AS the US government struggled with shortcomings in the country’s weapons manufacturing, the Pentagon set up a new office to invest in projects aimed at boosting defence industrial production.
That effort, launched in 2022 under President Joe Biden, is now taking a sharp turn with the Pentagon’s involvement in an oil production deal between the United States and Venezuela announced by President Donald Trump on Aug 28.
The Pentagon’s little-known Office of Strategic Capital, which reports to the deputy defence secretary, is the leading US government entity in forming a partnership with a private oil producer whose founder, Alejandro Betancourt Lopez, is a powerful and polarising figure in international commerce.
Trump said Defence Secretary Pete Hegseth and Secretary of State and White House national security adviser Marco Rubio had reached an agreement with the Venezuelan government to secure access to billions of barrels of oil reserves “through a partnership with private business”.
Under the deal, the Pentagon would have the option of taking up to a 35% stake in the parent company of Betancourt’s firm, North American Blue Energy Partners, through warrants.
The US government would also receive preferential access to much of the oil produced by the company.
Warrants give the holder the right to buy shares in a company at a predetermined price. In this case, the warrants are understood to be “penny warrants”, meaning they could eventually be converted into shares for very little money.
The White House said the arrangement would come “all at zero cost to the United States”.
The government’s involvement and seal of approval could make it easier for the company to raise money from private investors, while potentially shielding it from legal scrutiny or political upheaval in Venezuela.
Betancourt said the agreement would unleash Venezuela’s potential “to the great benefit of both Venezuelans and Americans”.
The deal has drawn criticism from some Democratic lawmakers.
Senator Jack Reed of Rhode Island, the top Democrat on the Senate Armed Services Committee, called Trump’s effort to turn the US military into an investor in Venezuelan oil “a blatant abuse of power and taxpayer dollars”.
Reed said he is demanding a full accounting of the legal authority for the move and its financial terms.
The arrangement also marks a significant expansion of the Pentagon’s investment activities.
During the Biden administration, the Office of Strategic Capital made loans to private companies to bolster strategic industrial production in the United States, charging interest below commercial rates.
Under Trump, the office has typically sought warrants from companies in addition to repayment of its loans.
The office falls under Stephen Feinberg, the deputy secretary of defence. The billionaire businessman and Trump political appointee has been tasked with helping rejuvenate the US defence industrial base.
He approves the office’s deals.
Its initial US$1bil loan authority has since expanded to US$200bil, largely following legislation passed by Congress in July 2025.
In November, the office announced a US$620mil loan to Vulcan Elements and an US$80mil loan to ReElement Technologies to increase domestic magnet production and strengthen US critical minerals supply chains.
The office said it would receive warrants from the companies.
Such financing is intended to reduce US dependence on Chinese manufacturing.
But Vulcan Elements has financial ties to Trump’s eldest son, Donald Trump Jr, prompting Democratic senators to criticise the deal.
White House aide Peter Navarro, a friend of Trump Jr, requested the financing, ProPublica reported.
By July, ReElement had withdrawn from the loan process after struggling to meet federal due diligence standards, Reuters reported.
The Pentagon has also denied that the Office of Strategic Capital takes equity stakes in private companies.
Chief Pentagon spokesman Sean Parnell said on Aug 31 that the office “does not take equity stakes in private companies”.
The White House statement about the Venezuela deal appears to contradict that assertion.
The Wall Street Journal previously reported that the US government could receive a passive equity stake of up to 35% in Betancourt’s company, as well as favourable terms for buying its oil.
The federal government would be guaranteed 20% of the company’s oil output “at production cost”, according to the White House. The State Department would have first refusal on the remaining 80%.
The White House said the US government would also have veto power over the appointment of any board member to Betancourt’s company, while a majority of board members would have to be US citizens.
Many of the “incremental” fields that would now fall under Betancourt’s company were previously controlled or operated by Russian or Chinese firms, or businessmen close to Venezuela’s former leaders, the White House said.
Betancourt has long had ties to Venezuela’s oil industry, receiving no-bid contracts many years ago. He has also been investigated in Spain and Switzerland over allegations of money laundering and tax fraud. He usually lives in Britain and was barred from foreign travel by the British government while there because of an extradition agreement with Switzerland, where prosecutors had issued an arrest warrant.
But Rubio wanted Betancourt in Venezuela to work on oil deals and production, and the State Department in recent months pressed the Swiss and British governments to ease restrictions on him, according to a person familiar with the 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. — ©2026 The New York Times Company
This article originally appeared in The New York Times
