Trump Weighs Defense Production Act to Boost US Oil Refining Capacity

The White House is weighing whether to use the Defense Production Act to expand oil refining capacity in the United States as the conflict with Iran exposes vulnerabilities in global crude supplies and pushes fuel prices higher, according to two sources familiar with the administration’s plans.

The extraordinary proposal comes as the Trump administration faces increasing pressure to demonstrate that it can limit the impact of rising fuel costs on American consumers and businesses ahead of the November midterm elections.

The idea of using the Defense Production Act was discussed during a recent meeting between President Donald Trump and nearly a dozen U.S. oil refiners, according to the sources.

White House officials used the meeting to explore how federal assistance could best be used to increase refining capacity. However, no final decision was reached, and participants left the meeting expecting further discussions.

Refiners Prefer Expanding Existing Plants

Executives from the refining industry reportedly told administration officials that federal support would be more effective if directed toward improving the efficiency of existing refineries or expanding current facilities.

Building an entirely new refinery would be substantially more expensive and could take years to complete, the executives said.

The Defense Production Act gives the president broad powers to direct industrial resources and provide financial incentives to companies involved in producing materials considered important to national defense.

It is generally viewed as a tool of last resort and has never previously been used specifically to add U.S. oil refining capacity.

The latest discussions build on a presidential determination issued in April that authorized the use of the Defense Production Act to support and expand U.S. petroleum production, refining and logistics capacity.

The United States remains one of the world’s largest oil-refining powers, with refineries capable of processing millions of barrels of crude oil every day. But despite that enormous capacity, fuel prices have climbed sharply.

The national average price of diesel has risen above $6 a gallon for the first time, while gasoline prices remain elevated.

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White House Says Refining Capacity Is a Priority

The White House has defended the effort to increase domestic refining capacity.

Taylor Rogers, a White House spokeswoman, said America’s refining infrastructure is critical to maintaining reliable and affordable energy supplies.

She said the administration is examining several options, including regulatory changes, faster permitting and additional investment, to increase refining capacity.

The administration’s challenge is particularly significant because U.S. refiners are already operating close to their limits.

According to the latest data, refinery utilization has reached about 98%, meaning plants are running at near-maximum levels.

That creates a difficult situation for the administration.

Even with American refineries operating at extremely high utilization rates, tight global crude supplies and strong demand are keeping fuel prices elevated.

US Refining Capacity Has Declined

Another problem is that the country’s total refining capacity has declined over the past decade as some plants became unprofitable and were forced to close.

The remaining capacity has also become increasingly concentrated along the U.S. Gulf Coast.

In recent weeks, the White House has increasingly highlighted expanding domestic refining capacity as one potential response to fuel-price increases linked to the Iran conflict.

The effort therefore serves two purposes for the administration: strengthening America’s ability to withstand future disruptions to global oil supplies while also addressing growing concerns about fuel affordability before the midterm elections.

Trump Administration Looks Abroad for More Oil

The administration is also seeking to increase access to foreign sources of crude oil.

Trump recently secured a 35% U.S. government equity stake in North American Blue Energy Partners, a private Venezuelan oil company that received rights to develop 17 oil fields with about 65 billion barrels of proven reserves.

Under the agreement, the U.S. government will have rights to purchase Venezuelan crude, including 20% of the company’s production at production cost.

The White House has said millions of barrels of additional Venezuelan production could eventually be processed by U.S. refineries.

The strategy reflects the administration’s broader effort to increase the availability of crude oil while expanding the country’s ability to turn that crude into gasoline, diesel and other refined petroleum products.

Texas Refinery Could Become a Test Case

A proposed refinery in Brownsville, Texas, has emerged as a potential test case for Trump’s push to expand U.S. refining capacity.

It remains unclear whether the project would receive funding under the Defense Production Act.

America First Refining plans to build a refinery capable of processing approximately 168,000 barrels of crude oil per day at the Port of Brownsville.

Trump announced the project in March and described it as the first new U.S. refinery in nearly 50 years.

The project is backed by India’s Reliance Industries, which has agreed to a 20-year deal to purchase the refinery’s output.

The proposed refinery also has connections to Trump’s family and administration.

Donald Trump Jr. is a passive minority investor in America First Refining, according to company and investor disclosures reported by ProPublica.

Cantor Fitzgerald, whose founder Howard Lutnick is Trump’s commerce secretary, is also serving as financial adviser to the company, according to company announcements.

America First Refining did not respond to requests for comment.

A High-Stakes Energy Challenge

The administration’s consideration of the Defense Production Act represents an unusual step in response to the pressure created by the Iran conflict and rising fuel prices.

While expanding refinery capacity could strengthen America’s ability to respond to future disruptions, building or significantly expanding facilities is a long-term process.

The immediate challenge remains how to keep fuel supplies available and prices under control while global oil markets remain vulnerable to geopolitical shocks.

With American refineries already operating close to maximum capacity, the administration faces difficult choices over whether to invest in existing plants, encourage new construction, increase imports or pursue a combination of all three.

For Trump, the issue also carries a major political dimension as the November midterm elections approach.

Whether the administration can successfully bring down fuel prices while reducing America’s exposure to international supply disruptions could become an important test of its energy policy.

What do you think? Should the Trump administration use the Defense Production Act to rapidly expand U.S. oil refining capacity, or would the huge cost and long construction timelines make it a poor solution to today’s fuel-price problems?