# What is the Jones Act? And why might waiving it help ease gas ‘supply crunch’?

It follows the weekend shutdown of the 5,500-mile Colonial Pipeline, which was hit by a ransomware attack, throwing a wrench in a crucial artery for U.S. energy markets and the supplier of about 45% of fuel consumed by the East Coast.

What is the Jones Act?

The Jones Act dates back to 1920 and governs the rules around shipping and trade in the U.S. and its island territories, with an aim of protecting American business from foreign competition.

The law has been waived several times in the past, specifically in response to crises like hurricanes along the Gulf Coast and other events, said Jason Bordoff, co-founding dean of the Columbia Climate School.

The U.S. government waived it in November 2012, after Hurricane Sandy slammed the East Coast, causing power outages and fuel shortages.

“A Jones Act waiver would help move additional fuel supplies from the U.S. Gulf Coast to the Eastern Seaboard by allowing the use of non-U.S.-flagged vessels, which are cheaper and more plentiful, to transport the gasoline and diesel,” Bordoff told MarketWatch.

“Markets will be comforted to know the Biden administration stands ready to waive the Jones Act if needed, but at the same time, the fact that the administration is beginning to contemplate a waiver several days into the crisis may undermine confidence in the markets about how quickly Colonial can really restart the pipeline.”

What to watch for next

As a first step, the Biden administration said the U.S. Department of Transportation was in the process of determining if enough U.S. ships were available to carry petroleum products from the Gulf to the East Coast to justify a waiver allowing the use of foreign vessels. That process is expected to take a few days.

The U.S. also said it could lift restrictions on rules around fuel transport on federal railroads and highway to help offset supply disruptions.

Read: Here’s what the Colonial Pipeline cyberattack means for energy markets

The secretary of defense also could request a Jones Act waiver in the interest of national defense, but that process likely also hinges on whether there are enough U.S. ships at the ready to tackle the job.

Meanwhile, Alpharetta, Ga.-based Colonial said it hoped to “substantially” restore operational service by the end of the week, stoking optimism that the supply disruption might be short-lived.

“My best guess is that they are going to slowly bring this system back online,” said Robert Cattanach, a partner who specializes in cybersecurity at law firm Dorsey & Whitney.

“We’re likely going to know how bad things are on restoring the pipeline in a couple of days,” he said. “While this is going on, on a parallel track, the Jones Act process is playing out.”

Optimism around a potentially short-lived supply disruption helped energy prices settle higher Tuesday. West Texas Intermediate crude for June delivery
CL00,
+0.46%
 
CLM21,
+0.46%
rose 36 cents, or nearly 0.6%, to settle at $65.28 a barrel on the New York Mercantile Exchange.

Matthew Parry, head of long-term analysis at Energy Aspect, said the Jones Act rules would be waived only “in the event of an extensive outage,” in emailed comments to MarketWatch. “However, the risk that the government takes these steps to ease a spike in fuel prices should not be ignored.” 

Read Next: Gas prices are ticking up after the Colonial Pipeline ransomware attack — here’s where drivers will be most affected

The next cyberattack?

It’s never good when hackers looking for a payday manage to take a major U.S. pipeline offline. But the response by financial markets so far has been measured.

Stocks ended lower Tuesday, with the Dow Jones Industrial Average
DJIA,
-1.36%
and S&P 500 index
SPX,
-0.87%
giving up modest ground, and the Nasdaq Composite
COMP,
-0.09%
ending fractionally lower.

The Biden administration also has been quick to put efforts into motion to thwart a potential fuel crisis at the start of the summer driving season, the first of its kind since strict COVID-19 restrictions began to be lifted.

“On the preparations side for pipelines, I don’t think this is a horrible wake-up call,” said Cattanach, the cybersecurity expert. “In some ways, the mitigation system is working as it’s supposed to.”

“But where I do think it’s a call for action is that this isn’t going to be the last ransomware attack,” he said. “Our systems are not hardened enough, and I’m not sure they ever will be hardened enough so people can’t get in.”

“You can’t eliminate that risk entirely.”