By Alexandra Ulmer and Marianna Parraga

CARACAS/HOUSTON July 20 (Reuters) - Russia's top oil producer Rosneft is negotiating to swap its collateral in Venezuelan-owned, U.S.-based refiner Citgo for oilfield stakes and a fuel supply deal - a move to avoid complications from U.S. sanctions, two sources with knowledge of the negotiations told Reuters.

State-owned Rosneft holds a 49.9 percent stake in Citgo as collateral for a loan last year of about $1.5 billion to the OPEC nation, which is reeling from low oil prices and a severe recession.

The arrangement with Venezuela's state-owned oil firm, PDVSA, has drawn fire from U.S. senators who do not want Russia in a position to own a substantial stake of U.S.-based energy assets in potential violation of existing economic sanctions.

The negotiations took on more urgency this week, one of the sources told Reuters, when U.S. President Donald Trump threatened to impose "strong economic actions" on Venezuela unless embattled leftist President Nicolas Maduro aborts plans to establish a new legislature with powers to rewrite the nation's constitution.

Such sanctions, which could include a ban on U.S. oil imports from Venezuela, could undermine Citgo's business model and threaten Venezuelan or Russian ownership of the U.S-based firm in the long term.

Under a new proposal being discussed this week in Moscow by top executives from Rosneft and PDVSA, the collateral stake in Citgo would be exchanged for a package of eight key deals, one of the sources with knowledge of the talks said.

Under the proposed swap, Rosneft would receive:

* refined products from Citgo as partial payment for the loan extended last year;

* ownership stakes in three crude fields - Rosa Mediano, Tia Juana Lago and Lagunillas Lago - in Venezuela's traditional oil-producing state of Zulia;

* stakes in two offshore natural gas fields, Patao and Mejillones, that are part of the large Mariscal Sucre gas project, which has reserves of 14 trillion cubic feet (TCF);

* a settlement payment for late dividends that are due to Rosneft by PDVSA from their largest joint venture, the extra heavy oil project Petromonagas;

* rights to sell Venezuelan condensate - a mixture of liquid hydrocarbons present in natural gas deposits - from the Rio Caribe field, which is also part of the Mariscal Sucre project;

* rights to commercialize Rosneft's share of oil output from all joint ventures with PDVSA, which would allow the Russian firm to export its share of its entire production in Venezuela. Typically, minority partners are required to sell their oil output from joint projects to PDVSA.

Under the proposal, Rosneft would also be allowed to preside over its joint ventures with PDVSA on a rotating basis and be in charge of procurement for major purchases. That would give Rosneft more control over operations - something foreign minority partners have craved in Venezuela for years, one of the sources told Reuters.

Foreign oil executives frequently complain of delays, inefficiencies, and opaque procurement contracts at joint ventures that are majority owned by cash-strapped PDVSA.

Venezuela's Oil Ministry, PDVSA, and Citgo did not respond to requests for comment. Rosneft declined to comment.

AVOIDING POLITICAL, LEGAL CHALLENGES

Both countries have a strong incentive to end the current collateral agreement.

The deal in place now means that Rosneft - which has been under U.S. sanctions since 2014 - would be among the top creditors should the government of Venezuela default on its bondholders.

Senators have questioned whether the deal could violate U.S. sanctions - designed to punish Moscow for aggression in Ukraine - if Rosneft ever collected the collateral.

It has also drawn objections from foreign companies seeking compensation for nationalizations by the socialist government of Venezuela under the late Hugo Chavez.

Canadian miner Crystallex, for instance, has objected to the use of Citgo as collateral for Rosneft's loan, charging that Venezuela is seeking to reduce its exposure to assets in the United States to prevent Crystallex from ever collecting on its award, issued by a World Bank arbitration panel.

Extricating itself from a thorny legal dispute could be a boon for Rosneft, provided the proposed package has a similar value as the Citgo collateral.

But such an arrangement could further squeeze Venezuela's already troubled state-owned energy company, PDVSA. The firm is laboring under a severe cash shortage and struggling to produce enough oil to cover payments on more than $50 billion in loans from Russia and China that it must pay back with shipments of crude and fuels.

Although ending the Citgo collateral arrangement would free up a portion of its equity, the subsidiary would receive less income if it has to deliver barrels of oil to Rosneft, a PDVSA creditor.

A new deal with Russia could also intensify criticism of Maduro. His opponents accuse him of selling off prized oil assets to raise the cash he needs to prop up his administration amid violent street protests and shortages of food and medicine.

ROSNEFT EYES MORE CRUDE

The proposed deal could further strengthen political ally Russia's financial position in Venezuela, where it has emerged as an increasingly important backer of Maduro. Russia stands to gain access to more Venezuela oil and more control over its production operations.

The company has lent PDVSA at least $4 billion in recent years while increasing its oil stakes in the country, which has the world's largest crude reserves.

Venezuela recently offered the Russian company a stake sale in the large oil project Petropiar, operated by PDVSA and U.S. oil company Chevron Corp, Reuters reported in March.

Rosneft currently has a 40-percent stake in the 140,000 barrels per day (bpd) flagship Petromonagas project at the Orinoco belt, Venezuela's most prolific oil region. It gets a commensurate share of the field's upgraded crude.

The Russian firm also has a 40-percent stake in the Petrovictoria project and a 32-percent stake in the Petromiranda project in the Orinoco, and in two separate joint ventures in mature fields in the South American country.

Receiving more barrels from PDVSA and Citgo would help Rosneft grow its trading arm, Swiss-based Rosneft Trading SA. And Rosneft could use light crude from the three joint ventures in Zulia for blending its extra-heavy crude from the Orinoco - instead of relying on Venezuela's pricey and often delayed imports of diluents. (Reporting by Marianna Parraga in Houston and Alexandra Ulmer in Caracas; Additional reporting by Vladimir Soldatkin in Moscow; Editing by Brian Thevenot)