in loans since 2008.
It is in this context of desperation that the Citgo-Rosneft deal was made, which now puts American energy infrastructure at risk.
Congress has held multiple hearings on the deteriorating crisis in Venezuela, most recently in March. In April, an oversight letter was sent to U.S. Treasury Secretary Steven Mnuchin urging the Committee on Foreign Investment in the U.S. (CFIUS) to immediately review the 2016 Citgo-Rosneft asset transfer.
Treasury responded, and Mnuchin testified before the Senate, acknowledging that the 2016 asset transfer “would be reviewed.” However, CFIUS has yet to conduct the review—even after members in the House and Senate have urged immediate consideration.
The timing for a CFIUS review of the Citgo-Rosneft asset transfer could not be more crucial. CFIUS has a critical role to play in guarding against any potential national security threats from foreign investments—particularly in sectors such as energy.
U.S. law authorizes CFIUS to review transactions that could result in control of a U.S. business by a foreign person and the implications to U.S. national security. The Citgo-Rosneft deal appears to meet CFIUS’s core metrics: (1) the acquirer is controlled by—or acting on behalf of—a foreign government; (2) the deal can affect U.S. national security; and (3) the deal could potentially disrupt interstate commerce.
The very nature of this deal and the high risk of Venezuelan default should necessitate proactive measures.
The very nature of this deal and the high risk of Venezuelan default should necessitate proactive measures. Thus, we urge the administration—through CFIUS—to prioritize this issue, review the asset transfer and develop a concrete plan to defend U.S. energy infrastructure.
To mitigate risks and secure long-term U.S. energy independence, we must do more to protect U.S. energy interests. A CFIUS review of the Rosneft-Citgo deal is a vital step in that direction.