12 days before midterms, Trump invokes Defense Production Act for domestic oil

The near-term oil balance is still shaped by the conflict with Iran, and the memo does little to alter that. Brent crude settled near $113 on Thursday, the highest since early May, following reports that Washington and Tel Aviv have prepared plans for renewed strikes on Iran after the midterms. The geopolitical risk premium currently outweighs any supply increase that the Defense Production Act could produce in the near term. Federal financial backing for capacity may gradually relieve tight diesel and gasoline spreads, which have driven pump prices higher than crude alone would suggest, making the step more significant for refining margins and US refiners. Market participants are also expected to monitor additional pre-election measures targeting fuel costs; such moves could increase headline volatility in US product futures even if the real-world impact remains small.

Fuel costs are at record levels for this time of year, and with the midterms just under two weeks away, the White House is once again employing a Korean War-era statute to increase oil supply. However, any benefit at the pump will take longer than the election campaign to materialize.

Summary of the situation:

• Trump signed a memo that declares domestic oil production, refining, and associated activities as critical to national defense.
• The memo calls on Section 303 of the Defense Production Act, permitting federal financial backing, acquisitions, and purchase pledges to boost capacity.
• It follows an April ruling that covered petroleum and earlier measures, such as a Delek refinery expansion in Texas supported by the Defense Production Act.
• US gasoline exceeded $4 per gallon in October for the first time in history, while diesel remained above $6.
• Fuel prices are a key topic ahead of the November 3 midterms, which will determine which party controls Congress.
• Brent crude settled near $113 on Thursday, the highest since May, amid reports of preparation for further strikes on Iran.

On Thursday, US President Donald Trump signed a memo invoking Section 303 of the Defense Production Act for domestic oil, stating that petroleum production, refining, and related operations are essential to national security. This step is the administration's most recent effort to address elevated fuel prices, coming under two weeks before midterm elections that will determine congressional control.

Under Section 303, the federal government can back industrial capacity it deems critical to national defense via purchases, purchase commitments, and additional financial assistance. The full specifics of Thursday's memo were not released right away. The memo follows a comparable April ruling that covered domestic petroleum production, refining, and logistics, which skipped certain procedural steps and instructed the Department of Energy to apply those financial mechanisms to grow capacity.

In recent weeks, the administration has increased its application of the Korean War-era statute. During a campaign event in Texas last week, Vice President JD Vance stated that the Defense Production Act would be employed to expand a Delek refinery in Tyler; however, neither the White House nor the company disclosed the funding or the extra capacity. Earlier this month, Reuters reported that Trump intended to instruct department leaders to find methods to manage diesel prices before the November 3 election, including using the law and circumventing state and local regulations that limit energy output. Energy Secretary Chris Wright has stated that the administration aims to restart as many refineries as feasible.

The political urgency is evident. When Trump took office with a pledge to reduce living costs, gasoline averaged approximately $3 per gallon. Since then, average US gasoline prices topped $4 per gallon in October for the first time ever, and diesel has been trading above $6. The US Energy Information Administration reported September's average retail prices at roughly $4.35 for gasoline and $6.30 for diesel, attributing them to higher crude costs and broader refining margins. In September's consumer price index, heating oil prices rose more than 70% compared to a year earlier, at a time when households are preparing for winter.

The primary factor behind these costs is still the conflict with Iran and the disruption of Gulf energy supplies. On Thursday, Brent crude surged roughly 4% to close near $113 per barrel, the highest level since early May. This move came after a New York Times report that US and Israeli military planners have ready plans for fresh strikes on Iran after the midterm elections. Trump told journalists that the US is not in negotiations with Iran and that "something would happen fairly soon."

This leaves the administration with little ability to lower prices rapidly. Expanding or restarting refineries requires months or more, so the Defense Production Act steps target long-term capacity rather than the price voters encounter at the pump on Election Day. The EIA anticipates that retail gasoline prices will remain largely stable in October before gradually declining in step with crude, a trajectory that relies heavily on the evolution of the Iran conflict in the weeks ahead.