California oil and gas dilemma or turning point: Trump strongly promotes Sable (SOC.US) to resume production as a "Cold War tool" to hedge against the risk of Iran's supply cut-off.

To alleviate the global oil supply tension triggered by the conflict with Iran, President Trump is preparing to use Cold War-era legislative powers to pave the way for the resumption of offshore oil production on the southern coast of California. However, this is a risky move. According to a source familiar with the matter but not authorized to speak publicly, Trump is planning to quickly use the authority granted under the Defense Production Act to bypass state laws and remove barriers to permitting for the massive production of offshore platforms in California by Sable Offshore Corp. based in Houston. In response to this news, Sable's stock price surged 34% at one point, then trading was halted. Over the past year, the company's stock price has experienced significant fluctuations and multiple halts. Trump's plan to issue this order comes at a time when he is facing significant political pressure to address rising fuel prices before the midterm elections in November, with the election results heavily dependent on the American public's attitude towards the cost of living. A White House official stated that any policy announcement will be directly made by the President himself. Sable did not immediately respond to requests for comment. California heavily relies on foreign oil, with approximately 61% of the oil used by the state's refineries last year coming from imports. About 30% of California's foreign oil supply needs to pass through the Strait of Hormuz, a vital shipping route that has been nearly paralyzed due to conflicts in the Middle East. This supply disruption has caused oil, gasoline, and diesel prices to soar, erasing the economic success story that Trump previously told voters. Trump recently tried to ease public concerns about rising oil prices, threatening to implement "harsher" bombings if Iran disrupts the flow of oil, and promising to provide reassurance supported by the US government and naval escort to encourage oil tankers to resume passing through the Strait of Hormuz. However, these measures to alleviate oil pressure have not yet been implemented. While the US International Development Finance Corporation stated they are "rolling out" maritime reassurance, there is no evidence of tankers receiving support or passing through the strait under the escort of the US Navy. The International Energy Agency agreed on Wednesday to carry out its largest-ever release of emergency oil reserves in an effort to curb soaring oil prices. It remains unclear whether this action targeting California will bring significant relief quickly (started before the US and Israel launched strikes against Iran). Sable stated that once production resumes, its offshore oil wells could quickly extract 45,000 to 55,000 barrels of crude oil per day, with daily output expected to rise to 60,000 barrels by the end of this decade. Compared to the US daily demand for over 20 million barrels of oil, this is just a drop in the bucket, not to mention the estimated daily reduction of 15 million barrels in global markets due to the closure of the Strait of Hormuz. Nevertheless, this action aligns with Trump's long-standing policy of prioritizing domestic oil and gas development, including his vision of enhancing energy dominance and political power through record US production and GEO Group Inc. Sable has been trying to resume large-scale production on multiple platforms near the Santa Barbara coast to extract hundreds of millions of barrels of oil beneath the seabed. However, their plans have been hindered by opposition from California regulators to restarting the so-called Santa Ynez System pipeline necessary for transporting crude oil to onshore and regional refineries. Sable CEO Jim Flores had proposed the possibility of transporting crude oil to other markets by tanker, while also seeking approval from the Trump administration to instead use pipelines. Since the 2015 Plains All American pipeline rupture polluting beaches and raising concerns of regulatory agencies, environmentalists, and local residents, these pipeline systems have remained largely inactive. Trump's order had already been hinted at in a legal opinion from the Justice Department last week, which claimed that invoking the Defense Production Act would override state-level permitting hurdles and certain provisions of federal consent decrees. The law allows the President to authorize a range of actions to strengthen America's defense capabilities, including directing private companies to expand production of critical industrial materials. On his first day back in the White House, Trump had already paved the way for increasing domestic oil and gas supply by invoking the Defense Production Act when he declared a national emergency related to America's energy supply and infrastructure. The order noted that the US faces "unusual and extraordinary threats" due to insufficient energy production, transportation, and refining capacity. The resumption of production by Sable could assist in supplying California. Due to strict environmental regulations, unique fuel specifications, and high taxes, California drivers bear some of the highest fuel prices in the US. The closure of two refineries in the past six months has exacerbated this situation. "Lower prices" Interior Secretary Doug Begum stated in an interview with Bloomberg News last week that California is the state with the highest fuel consumption for transportation in the US and is "most susceptible to international price shocks, all due to the policies implemented in the state. If we invoke the Defense Production Act, it will be for the benefit of the people of California - allowing them to afford lower oil prices." The additional production from Sable's facilities will significantly increase California's oil output. The state's onshore oil field production has been declining for 40 years, producing only 246,000 barrels per day by the end of 2025, compared to over 1 million barrels per day in the early 1980s. Trump's move could disrupt an already tense energy politics in California. After years of being accused by oil refiners of increasing operational costs and causing refinery closures, Governor Gavin Newsom has sought to reach some form of compromise with the oil industry. Newsom enacted legislation last year aimed at boosting California's oil production, seen as an adjustment to his energy production policy stance before a possible presidential run. Further complicating Sable's situation, federal investigators have opened a review into its handling of sensitive information. In a document earlier this year, the company stated that it received subpoenas from the US Attorney's Office for the Southern District of New York and the Securities and Exchange Commission after Hunterbrook Media claimed selective disclosure of information to investors, including professional golfer Phil Mickelson. Mickelson denied any wrongdoing and called the report "defamatory."