The Biden administration is considering a temporary waiver of the Jones Act, a key U.S. shipping law, to compensate for a “Crunch of the offer” in gasoline triggered by recent cyberattack on America’s largest fuel line
It follows the weekend’s shutdown of the 5,500-mile colonial pipeline, which was hit by a ransomware attack, throwing a wrench in a critical artery for US energy markets and the supplier of around 45% of the fuel. consumed by the east coast.
What is Jones Law?
The Jones law dates back to 1920 and governs the rules of navigation and commerce in the United States and its island territories, with the aim of protecting American companies from foreign competition.
The law has been lifted several times in the past, especially in response to crises such as hurricanes along the Gulf Coast and other events, said Jason Bordoff, co-founding dean of Columbia Climate School. .
The US government renounced it in November 2012, after Hurricane Sandy hit the east coast, causing power outages and fuel shortages.
“A Jones Act waiver would help move additional fuel supplies from the US Gulf Coast to the East Coast by allowing the use of non-US flag vessels, which are cheaper and more abundant, to transport gasoline.” and diesel, ”Bordoff told MarketWatch. .
“Markets will be reassured that the Biden administration is prepared to waive Jones’ law if necessary, but at the same time, the fact that the administration begins to consider a waiver days after the onset of the crisis may undermine the confidence in the markets on how quickly Colonial can really restart the pipeline.
To watch for the future
As a first step, the Biden administration said on Wednesday that the U.S. Department of Transportation had completed its assessment of whether enough US ships were available to transport petroleum products from the Gulf to the east coast.
The White House also said the Department of Homeland Security “stands ready” to consider any waiver requests from companies seeking to operate foreign vessels to help alleviate shortages.
The United States has also lifted some restrictions on the rules for transporting fuel on federal railways and highways to help offset supply issues.
Meanwhile, Alpharetta, Ga.-Based Colonial said he hoped to “substantially” restore operational service by the end of the week, raising optimism that the supply disruption could be of short time.
“I guess they’re going to slowly bring this system back online,” said Robert Cattanach, a cybersecurity partner at the Dorsey & Whitney law firm.
“We’re probably going to find out how bad things are with pipeline restoration in a few days,” he said. “While this is happening, on a parallel track, the Jones Act process is unfolding.”
Financial markets were optimistic about the potentially short-lived supply disruption. Crude oil prices were higher on Wednesday against a backdrop of optimistic demand prospects, with West Texas Intermediate crude for delivery in June CL00,
up nearly 1.6% at noon to around $ 66.33 a barrel on the New York Mercantile Exchange.
Matthew Parry, head of long-term analysis at Energy Aspect, said the Jones Act rules would only be lifted “in the event of an extended outage,” in comments emailed to MarketWatch. “However, the risk that the government will take these steps to mitigate a spike in fuel prices should not be ignored.”
The next cyberattack?
It’s never good when hackers looking for a salary manage to take a major US pipeline offline, but the response of financial markets so far has been measured.
Stocks fell further on Wednesday, with the Dow Jones Industrial Average DJIA,
and the S&P 500 SPX index,
down by at least 1%, and the Nasdaq Composite COMP,
2% less, the pressure being attributed to fears on rising inflation.
The Biden administration on Monday called on government agencies to work together help combat the colonial pipeline attack, while also implementing efforts to thwart a potential fuel crisis at the start of the summer driving season in the United States, the first of its kind since strict COVID-restrictions 19 began to be lifted.
“On the pipeline preparation side, I don’t think this is a horrible wake-up call,” said Cattanach, the cybersecurity expert. “In some ways, the mitigation system is working the way it’s supposed to. “
“But where I think it’s a call to action is that this won’t be the last ransomware attack,” he said. “Our systems aren’t tough enough, and I’m not sure they’ll ever be tough enough that people can’t get into them.”
“You cannot completely eliminate this risk. “