Key Takeaways
The Trump administration is exploring ways to restart U.S. refineries closed over the past decade and expand operating facilities to help lower diesel prices.
Two recent refinery closures have been in California, where state policies consistently oppose oil and gas as part of net-zero and climate policies.
Oil flows from the Persian Gulf have exceeded prewar levels, reaching more than 24 million barrels per day in the week through October 18, but they require U.S. Navy escorts.
The military operation is costly and dangerous, and war-risk insurance has risen to 10% of a vessel’s value from less than 3%, adding to the cost of oil.
Brent oil prices remain around $110 a barrel as escalation fears continue.
The Trump administration is exploring ways to restart U.S. refineries closed over the past decade and expand operating facilities to help lower diesel prices, which are averaging around $6.30 a gallon. U.S. refiners are running at 95% to 100% utilization and postponing maintenance to meet demand at home and abroad, but restarting refineries could be very costly. That is despite oil flows from the Persian Gulf exceeding prewar levels, reaching more than 24 million barrels per day in the week through October 18. This is despite increased attacks in the Strait of Hormuz, as the U.S. Navy aids shipping through the strait, and pipelines in Saudi Arabia and the United Arab Emirates add to flows. The military operation is costly and dangerous, and war-risk insurance has risen to 10% of a vessel’s value from less than 3%, adding to oil costs.
The most recent refinery to shut down in California, Valero’s 145,000-barrel-per-day Benicia refiner, is part of the talks, and according to Energy Secretary Chris Wright, is “a tough challenge” because of the difficult business environment in the state. California has deliberately sought to stop the use of fossil fuels and even banned the sale of gasoline-powered cars, a ban that Congress has not overturned. Another fairly recent refinery closure was Phillips 66’s 139,000-barrel-per-day refining complex in Los Angeles. The LyondellBasell’s 264,000-barrel-per-day refinery in Houston, Texas, also recently closed. The administration is working with “many refineries” to award funds for expansions through the 1950 Defense Production Act. The expansions would tap into a $1 billion fund that Congress created last year to provide approximately $150 million for refinery and logistics expansion and also be “heavily co-funded” with industry.
According to U.S. Vice President JD Vance, Delek’s 74,000-barrel-per-day refinery in Tyler, Texas, would receive Defense Production Act funds for what Secretary Wright called “a very attractive proposal” to increase throughput “to a meaningful amount.” The administration is seeking proposals from more companies to expand refining capacity as quickly and cost-effectively as possible.
The Trump administration has taken steps to lower fuel prices, including invoking the Defense Production Act to increase output, allowing commercial vehicles to run on red-dyed diesel normally limited to off-road equipment, pushing Europe to release diesel emergency reserves, and relaxing restrictions on Russian diesel exports. Secretary Wright also said that the United States is working with India to increase refining output there to bring products to global markets. China, which has overtaken the United States in refinery capacity, has limited its refined petroleum exports and has banned them for months, adding pressure to the tight global diesel market.
Preliminary figures show oil flows through the Strait of Hormuz, including offshore transfers in the Gulf of Oman, averaged about 14 million barrels a day for the week ending October 18—about 82% of prewar levels. Pipelines across Saudi Arabia and the United Arab Emirates are also moving oil, and in September, about 40% of the non-Iranian crude shipped out of the Gulf bypassed the strait, compared with 17% before the war. Because oil traders worry that the improvement in Hormuz oil flows may not be sustainable and because the operation is expensive, adding costs that ultimately flow through to consumers, oil prices remain high. Brent crude oil, the international benchmark, briefly traded above $112 on October 22 on fears that the conflict with Iran could escalate. There were also deadly incidents at an airport in Saudi Arabia and around a Saudi Aramco oil field, likely from the Iran-backed Houthis.
The Wall Street Journal reports that many oil traders and shipowners consider the risk of crossing Hormuz worth it. Compared with before the war, traders can earn $20 more per barrel by reselling Iraqi oil, or about $40 million on a supertanker cargo. Three such voyages could repay the $100 million cost of a secondhand tanker. It also reports that seafarers are being offered bonuses to make the crossings. Crew members have been given payouts of two or three times their typical monthly salary to work on ships in the Persian Gulf. One China-based ship-staffing company offered as much as $25,000 for a round-trip, which normally takes a week or two.
Conclusion
The Trump administration is exploring ways to restart U.S. refineries closed over the past decade and expand operating facilities to help lower diesel prices. U.S. refiners are operating at 95% to 100% utilization and postponing maintenance to meet demand at home and abroad. Two recent refinery closures have been in California, where state policies are anti-oil and gas. When factoring in the increased oil flow through overland pipelines, overall Persian Gulf regional exports have reached prewar levels, reaching more than 24 million barrels per day in the week through October 18, despite increased attacks in the Strait of Hormuz, as the U.S. Navy aids shipping through the strait and pipelines in Saudi Arabia and the United Arab Emirates add to flows; shipments directly through the Strait of Hormuz are still below prewar levels, hovering at approximately 82%. The military operation is costly and dangerous, and war-risk insurance has risen to 10% of a vessel’s value from less than 3%, adding to the cost of oil. Oil prices remain around $110 a barrel as fears of escalation continue.
However, over the past two decades, the Defense Production Act (DPA) has evolved from a Cold War military readiness tool into an active instrument of U.S. energy policy, routinely invoked to secure critical mineral supply chains, fund clean energy manufacturing (such as solar components and heat pumps), and maintain grid reliability during supply shortages. However, because the DPA grants extraordinary executive authority to redirect private industry and disburse federal capital without prior congressional approval, it carries a significant potential for abuse. Executive overreach is a key risk, as presidential administrations can bypass legislative debate to unilaterally favor politically aligned energy industries over others, distort domestic energy markets, or invoke vague “national security” justifications to intervene during routine economic or political challenges rather than genuine national emergencies.
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