04.10.17

Durbin Sounds Alarm Over Potential Russian Takeover of U.S. Energy Infrastructure

Russia's State-Controlled Rosneft in Play to Acquire CITGO

NEW YORK – U.S. Senator Dick Durbin (D-IL) joined Senators Bob Menendez (D-NJ) and Marco Rubio (R-FL), members of the Senate Foreign Relations Committee, in a bipartisan letter to Treasury Secretary Steven Mnuchin expressing serious national security concerns over the potential takeover by Russia’s state-controlled oil company of critical U.S. energy infrastructure that could put Vladimir Putin and his associates in position to influence American gas prices and oil refinery production.  The letter was cosigned by Senators John Cornyn (R-TX), Bill Cassidy (R-LA), and Ted Cruz (R-TX).

Rosneft—a majority Russian government-owned oil company run by Putin crony Igor Sechin—could acquire a significant ownership share in CITGO Petroleum Corporation’s Venezuelan parent company, Petroleos de Venezuela S.A. (PdVSA), if PdVSA defaults on a loan backed by Rosneft.  Venezuela’s current economic crisis is undermining PdVSA’s financial stability, increasing the possibility of default.

“Over the course of the last year, Russia has escalated its attacks on the United States in various ways including cyber campaigns intended to sow distrust of our democratic institutions and violating arms control agreements,” the senators wrote to Secretary Mnuchin, who chairs the Committee on Foreign Investment in the United States (CFIUS).  “Russia has also expressed strong opposition to existing sanctions.  As such, 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 a notable portion of the nation’s energy infrastructure with 48 petroleum product terminals in 20 states, including one in Linden, N.J., three refineries in Texas, Louisiana and Illinois, three fully-owned Texas pipelines, and six partially-owned pipelines.  

To shore up its financial footing, PdVSA put up 49.9% of its ownership share in CITGO as collateral for a loan it took last year from Rosneft.  Rosneft has also potentially acquired other PdVSA bonds on the open market, raising the possibility that it could take a majority stake in CITGO should PdVSA default.

“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,” the senators continued.  “In the event Rosneft were to acquire CITGO, we would expect a thorough, conflict-free, and expedient review [from CFIUS].”

U.S. sanctions were imposed on both Rosneft and Sechin in retaliation to Russia’s 2014 invasion of Ukraine and its growing aggression towards the U.S. and its allies.

The senators strongly urged CFIUS be prepared for Rosneft’s potential acquisition of CITGO and called for swift action if PdVSA defaults triggering the transaction to ensure America’s energy independence, national and economic security are protected.

The full text of the letter is follows and can be downloaded here.

April 7, 2017

The Honorable Steven T. Mnuchin

Secretary

United States Department of the Treasury

1500 Pennsylvania Avenue, NW

Washington, DC 20220

Secretary Mnuchin:

We write to bring to your attention, as Chair of the Committee on Foreign Investment in the United States (CFIUS), a series of international transactions that could have significant national security implications for critical energy infrastructure in the United States.

As you are aware, Venezuelan state-owned oil company Petroleos de Venezuela S.A. (PdVSA) wholly owns CITGO Petroleum which operates energy infrastructure in the United States including three refineries, several pipelines, and terminals. Last year, facing extreme financial pressure due to Venezuela’s economic crisis, PdVSA used 49.9 percent of CITGO shares as collateral for a loan from Rosneft, the Russian government-owned oil company run by Vladimir Putin's crony, Igor Sechin. Rosneft and Igor Sechin are in fact currently subject to economic sanctions due to Russia’s belligerent behavior. It is our understanding that Rosneft acquired other PdVSA bonds on the open market that could bring their ownership potential to more than 50 percent.

A number of respected international market analysts predict that due to the ongoing economic crisis in Venezuela, PdVSA could default on its debt in the very near future.  In the case of default, Rosneft would then acquire at least a 49.9 ownership share in PdVSA and its subsidiary CITGO. 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.

Over the course of the last year, Russia has escalated its attacks on the United States in various ways including cyber campaigns intended to sow distrust of our democratic institutions and violating arms control agreements. Russia has also expressed strong opposition to existing sanctions. As such, 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.

As the Chair of CFIUS, we ask that you proactively monitor the situation and that your staff keep our offices briefed on your efforts and any informal review process of Rosneft’s potential acquisition of CITGO. We understand that formal actions are initiated by a formal notification by the parties to a merger, acquisition, or takeover, but we believe that you should be prepared for this eventuality in the case of an acquisition by default.

In the event Rosneft were to acquire CITGO, we would expect a thorough, conflict-free, and expedient review.

Please provide a response no later than April 28, 2017. Thank you for your attention to this important matter.

Sincerely,