A century-old US maritime law is generating new interest as President Donald Trump seeks to clamp down on rising petrol prices due to supply disruptions caused by the Iran war.
While the US is the world’s leading crude oil producer, American consumers are still exposed to the Iran war’s oil shocks.
The average driver is currently paying $4.06 per gallon at the pump, compared to the $3.17 per gallon they were spending at the same time last year, according to automotive group AAA. Higher petrol costs could push up price pressure for consumers elsewhere, while businesses could be forced to cut back on spending and hiring.
Meanwhile traffic remains depressed in the Strait of Hormuz, the artery for one fifth of the world’s energy supplies before the US and Israel launched co-ordinated strikes on February 28.
With a durable deal between the US and Iran to reopen the Strait of Hormuz still out of reach, Energy Secretary Chris Wright said the Trump administration is likely to extend a waiver on the Merchant Marine Act, otherwise known as the Jones Act. The administration announced an initial 60-day waiver in March after US crude oil prices were 46 per cent higher than prewar level.
What is the Jones Act?
Caught flat-footed by the country’s reliance on foreign vessels during the First World War, Congress passed the Jones Act in 1920 to support the country’s domestic shipbuilding industry and maintain an adequate merchant marine. Policymakers at the time argued a US merchant marine was vital for national security.
The law requires that cargo ships moving between US ports must be owned by American companies, crewed by American members and fly the US flag.
A president can waive the law if they find it “necessary in the interest of national defence”. It has been waived nearly 40 times in its 105-year history.
President Joe Biden waived the Jones Act in 2021 to ease oil supply constraints after the 8,850km Colonial Pipeline was shut down by a ransomware attack, and again in 2022 to allow a non-US flagged hip to transport fuel to Puerto Rico after Hurricane Fiona caused a diesel shortage on the US territory.
Making waives
The latest waiver has been used nearly 200 times since March, according to government data, and is set to expire on August 16.
However there is growing debate on whether to let it expire.
A group of Republican lawmakers led by House Speaker Mike Johnson wrote in a June 30 letter to Mr Trump the waiver has become a “loophole exploited by adversarial countries to erode America’s maritime dominance”.
Democratic leaders including Senator Maria Cantwell also oppose the waiver, saying it has done little to calm gas prices while jeopardising the US shipbuilding industry.
In an opinion piece for Bloomberg News on Thursday, Former New York City mayor Michael Bloomberg said the Iran War should be the end of the Jones Act, arguing the waiver has done no harm to the industry and has benefited Americans.
Pulling levers
The debate over whether to extend the waiver comes at a crucial time for the administration. With November's midterm elections around the corner, voters are growing increasingly dissatisfied with Mr Trump's handling of the war.
A Politico poll released late July showed three in five Americans believe petrol prices in their area are higher than they actually are. Forty-six per cent of respondents said petrol prices will have an impact on how they vote this autumn.
Roughly 63 per cent of respondents selected the “war with Iran” as the primary reason for why they have seen rising prices at the pump.
Extending the waiver would be another lever for the administration to pull to tame petrol prices ahead of the midterm elections. The US is in the process of releasing 172 million barrels of crude oil from its Strategic Petroleum Reserve, joining other members of the International Energy Agency to release 400 million barrels to help stabilise prices.
Levels in the US stockpile are now at their lowest point since 1983, according to data released this week by the Energy Information Administration. The SPR will fall to roughly 243 million barrels when the release is fully complete, the EIA said.
Mr Trump has also taken out his frustrations on oil majors, this week scolding Exxon and Chevron for posting bumper second-quarter profits.
In a June post on Truth Social, Mr Trump said he had ordered the Justice Department to investigate oil companies for not lowering prices, accusing them of “gouging consumers”. He did not name any companies.
