WASHINGTON — 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 Donald 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.
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 U.S. government the option to take up to a 35% stake in the parent company of 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 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, Betancourt said the deal would unleash Venezuela’s potential “to the great benefit of both Venezuelans and Americans.”
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. Feinberg, a billionaire businessperson and political appointee under Trump, has been tasked with trying to help rejuvenate the U.S. defense industrial base. Feinberg approves the office’s deals.
The office was founded under the previous defense secretary, Lloyd Austin. 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 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 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 cofounded by Feinberg. In November, the month 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 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 spokesperson, 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 Parnell’s assertion.
In addition to receiving warrants, the federal government would be guaranteed 20% of the oil that 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% 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.
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, Rubio wanted to get 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 Saturday.
This article originally appeared in the New York Times.
