A century-old US maritime law is generating new interest as President Donald Trump seeks to clamp down on rising petrol prices amid supply disruptions caused by the Iran war.
While the US is the world’s leading crude producer, American consumers are still exposed to the war’s oil shocks.
The average driver is currently paying $4.06 a gallon ($1.17 a litre) at the pump, compared with the $3.17 a gallon they were spending at the same time last year, automotive group AAA said. 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, through which about one fifth of the world’s energy supplies flowed 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 still out of reach, Energy Secretary Chris Wright said the Trump administration was 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 levels.
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 says cargo ships moving between US ports must be owned by American companies, have American crew 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.
Former 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 ship 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. It is set to expire on August 16.
However, there is growing debate about whether to let it lapse.
A group of Republican politicians, led by House Speaker Mike Johnson, wrote in a June 30 letter to Mr Trump that the waiver had become a “loophole exploited by adversarial countries to erode America’s maritime dominance”.
Democratic figures including senator Maria Cantwell also oppose the waiver, saying it has done little to calm fuel 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 spell the end for the Jones Act. He added that the waiver had done no harm to the industry and has benefitted Americans.
Pulling levers
The debate over whether to extend the waiver comes at a crucial time for the US government. 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 in 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 in the autumn.
About 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 before 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 about 243 million barrels when the release is fully completed, the EIA said.
Mr Trump has also taken out his frustrations on oil companies, this week scolding Exxon and Chevron for posting bumper second-quarter profits.
In a post on Truth Social in June, Mr Trump said he had ordered the Justice Department to investigate oil companies for failing to lower prices, accusing them of “gouging consumers”. He did not name any companies.
