The extraordinary oil deal with Venezuela forged in August—in which the United States gains access to about 20 percent of proven Venezuelan oil reserves, secured by a puppet government beholden to President Donald Trump—has sparked a flurry of commentary focused on its clear violation of Venezuela's sovereignty.
Much less attention and publicity have been accorded to a similar deal with Brazil, in which Brazil's important producer of critical minerals, Serra Verde, was acquired by USA Rare Earth, a company that is partly owned by the US government and is the recipient of funds from an investment vehicle also owned in part by the US government. President Luiz Inácio Lula da Silva tried to block the deal but was thwarted because it was found to be compliant with current Brazilian law. In response, Lula fast-tracked a bill through the Brazilian Senate to establish new rules for critical minerals projects; the Congress approved it on September 2. Hence, if Lula wins re-election in October—the race is very close—he may seek to negate the deal by relying on the new law.
The deals with Venezuela and Brazil both come at a pivotal moment for Latin America's frequently fraught relationship with a dominant United States. Both deals also involved risk for the United States and its investors because of the region's long history of changing governments abrogating deals with US corporations, sometimes seizing their assets without compensation. In other words, political risk is baked into both of these deals.
The Venezuelan oil deal has been widely criticized as an "asset grab" by the United States following its kidnapping of the leftist Venezuelan president, Nicolás Maduro, who is being held in a detention center in Brooklyn on charges of trafficking in narcotics. Many commentators have questioned the arrangement in which the US Department of Defense, which officially calls itself the Department of War, has taken an equity stake in a private oil venture set up to extract the oil reserves. That venture is controlled by Venezuelan billionaire Alejandro Betancourt, who has faced money-laundering charges by the United States and Switzerland.
Around the same time the Venezuelan oil deal was announced, the Pentagon directed $750 million into a special purpose vehicle to fund USA Rare Earth, which holds a 15-year agreement for mixed rare earth carbonate from Brazilian mining company Serra Verde. The Pentagon's Economic Defense Unit controls the investment and runs the Industrial Base Analysis and Sustainment (IBAS) program. USA Rare Earth recently acquired Serra Verde, in which the US government holds a 10 percent equity stake. Crucially, Serra Verde is the first large-scale producer outside Asia capable of supplying heavy rare-earth elements needed for high-performance magnets used in missile guidance systems and other weaponry.
As Lula discovered, the Serra Verde deal was found not to be in conflict with Brazil's constitution and legal framework, but it has generated strong reactions in the country. While stymied for now, Lula has said the transaction could be revisited once the fast-tracked critical minerals regulatory framework Congress passed is enacted. His campaign, after all, is premised on protecting Brazilian economic sovereignty.
Pentagon involvement in both deals
Despite the many differences between Brazil and Venezuela, both deals rely on Pentagon industrial-policy mechanisms (the IBAS program in Brazil's case and the Office of Strategic Capital in Venezuela's). Both would take an equity-like stake in addition to a long-term offtake agreement at a guaranteed price, governed by US law. The rationale for invoking the Pentagon is that one of its goals is to displace Chinese and Russian operators from accessing regional resources.
The legal foundations in the United States are not clearly settled. The Office of Strategic Capital was created in 2022 to issue loans and loan guarantees. Congress has thus far declined to grant it any authority to hold equity stakes, and this issue remains unsettled. President Trump, however, used his executive order authority to permit critical minerals investments, including those in USA Rare Earth, removing them from routine congressional review.
The Pentagon's authority to fund Venezuela's oil deal expires in 2028, even though its commitments in Venezuela run for 100 years. In Brazil, the statute governing IBAS limits purchase commitments to 10 years and does not directly mention equity. That is presumably why the 15-year Serra Verde agreement sits in a special purpose vehicle rather than with the Pentagon itself.
These deals lack clear legal authority in Brazil and Venezuela—and in the US
How shaky are these deals from the perspective of Venezuela and Brazil? The Venezuela deal, after all, was agreed to by an interim government whose legitimacy the opposition contests. The United States was no friend of that government until it ousted and captured Maduro. Delcy Rodríguez, the interim president, is widely viewed as Trump's puppet ruler. Moreover, the deal grants a 100-year concession under majority foreign control. These terms appear to be forbidden by the Venezuelan constitution, even if constitutional enforcement is currently not possible because the country's institutions have been dismantled.
In Brazil, on the other hand, the government lacked an adequate screening regime for foreign concessions until it fast-tracked the critical minerals legislation in early September. Hence, the contracts signed with Venezuela and Brazil are fragile, as future governments could easily revoke them, especially if they don't comply with the law. If Flávio Bolsonaro is elected in October, he would likely try to honor the deal, even if the legislation approved in early September becomes law and opens a door to its revision. Bolsonaro, the son of former president Jair Bolsonaro, who is serving time in prison for trying to carry out a coup after losing to Lula in the 2022 election, has received Trump's implicit endorsement in the forthcoming election.
Both deals could come undone in several ways
Because the governance underpinning the Trump administration's resource deals is lacking on all sides, including in the United States itself, several outcomes are possible. For instance, a future Congress or administration in the United States could unwind investments on the argument that the Pentagon never had the authority to take the equity-like stakes it is undertaking. Moreover, a future Brazilian government, acting through mechanisms created by the new critical minerals law, or a future Venezuelan government with greater legitimacy, could reverse the transactions on sovereignty grounds.
Supporters of both deals argue that Brazil and Venezuela cannot be trusted to honor contracts, so placing them under US law solves that problem. But US courts can enforce a contract only if the parties involved had the legitimacy and power to sign it in the first place. The interim government in Venezuela has neither. Because the US Congress never authorized the Pentagon to hold equity, the uncertainties apply to the United States.
Given the track record of political instability in both countries, a future Brazilian or Venezuelan government that wants out of its respective deal can easily argue that it violates the constitution—in Venezuela's case—or that the US agency that signed the contract was never authorized to do so. In Venezuela, a future government, if there is an election, may challenge the concessions, leading to arbitration, as in previous Venezuelan expropriations. In Brazil, the Serra Verde deal has become campaign material for Lula, who may soon wield the law that allows the next government to review it.
Neither outcome supports the Trump administration's story about the importance of securing strategic supply chains. Securing them in reality would have required the Trump administration to obtain clear legal authority in the United States for the Pentagon to invest and a binding agreement from the host countries that would hold regardless of who is in power. Neither happened.
For all the noise about securing Latin American resources for the United States at China's expense, all Trump has achieved is a purchase that may last only as long as he is in power and likely won't deliver anything by the time he leaves.
Data Disclosure
This publication does not include a replication package.
