The Jones Act of 1920 requires that ships engaged in domestic U.S. maritime trade be built, owned, crewed, and flagged in the United States. While defenders cite national security benefits, it is primarily a protectionist law that shields a shrinking U.S. shipping industry from foreign competition, raising shipping costs and making goods more expensive for all Americans.
The Trump administration extended the Jones Act waiver for another 90 days but limited its scope. The waiver leaves fewer U.S. shipping restrictions in place to keep fuel flowing amid the Iran conflict. The latest extension, however, will be narrowed to apply only to vessels hauling certain energy resources. The extension will also require the Pentagon to consult with the U.S. Maritime Administration and determine if the waiver applies to each individual shipping voyage. The Jones Act is a 1920 law requiring that goods be transported between American ports by U.S. vessels with U.S. crews. It was intended to grow the domestic shipping industry after World War I. However, it raised prices on all consumer goods, especially energy, by limiting the mobility of U.S. products between U.S. ports.
President Trump issued his first 60-day waiver of the Jones Act on March 17, less than three weeks after the U.S.- Iran conflict started. The Trump administration extended the waiver in mid-May for another 90 days. The latest 90-day extension should last until mid-November. Since Trump first waived the law, 210 voyages have been completed that otherwise would have been deemed unlawful, according to Maritime Administration data – a 50% increase in domestic shipments between U.S. ports. The majority of these vessels were hauling gasoline and crude oil. Cato, citing that data, calculates that nearly 55 million barrels of cargo in total have been shipped by utilizing the waivers.
The waiver has helped California, which, due to its anti-oil and gas policies and regulations, has become dependent on foreign oil and petroleum products. To get petroleum products from U.S. refineries without using Jones Act-approved tankers, more than 40% of California’s gasoline imports came from the Bahamas, where they were shipped first before being transported to California. That contributes to California’s high gasoline prices—the highest in the nation. There are only 92 Jones Act-compliant ships today, of which only 55 are tankers. Even U.S. flagged ships cannot carry cargo between American ports if they were not built in the United States.
Middle East Conflict Continues
The conflict in the Middle East continues as Houthi missile strikes on a cargo ship in the Red Sea killed at least six people, and U.S. forces fired on a Panama-flagged ship trying to transit to an Iranian port in defiance of the U.S. blockade on those ports. The Houthis imposed a naval blockade on Saudi Arabia in the Red Sea and attacked a Saudi ship they claimed was carrying military equipment in the Bab el-Mandeb Strait. The fatalities aboard the Egyptian-owned Tihamah would be the first deaths on shipping by Yemen’s Iran-aligned Houthis since the Iran war began.
According to the U.S. military, a U.S. Navy MH-60 helicopter fired two Hellfire missiles to disable the steering gear of a Panama-flagged cargo ship. The ship ignored repeated warnings to stop violating a naval blockade on Iranian ports, the U.S. Central Command said. The ship was hit off Pakistan while sailing into the Gulf of Oman.
Oil and Petroleum Product Prices
Oil prices are climbing as talks for a ceasefire and peace agreement with Iran remain deadlocked amid Iran’s list of demands on the United States for reopening the Strait of Hormuz. Brent crude oil, the international benchmark, hovered near $89 a barrel after climbing as high as $90. Even if oil prices remain fairly stable, disruptions across the Middle East and Russia have tightened refined-product markets and raised refining margins, which affect gasoline and diesel prices. China has added to the supply problems by banning petroleum product exports for much of the Iran conflict and has only recently started to slowly lift the ban. Despite the effective closure of the Street of Hormuz limiting supplies and constraining exports, refiners have secured enough oil to keep refineries operating with emergency releases from strategic reserves and a rearranging of global trade flows. Those reserves, however, are at very low levels.
Existing refineries have had to operate at very high levels as the United States and Europe have closed a number of refineries due to high operating costs and shifts toward low-carbon energy production. Many refineries are running at very high utilization rates to meet demand while compensating for disruptions in the Middle East and Russia, leaving little spare capacity. Refinery margins are expected to remain high for the remainder of the year, and seasonal maintenance beginning in September is expected to tighten the market even further, leading analysts to believe petroleum product prices will remain high for a while, regardless of what happens with oil prices.
Conclusion
The Trump administration extended the Jones Act waiver for another 90 days but limited it to vessels carrying certain energy resources and introduced voyage-by-voyage eligibility reviews by the Pentagon in consultation with the U.S. Maritime Administration. President Trump’s extension of the Jones Act will ensure petroleum fuels reach U.S. regions that need them, keeping prices in a more stable range. Oil prices are climbing as talks for a ceasefire and peace agreement with Iran remain deadlocked. Brent crude oil, the international benchmark, is hovering near $89 a barrel. Refinery margins are expected to remain high for the rest of the year, so gasoline and diesel prices are likely to stay high regardless of what happens to oil prices.
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