The Defense Department’s
Office of Strategic Capital, founded by the Biden administration to give loans to
bolster the U.S. defense industry, is helping lead President
Trump’s oil deal.
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The Pentagon’s
Office of Strategic Capital is leading a proposed partnership with private oil producer
North American Blue Energy Partners to develop Venezuelan oil reserves.
·
President
Trump said the arrangement, negotiated with the Venezuelan government, could secure
access to billions of barrels of oil through a private-sector partnership.
·
The Pentagon
would receive warrants allowing it to take up to a 35% stake in the company’s parent
entity, potentially at a nominal price.
·
The U.S.
government would also receive 20% of the company’s oil output at production cost;
the State Department would have first refusal on the remaining 80%.
·
The White
House said the deal would come at no direct cost to the United States and could
help the company attract private financing.
·
Critics,
including Senator Jack Reed, argue that involving the military in Venezuelan oil
investment could exceed legal authority and misuse taxpayer resources.
·
The Office
of Strategic Capital was created in 2022 to strengthen U.S. defense-industrial
capacity and reduce reliance on Chinese supply chains for critical technologies
and materials.
·
Its lending
authority has expanded from $1 billion to $100 billion, with recent investments
aimed at boosting domestic magnet and rare-earth supply chains.
·
The arrangement
appears to conflict with a Pentagon spokesman’s statement that the office does not
take equity stakes in private companies.
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The government
would also gain board-level influence: it could veto board appointments, while a
majority of directors would need to be U.S. citizens.
·
The company’s
founder, Alejandro Betancourt López, has faced investigations in Spain and Switzerland
relating to alleged money laundering and tax fraud, though his company says he has
never been charged with a crime.
·
Any significant
new Venezuelan oil production would likely take years to come online.
As
the U.S. government faced shortcomings in the country’s weapons manufacturing, the
Pentagon set up a new office that would make investments to help boost defense industrial production.
That
effort, which began in 2022 during the Biden administration, is now taking a sharp
turn with the Pentagon’s involvement in an oil production deal between the United
States and Venezuela that President Trump announced on Friday.
The
Pentagon’s little-known Office of Strategic Capital, which reports to the deputy
defense secretary, is the leading U.S. government entity
in forming a partnership with a private oil producer whose founder, Alejandro Betancourt
López, is a powerful and polarizing figure in international commerce.
Mr.
Trump said Pete Hegseth, the defense secretary, and Marco
Rubio, the secretary of state and White House national security adviser, reached
the agreement with the Venezuelan government on securing billions of barrels of
oil reserves “through a partnership with private business.”
The
deal would give the Pentagon the option to take up to a 35 percent stake in the
parent company of Mr. Betancourt’s firm, North American Blue Energy Partners. This
would come in the form of a financial instrument known as a warrant, plus preferential
access to much of the oil that the company produces.
Warrants
would give the government the right to buy shares in the oil company at a predetermined
price. The value of warrants, which can be bought and sold, fluctuates based on
the value of the company that issued them.
In
this case, the warrants would be what are known as penny warrants, according to
two people familiar with the deal, meaning they could be converted into shares for
very little money, often just 1 cent.
Typically,
companies issue warrants in exchange for something of value. During the coronavirus
pandemic, for example, the federal government bailed out U.S. airlines with more
than $50 billion in grants and loans to help the companies pay employees and cover
other costs. In return, the Treasury Department received warrants from roughly a
dozen airlines, most of which it later sold to private investors.
In
this case, the deal would come “all at zero cost to the United States,” the White
House said in a statement on Monday night. The federal government’s partnership
and seal of approval could make it easier for the company to raise money from private
investors and also shield it from legal scrutiny or political upheaval in Venezuela.
In
a statement, Mr. Betancourt said the deal would unleash Venezuela’s potential “to
the great benefit of both Venezuelans and Americans.”
The
deal has come under intense criticism from some Democratic lawmakers. On Monday,
Senator Jack Reed of Rhode Island, the top Democrat on the Senate Armed Services
Committee, said in a statement that “President Trump’s effort to turn the U.S. military
into an investor in Venezuelan oil is a blatant abuse of power and taxpayer dollars.”
