As the White House weighs invoking the Defense Production Act to expand domestic refining capacity, two sources familiar with the matter reveal that recent clashes with Iran have laid bare America's exposure to global crude supply disruptions and soaring prices. This extraordinary policy consideration underscores the intensifying pressure on the Trump administration to demonstrate, ahead of the November midterm elections, that it can curb the pain of surging fuel costs for consumers and businesses alike.

The proposal to deploy this legislation emerged during President Trump's recent sit-down with nearly a dozen U.S. refiners, where administration officials sought to identify how federal backing could most effectively ramp up throughput. Those present left with no final verdict but with an understanding that discussions would continue. Refinery executives, for their part, advised officials that public money would be better channeled into boosting operational efficiency at existing plants or expanding current facilities, rather than bankrolling greenfield projects that carry far heftier price tags and multi-year construction timelines.

Invoking the act would mark a last-resort measure, as it has never before been tapped for refining capacity expansion. The legislation vests the president with sweeping powers to direct industrial resources and provide financial incentives for companies scaling up production of materials deemed critical to national defense. The current deliberations build on an April presidential determination that already authorized using the act to support and grow U.S. oil production, refining, and logistics capacity. When asked about the proposal, White House spokesperson Tyler Rogers stated: "America's refining capacity is vital to ensuring the nation continues to have access to secure, reliable, and affordable energy. Expanding refining capacity is a top priority for the President and his energy team, who are evaluating specific options to enhance our refining capabilities through regulatory reform, accelerated permitting processes, and increased investment."

The proposed new refinery in Brownsville, Texas, has effectively become the pilot project for President Trump's push to enlarge U.S. refining capacity, though it remains unclear whether the project will secure Defense Production Act funding. America First Refining plans to build a 168,000-barrel-per-day facility at the Port of Brownsville, a project President Trump touted in March as the first new U.S. refinery in nearly five decades. India's Reliance Industries backs the venture, having inked a 20-year offtake agreement to purchase the refinery's entire output. The project also carries ties to the President's family and his administration, with reports indicating that Donald Trump Jr. holds a passive minority stake in America First Refining, while Cantor Fitzgerald - founded by Commerce Secretary Howard Lutnick - serves as financial advisor, according to company filings.

Despite the U.S. boasting one of the world's largest refining networks capable of processing millions of barrels of crude daily, finished fuel prices remain stubbornly elevated. The national average gasoline price breached $4 per gallon on Labor Day, setting a record high for that holiday. Meanwhile, AAA data from Friday shows the national diesel average has hit $6.0556 per gallon - the first time it has ever topped $6 - while California drivers face a staggering $7.9827 per gallon at the pump.

U.S. refiners are already running at near-full tilt. Over the past decade, less profitable plants have shuttered, shrinking overall capacity and concentrating operations along the Gulf Coast. Utilization rates currently sit at an eye-watering 98 percent, highlighting the challenge before the administration: processors are maxed out, yet tight global supply and robust demand keep fuel prices aloft. In recent weeks, when pressed on how they intend to counter fuel price spikes stemming from Middle East hostilities, the White House has increasingly pointed to expanding domestic refining capacity - framing the effort both as a long-term buffer against global supply shocks and as part of a broader affordability push ahead of the midterms.

Separately, the administration is working to broaden access to foreign crude. Earlier this month, the White House announced that Venezuela's interim authorities have granted North American Blue Energy Partners (NABEP) - the country's second-largest private oil producer - a 100-year concession covering 17 oil fields with roughly 65 billion barrels of proven reserves. According to the White House, NABEP has awarded the U.S. War Department's Strategic Capital Office a 35 percent equity stake in its parent company. As part of efforts to help replenish the Strategic Petroleum Reserve, Washington will hold rights to purchase a guaranteed 20 percent share of output from all current and future NABEP operations at production cost, along with a "right of first refusal" on the remaining 80 percent - effectively making Washington the priority buyer for its reserves. The White House indicated that millions of additional barrels of Venezuelan crude will eventually flow through U.S. refineries.

With years of domestic refinery closures and Middle East conflict tightening global fuel supplies, U.S. refiners are running flat out to meet demand - making the second quarter one of the most profitable stretches in industry history. Valero Energy Corp (NYSE: VLO) posted its strongest quarterly result ever on an earnings-per-share basis, with net income surging more than fourfold year-over-year to $3.7 billion from $714 million. PBF Energy Inc (NYSE: PBF) and HF Sinclair Corp (NYSE: DINO) each delivered their best performances since 2022 and 2023, respectively - HF Sinclair's second-quarter profit jumped roughly fourfold to $892 million, while PBF Energy swung from a loss in the same period last year to a gain exceeding $1 billion. Marathon Petroleum Corp (NYSE: MPC) and Phillips 66 (NYSE: PSX) saw second-quarter profits soar more than 300 percent year-over-year to $5.1 billion and $3.8 billion, respectively.

Years of refinery shutdowns have left fuel markets bereft of supply buffers. Today, the U.S.-Iran conflict is disrupting Middle East fuel exports, while Ukrainian strikes on Russian refining facilities are curtailing gasoline and diesel outflows. These disruptions have together drawn down global fuel inventories and pushed prices upward. With demand holding relatively steady, gasoline and diesel stockpiles show scant signs of replenishment, implying markets will remain tight and prices elevated. Although fuel production typically tapers in autumn, U.S. refiners indicate they will continue to chase near-record margins.

Jeff Currie, veteran commodity strategist and former Goldman Sachs executive who now heads Real Macro, warns that as America's energy supply crunch migrates from refined products to the crude segment itself, the odds of U.S. gasoline hitting $5 per gallon before the November midterms are "extremely high" - with diesel potentially spiking to $7-to-$9 per gallon. Currie argues the energy market is entering a more perilous phase. Supply tightness, previously concentrated in finished fuels like gasoline and diesel, is now spreading upstream into the crude market. Under the twin pressures of scarcity and currency devaluation, American consumers could face yet another round of energy price shocks. Crude markets, he notes, are flashing signals of further deterioration in supply tightness, which will ultimately transmit to terminal fuel prices.

Gasoline breaking past the $5 mark carries profound psychological and political weight, particularly with control of Congress fiercely contested just ahead of the November 3 midterms. Currie pegs the probability of gas topping $5 before Election Day as "extremely high." While U.S. refineries can currently shift output between diesel and gasoline to respond to varying product-market conditions, this flexibility is not infinite - as supply pressures accumulate, processors may eventually exhaust their ability to cushion shortages through product-switching. Meanwhile, Strategic Petroleum Reserve releases - which previously helped plug supply gaps - show no signs of resuming, removing another critical safety valve from the market. Currie's warning underscores that America's current energy shock transcends mere oil price increases. As tightness migrates from finished products to crude, continued climbing gasoline and diesel prices could further burden consumers, morphing into an increasingly sensitive economic and political issue ahead of the midterms - while amplifying market fears that persistent inflation could force the Federal Reserve to tighten monetary policy further.