March 14, 2008 | WebMemo on National Security and Defense
When U.S. Navy and Marine personnel purchase gasoline at their local Navy Base Exchange, they might be unknowingly supporting America's enemies. This is happening because the Navy Exchange buys its gasoline from a company owned by Venezuelan Dictator-President Hugo Chávez. A designation by the Bush Administration of Venezuela as a terrorist-sponsoring state would allow the Navy to end this awkward situation.
Hugo Chávez is on an arms-buying spree. He has already bought $3.4 billion worth of Russian weapons, including "100,000 AK-103s and AK-104 assault rifles, a munitions factory, 53 helicopters--including a dozen Mi-17 military helicopters--and 24 SU-30MK fighter jets." Venezuela is negotiating a multi-billion dollar, multi-year contract to purchase from Russia "five Project 636 Kilo-class diesel submarines and four state-of-the-art Project 677 Amur submarines....and several Tor-M1 air defense missile complexes." A Chávez military adviser boasts that the Russian submarines will "make Venezuela's navy the strongest in the region," potentially putting the U.S. Navy in harm's way.
The Chávez-Terrorist Connection
In addition to this military buildup, new evidence is emerging that documents Chavez's sinister intentions and actions in the region. The government of Colombia, assisted by the U.S. government and Interpol, is analyzing the contents of a laptop belonging to the second-in-command of the Revolutionary Armed Forces of Colombia (FARC), Raul Reyes, who was killed by the Colombian military in an attack two kilometers inside Ecuador's border on March 1, 2008.
The U.S. Secretary of State designated the FARC as a Foreign Terrorist Organization in 1997. In 2003, President George W. Bush designated the FARC as a "significant foreign narcotics trafficker pursuant to the Foreign Narcotics Kingpin Designation Act due to its extensive narcotics trafficking activities." The FARC has also been designated as a terrorist organization by the European Union, Canada, and the Latin American Parliament.
Evidence from the three captured FARC laptops reveals that Chávez was planning to send $300 million to the FARC and was pressuring European governments to drop FARC's terrorism designation. With political legitimacy, FARC could then mount a political campaign against Colombian President ÁlvaroUribe's party in the 2010 national elections. There is also evidence from the laptops that Chávez funneled money to his Chavista ally, Ecuadorian President Rafael Correa, during Correa's 2006 election campaign.
An Awkward Contract
Surprisingly, part of Chavez's oil-based financial windfall comes from the U.S. Navy. Its Navy Exchange (NEX) Service Command has a contract, running until 2010, which specifies that Citgo will supply gasoline to all NEX service stations.
Formerly known as Cities Service, an American-owned refiner and gasoline retailer, Citgo was sold in the 1990sand is now owned by PDV America, Inc., an indirect, wholly owned subsidiary ofthe state-owned oil company Petróleos de Venezuela, S.A. (PdVSA), which is in turn wholly owned and controlled by the Hugo Chávez-led government of the Bolivarian Republic of Venezuela. Citgo's refineries are the only ones in the U.S. (and among the few in the world) built specifically to refine Venezuela's heavy, dirty, and high-sulfur crude oil, so the Chávez regime is heavily reliant on them for income.
Given Chávez's aggressively anti-American actions, it is at the least a great irony that the U.S. Navy is buying gasoline from him. A Navy press spokesman says that "Citgo's competitively bid $60 million-a-year contracts to supply the Navy Exchange with gas run through 2010....Citgo's relationship with the exchange dates back to 1989." The spokesman reported that any action to prohibit Citgo from bidding on future contracts could be taken only by Navy headquarters in Washington. The Navy did demonstrate its sensitivity about the issue in 2006, however, when it replaced Citgo signs with "NEX" signs at all of its service stations after Chávez's speech in September of that year before the U.N. General Assembly, where he called President Bush "the Devil."
A State Sponsor of Terrorism?
The Bush Administration is reportedly investigating whether the actions taken by the Chávez regime to support and promote the FARC could lead to Venezuela being placed on the U.S. government's list of state sponsors of terrorism.  This action would result in the imposition of four main sets of U.S. government sanctions:
(1) A ban on arms-related exports and sales;
(2) Controls over exports of dual-use items for goods or services that could significantly enhance the terrorist-list country's military capability or ability to support terrorism;
(3) Prohibitions on economic assistance; and
(4) Imposition of miscellaneous financial and other restrictions, including:
(a) Requiring the United States to oppose loans by the World Bank and other international financial institutions;
(b) Lifting diplomatic immunity to allow families of terrorist victims to file civil lawsuits in U.S. courts;
(c) Denying companies and individuals tax credits for income earned in terrorist-listed countries;
(d) Denial of duty-free treatment of goods exported to the United States;
(e) Authority to prohibit any U.S. citizen from engaging in a financial transaction with a terrorist-list government without a Treasury Department license; and
(f) Prohibition of Defense Department contracts above $100,000 with companies controlled by terrorist-list states. 
Designation by the U.S. of Venezuela as a terrorist-sponsoring state would put into jeopardy the billions of dollars the Chávez regime takes in annually from the sale of oil to the United States. It would also give the Navy a way out of its awkward contract with Citgo.
James M. Roberts is Research Fellow for Economic Freedom and Growth in the Center for International Trade and Economics at The Heritage Foundation.
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