COMMENTARY – US-Russia power play: Battle remains the same, battlefield is different now!

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Forget the allegations and counter-allegations between the United States and Russia over Donald Trump’s election. There’s an element of resigned futility in that debate. The lines of the battle now are being drawn on the energy front. The US Senate refused permission to Exxon to drill for oil in the Arctic along with Russia. Russia went ahead regardless and is now deep into it.

A Wall Street Journal report now suggests that U.S. financial authorities are looking into the Russian government’s growing leverage over Citgo Petroleum Corp. amid heightened concern that the Kremlin is seeking to use energy as a political weapon against the U.S., according to U.S. and congressional officials.

“Russia’s state-owned oil giant POA Rosneft in recent months has amassed debt that is backed by a near-controlling stake in Citgo, the Houston-based subsidiary of Venezuela’s Petróleos de Venezuela SA, or PdVSA. In the event of a default of that debt — a prospect seen as increasingly likely by U.S. officials and Wall Street — Rosneft would be in a position to engineer a takeover,” the WSJ story said.

The US treasury and state departments are feeling the heat. And justifiably so. Not much unlike a Tom Clancy novel, the genesis of this guerrilla economic battle can be traced to President Trump’s inauguration that received $500,000 from Venezuelan state-owned company CITGO Petroleum, an American subsidiary of Venezuela’s state oil company, Petróleos de Venezuela (PdVSA).

PdVSA/CITGO’s donation was much higher than some US corporate bigwigs such as Pepsi ($250,000), Walmart ($150,000) and Verizon ($100,000), according to a Federal Election Commission report. The donation was at par with JP Morgan Chase and Exxon, which contributed $500,000 each.

PdVSA, for all intents and purposes, is considered an arm of Venezuela’s government. PdVSA, and is heavily indebted to Russian oil-giant Rosneft. So for all practical purposes, Venezuela, a country reeling under a severe economic crisis, donated $500,000 to Trump’s inauguration.

Venezuela, home to world’s largest oil reserves, ran into an economic crisis because of fall in the price of crude oil. The country is facing a recession, food shortages, widespread power cuts and, subsequent lootings and deadly riots. There is political uncertainty there, as the opposition attempts to constitutionally remove President Maduro who has increasingly turned authoritarian and cracked down on the opposition.

Rosneft’s hold over Venezuela

Last year, Russian state-owned oil giant Rosneft was offered a near 50% stake in PdVSA as collateral for a $1.5 billion loan. Rosfnet’s funding is keeping PdVSA and the Venezuelan government afloat.

If they default, Rosfnet could gain a controlling stake in PdVSA and its US-based subsidiary CITGO. Considering the economic and political crisis Venezuelan is going through, chances of a default are very high.

This prospect has raised concerns among American policymakers of Russia’s entry into the American energy sector. CITGO, an American company that was bought by PdVSA in the 1980s owns several oil refineries and pipelines across America.

“We are extremely concerned that Rosneft’s control of a major US energy supplier [CITGO] could pose a grave threat to American energy security,” US lawmakers wrote in a recent letter to the US Treasury Secretary.

On the other hand, the U.S. has sanctioned Rosneft and its boss Igor Sechin over supposed links to Russia’s military intervention in Ukraine and its annexation of Crimea. While these sanctions could prevent Rosneft from taking over CITGO if its parent company PdVSA defaults on its loans, the nervousness at Capitol Hill is almost palpable.

CITGO’s vast energy assets inside the U.S. include three oil refineries, nine pipelines and nearly 50 petroleum platforms. The matter could further aggravate the situation between Washington and Moscow as they continue to squabble over sanctions and diplomatic efforts to broker a peace deal in Syria.

Last month, Trump personally ruled against an attempt by Exxon Mobil Corp. to renew a joint-venture with Rosneft in the Black Sea. The Trump administration and Russian officials have denied any improper contact.

Once Rosfnet, a close ally of Vladimir Putin, manages to get a majority stake in Venezuelan PdVSA, the battle over CITGO will be long and drawn. It will now be fought with oil, gas and energy arsenal.

 

 

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