This week, President Donald Trump announced he would temporarily waive the Jones Act, a 106-year-old shipping law, as he seeks to calm global oil markets and ease shipping pain. The waiver is a temporary suspension of the shipping law, good for 60 days.
By temporarily waiving the Jones Act, the White House is betting that energy commodities such as oil, coal, and gas, and agricultural products such as fertilizer, will be allowed to be shipped more easily, avoiding the need for a limited set of vessels to be used for the transport of these goods.
In a statement, White House Spokeswoman Karoline Leavitt was quoted as saying Trump “remains committed to continuing to strength our critical supply chains.’
It is unclear whether the gambit will work to calm oil markets over the next few days and weeks as the war in Iran continues with no end in sight.
About the Jones Act, a longstanding shipping law
The Jones Act, passed in 1920 under President Woodrow Wilson, requires that ships calling U.S. ports must be U.S.-flagged vessels, rather than foreign-flagged ships. Originally, the Jones act was meant to prop up U.S. shipping following the end of the first World War.
Over the past few decades, the law has come under intense criticism from time to time, and various parties have called for a full repeal of the Jones Act. The reasons for the criticism vary, but mostly the Jones Act is seen as unreasonably burdensome in the era of modern container ship-based shipping.
The impact of the Jones Act waiver – when will it be felt?
So far, oil prices have continued to rise, with brent crude oil hitting a high of over $111 yesterday. Although the Jones Act was technically limiting the amount of oil that could be shipped into U.S. ports, the fundamental problem remains security in the Middle East waterways including the Strait of Hormuz, as well as escalations between Iran and Gulf nations with the strikes on Qatari natural gas facilities, and U.S. and Israeli retaliation.
Trump’s first action was to call on U.S. allies, as well as trading partners, to take action to help protect the Strait of Hormuz, as we previously reported. However, this was met with resistance as other countries do not want to join the Iran conflict.
Publicly, oil analysts have stated that the Jones Act waiver will not meaningfully affect oil prices anytime soon, meaning the action is mostly for show. There are few Jones Act-compliant vessels in the first place, and until world markets calm, it will hard to show results.
A permanent Jones Act repeal coming soon?
In terms of a permanent Jones Act repeal, the outlook looks mixed. While recently floated during periods of strife such as the Covid pandemic, the Suez Canal crisis, and the Red Sea crisis, repealing the Jones Act would be more difficult than it looks because of the advocacy of labor groups against repeal. Indeed, some labor groups were even opposed to a 60-day waiver.
The full repeal of the Jones Act would require an act of Congress. More likely is a modification of the existing law, to make it more compliant and compatible with modern container shipping.
