NEWARK, N.J. – U.S. Senator Bob Menendez (D-N.J.), senior member of the Senate Foreign Relations Committee, today expressed concerns over the threats posed to our national security, economy and energy independence by the potential acquisition of critical U.S. energy infrastructure—including a Trembley Point facility in Linden-- by majority Russian government-owned Rosneft. The senator also released a bipartisan letter he led to the head of the Committee on Foreign Investment in the United States (CFIUS), a panel comprised of cabinet-level officials charged with assessing such transactions for threats to national security.
“Russia has used cyberattacks to disrupt energy grids in Ukraine. Likewise, Putin has used the Russian oil and gas industry to manipulate energy prices in Eastern European economies. We cannot let that happen here in the United States,” Sen. Menendez said. “We cannot give Putin any opening to affect the flow of oil or toy with Americans’ prices at the pump. And we cannot play Russian roulette with America’s energy infrastructure. The risk to our national security and our economy is not one I’m willing to take.”
Aerial view of Linden, N.J. CITGO facility (Source: Google Earth)
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.
CITGO operates a notable portion of the nation’s energy infrastructure with 48 petroleum product terminals in 20 states, including the one in Linden, three refineries in Texas, Louisiana and Illinois, three fully-owned Texas pipelines, and six partially-owned pipelines.
Map of CITGO’s U.S. petroleum terminals. (Source: CITGO)
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.
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.
“Russia’s ongoing efforts to interfere in the affairs of countries around the world is not up for debate,” said Sen. Menendez. “That’s why we must be vigilant about any attempts by Russia to gain any foothold in our country by any means, including through efforts that could put Russia in control over any of America’s critical energy infrastructure. Such access would pose a real threat to U.S. national security and have a potentially devastating economic impact on American consumers.”
Jennifer Harris, a senior fellow and expert in global energy security at the Council on Foreign Relations in New York City.
“Given Russia’s interference in the U.S. election and ongoing meddling in European elections, not to mention its habit of invading and bullying its neighbors, the last thing the United States should be doing is handing the Kremlin a significant ownership share in a major U.S. energy supplier. Especially given Moscow’s track-record of playing petro-politics—using its energy exports as geopolitical leverage in Europe and Asia—Russia has no business inheriting a large share of America’s energy security infrastructure,” said Jennifer Harris, a senior fellow and expert in global energy security at the Council on Foreign Relations in New York City.
Sen. Menendez led a bipartisan letter to Treasury Secretary Steven Mnuchin, who chairs CFIUS, urging the committee to be prepared for Rosneft’s potential acquisition of CITGO and calling for a thorough, conflict-free, and expedient review if PdVSA defaults to ensure America’s energy independence, national and economic security are protected. The letter was cosigned by Sens. Marco Rubio (R-Fla.), John Cornyn (R-Texas), Dick Durbin (D-Ill.), Bill Cassidy (R-La.) and Ted Cruz (R-Texas).
“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. “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.”
Sen. Menendez cited Russia’s interference in the November presidential election, its “fake news” propaganda and disinformation campaign targeting the U.S., and ongoing investigations into potential conflicts of interests and Russian ties to members of the Trump Administration for his deep and growing concern. Additionally, he raised the concern that several members of CFIUS, including the Secretaries of State and Commerce may have potential conflicts of interest due to their close ties to the oil industry or Russia, and that such conflicts could impact their ability to perform an objective review of any acquisition.
Sen. Menendez is the architect of U.S. sanctions imposed on Russia in response to its annexation of Crimea in Ukraine. As a result, the senator is among a handful of U.S. government officials to be personally sanctioned by Putin and banned from entering Russia. Additionally, as the ranking member of the Foreign Relations Subcommittee on the Western Hemisphere, Sen. Menendez has led the push for and wrote the laws imposing and extending sanctions against Venezuela for its human rights violations and suppression of political opposition.
The full text of the senators’ letter follows and can be downloaded here.
April 10, 2017
The Honorable Steven T. Mnuchin
United States Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
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.