Energy prices rise despite Jones Act suspension by Trump

Q: How has the suspension of the Jones Act affected energy prices?

The suspension has had minimal impact on energy prices, which continue to rise despite the waiver.

Q: What is the Jones Act and why was it suspended?

The Jones Act is a maritime law that restricts shipping between US ports to US-flagged vessels; it was suspended to potentially lower energy costs amid supply disruptions.

Q: What factors are contributing to the rise in oil prices despite the Jones Act waiver?

The rise in oil prices is primarily due to ongoing supply issues related to the US-Israel war on Iran, overshadowing any minor effects from the Jones Act waiver.

Shipping and oil costs have continued to surge a month after United States President Donald Trump issued a waiver for the Jones Act, a maritime law that bars foreign-flagged vessels from transporting goods between US ports.

The 60-day waiver came into effect on March 18, as the movement of energy supplies through the Strait of Hormuz, a strategic waterway that carries roughly 20 percent of the world’s oil and liquefied natural gas supply, was choked off on account of the US-Israel war on Iran.

Under the Jones Act, goods shipped between US ports must be carried on vessels that are US-built, US-flagged and mostly US-owned, limiting the number of tankers available for domestic shipments.

The Trump administration argued that the temporary waiver of the law would lower energy costs. As the waiver approaches the 30-day mark, it has had little impact on oil prices.

“It is estimated that it’s going to be about 3 cents on the East Coast and it might go up on the Gulf Coast, but these changes are so small that they’re overshadowed by the spikes in oil prices, and the oil prices keep going up,” Usha Haley, a professor of management at the Wichita State University, told Al Jazeera.

“It is minuscule, a drop in the bucket compared to the rise in oil prices.”

Oil prices have continued to rise amid the ongoing conflict, which is disrupting transit through the Strait of Hormuz.

Brent crude futures rose 4 percent on the day amid a US blockade of Iranian ports, reaching $98.91 after hitting $101.03 earlier in the day. US West Texas Intermediate (WTI) crude rose $2.53, or 2.6 percent, to $99.10.

The US Navy imposed a blockade of Iranian ports on Monday to prevent the movement of oil to and from Iran after talks between US and Iranian negotiators failed to reach an agreement.

The strain is also hitting consumers at the petrol pump in the US. The American Automobile Association reports that the average price of gas is $4.125 per gallon (3.78 litres), compared with $3.63 at this time last month.

Meanwhile, shippers have adapted their routes, with more than 34,000 ships diverting from the strait over the past month.

The Containerized Freight Index, the benchmark for shipping container costs, jumped more than 10 percent over the last month, and is up more than 35 percent from this time last year, amid pressure on the market to find alternative shipping strategies.

In March, Maersk and Hapag-Lloyd suspended vessel routes through the strait, a waterway connecting the Gulf of Oman and the Gulf.

Also in March, within days of the start of the US-Israel war on Iran, several major vessel insurers cancelled war risk coverage for ships travelling through the waterway, including Norwegian insurers Gard and Skuld, as well as the United Kingdom’s NorthStandard, dissuading ship owners from going through the Gulf.

Since then, even though maritime insurance has become available – at 10 times the price as before the war on Iran – fuel prices are expected to normalise only once traffic through the strait goes back to pre-war levels, experts have said.