Mr.
Reed added that he was demanding a full accounting of the legal authority for this
move and the complete financial terms.
During
the Biden administration, the Office of Strategic Capital made loans to private
companies to bolster strategic industrial production in the United States, and asked
for repayment of the loans with interest at below-market federal rates. In the Trump
administration, the office has typically asked companies to give it warrants as
well as repay the loans.
The
office falls under Stephen A. Feinberg, the deputy secretary of defense. Mr. Feinberg, a billionaire businessman and political
appointee under Mr. Trump, has been tasked with trying to help rejuvenate the U.S.
defense industrial base. Mr. Feinberg approves the office’s
deals.
The
office was founded under the previous defense secretary,
Lloyd J. Austin III. At that time, in 2022, U.S. officials were concerned about
the fact that critical items for certain weapons systems were made in China. They
were also grappling with weaknesses in arms production exposed by Russia’s war against
Ukraine and global supply chain problems exposed by the pandemic.
Those
issues have become even more acute, given the drawdown of U.S. weapons stockpiles
during the war against Iran that Mr. Trump and Israel started six months ago.
The
office’s initial $1 billion loan authority has ballooned to $100 billion, largely
because of a boost from Mr. Trump’s major domestic policy legislation that Congress
passed in July 2025.
The
director of the office is now David Lorch, who worked at Cerberus Capital Management,
the private equity firm co-founded by Mr. Feinberg. In November, the month Mr. Lorch
started his job, the office announced a loan of $620 million to Vulcan Elements
and one of $80 million to ReElement Technologies to increase
domestic magnet production and “significantly bolster U.S. critical minerals supply
chains.” The office said it would get warrants from those companies.
That
kind of financing would help the United States decrease its dependency on Chinese
manufacturing. But Vulcan Elements has financial ties to the president’s oldest
son, Donald Trump Jr., which prompted Democratic senators to criticize the arrangement.
Peter Navarro, a White House aide and friend of the younger Mr. Trump, requested
the financing, ProPublica reported.
By
July, the other company, ReElement Technologies, a rare
earths firm, had withdrawn from the loan process because it was struggling to meet
federal due diligence standards, Reuters reported.
On
Saturday, the chief Pentagon spokesman, Sean Parnell, said in a statement that the
office “does not take equity stakes in private companies.” The White House’s statement
on Monday about the deal contradicts Mr. Parnell’s assertion.
In
addition to receiving warrants, the federal government would be guaranteed 20 percent
of the oil that Mr. Betancourt’s company produces “at production cost,” according
to the White House, meaning at a favorable price. The
State Department would also have right of first refusal to buy the remaining 80
percent of the company’s output.
That
would put the State Department in an unusual role since it is oil companies and
other traders who typically buy and sell oil. Any decision to buy oil to refill
U.S. government stockpiles would require authorization, including from Congress,
and typically be handled by the Energy Department.
In
any case, it would most likely take years for new projects in Venezuela to generate
meaningful amounts of oil.
The
White House also said that the U.S. government would have veto power over the appointment
of any board member to Mr. Betancourt’s company, and the majority of board members
would have to be U.S. citizens.
Mr.
Betancourt, the U.S. government’s partner, received no-bid oil contracts in Venezuela
many years ago. He has been under investigation in Spain and Switzerland on accusations
of money laundering and tax fraud. He usually lives in Britain and was barred from
foreign travel by the British government while he was in that country because of
an extradition agreement with Switzerland, where prosecutors had issued an arrest
warrant.
However,
Mr. Rubio wanted to get Mr. Betancourt to Venezuela to work on oil deals and production,
and the State Department in recent months pressed the Swiss and British governments
to ease up on him, said a person with knowledge of that effort.
“Mr.
Betancourt has never been charged with a crime in any jurisdiction,” Sara Chouraqui,
general counsel for North American Blue Energy Partners, said in a statement on
Saturday.