With Hawaii reliant on a U.S. geopolitical rival for its oil, there has always been a risk that the islands could be cut off from their energy supplies in the event of a conflict.
In 2014, the Hawaii Refinery Task Force predicted: “If access to foreign sources of petroleum products is reduced (e.g., due to Chinese growth, Korean peninsula instability, Asian natural disasters impacting supply sources), Hawaii may need to rely on a significant amount of domestic supply and be exposed to higher freight costs. These costs will directly impact consumers.”
The task force recommended pursuing a Jones Act waiver for petroleum shipments to Hawaii, although back then it realized that obtaining one would be very unlikely.
Now, with U.S.-Russia tensions at a peak, Hawaii’s politicians might consider it more of a priority to ask for such a waiver, since Russia supplies more than one-third of Hawaii’s crude oil imports.
Just today, President Joe Biden said the U.S. would impose “full blocking” on two large Russian financial institutions and “comprehensive sanctions” on Russian debt, in response to what he is considering an “invasion” by Russia against neighboring Ukraine.
“That means we’ve cut off Russia’s government from Western finance,” Biden said. “It can no longer raise money from the West and cannot trade in its new debt on our markets or European markets either.”
Hawaii is already feeling the heat from these tensions, with gasoline prices soaring across the state. Now that the U.S. has imposed sanctions on Russia, things for Hawaii could get worse.
As Biden said earlier this month: “I will not pretend this will be painless. There could be [an] impact on our energy prices.”
Biden did not specifically mention Hawaii, but he probably should have. The state’s reliance on Russian oil puts the state at enormous economic risk. Without Russian oil, Hawaii could diversify to other sources, but this would still come with a cost. The state could not replace 34% of its crude oil imports overnight.
Russia is a big producer of low-sulfur or “sweet” crude, which Par Hawaii, Hawaii’s only oil refinery, says works best for Hawaiian Electric Co.’s electricity generation.
But it’s not like this particular kind of crude oil is rare. Low-sulfur crude made up 56% of U.S. crude oil production in 2018.
So why does Hawaii import its oil from Russia, more than 3,700 nautical miles away, when the U.S. mainland is just 2,500 nautical miles away?
Look no further than Section 27 of the federal Merchant Marine Act of 1920, also known as the Jones Act. The act limits the shipping of goods between U.S. ports to only ships that are flagged and built in the U.S., and mostly owned and crewed by Americans.
In other words, the Jones Act limits price competition in shipping, allegedly to promote U.S. national security and the domestic shipping industry. In practice, however, the law has been a failure on both counts.
On the latter count, America’s oceangoing Jones Act fleet has shrunk to fewer than 100 ships, and its shipyards capable of building such oceangoing vessels have similarly declined in number.
Regarding national security, it is hard to find a clearer example of failure than this: The law encourages Hawaii to buy oil from U.S. geopolitical rival Russia.
Why? Simple economics: It is too expensive for Hawaii to buy oil from U.S. sources.
The problem starts with the cost of the U.S. ships. For example, in 2014, building a 115,000-ton oil tanker in the U.S. cost $200 million, while a tanker twice as large built abroad cost $106 million. Building the same 115,000-ton tanker abroad today would cost about $58 million.
Once those U.S.-built ships are on the water, the cost difference doesn’t go away. The U.S. Government Accountability Office has estimated that U.S. ships cost at least $6.2 million more per year to operate, in part due to high U.S. tax and labor costs.
Because the Jones Act mandates use of these expensive ships in domestic transportation, it is no wonder that many U.S. businesses prefer buying goods such as crude oil or liquefied natural gas from foreign sources.
Back in 2014, when there were still two oil refineries in Hawaii, the report from the Hawaii Refinery Task Force stated that “waiving the Jones Act will increase Hawaii’s access to [mainland] fuels at lower prices. … This would be a very positive factor with one or both refineries closed.”
As the task force report concluded, “What differentiates petroleum is that Hawaii already pays much higher prices for energy than the rest of the United States with minimal dependence on Jones Act vessels.”
All things considered, the Jones Act has never been a good deal for Hawaii. And now, with relations between the U.S. and Russia potentially collapsing, it very likely could wreak havoc on energy prices in the state.
If Hawaii cannot obtain a general exemption from the Jones Act, our lawmakers at least might want to push for a waiver for energy imports.
 “Hawaii Refinery Task Force — Final Report,” prepared by ICF International and Poten & Partners Inc. for the Hawaii Department of Business, Economic Development and Tourism, adopted April 9, 2014, p. 41.
 Kevin Knodell, “Analysis: Why Russia has its eye on Hawaii,” Honolulu Star-Advertiser, Feb. 13, 2022. See also “Hawaii: State Profile and Energy Estimates — Petroleum,” U.S. Energy Information Service, Feb. 17, 2022.
 Vladimir Isachenkov, Yuras Karmanau and Aamer Madhani, “Biden announces sanctions against Russian oligarchs, banks; Ukraine’s leader calls up some military reservists,” The Associated Press via Hawaii News Now, Feb. 22, 2022. See also Haik Gugarats, “Biden outlines new Russia sanctions threat,” Argus Media, Jan. 20, 2022; Liam Denning, “Biden’s Ukraine Response Is Mired in Barrels of Oil,” Bloomberg, Feb. 22, 2022.
 Kristy Tamashiro, “Pain at the Pump: Gas prices are rising in Hawaii, experts don’t expect cheaper prices any time soon,” KHON2, Feb. 17, 2022.
 Alex Gangitano, “Biden warns energy prices could be impacted if Russia invades Ukraine,” The Hill, Feb. 15, 2022.
 Emily Burr, “Half of Foreign Oil for Hawai‘i Comes from Russia and Libya,” Hawaii Business magazine, June 22, 2021.
 “The United States tends to produce lighter crude oil and import heavier crude oil,” U.S. Energy Information Administration, Aug. 23, 2019.
 Jackie Northam, “A Boom In Oil Is A Boon For U.S. Shipbuilding Industry,” NPR, March 14, 2014.
 “Owning a Tanker in the 21st Century; Laws, Costs and Logistics,” Henderson International Group, 2014.
 “MARITIME SECURITY: DOT Needs to Expeditiously Finalize the Required National Maritime Strategy for Sustaining U.S.-Flag Fleet,” Government Accountability Office, Aug. 2018, p. 24. Note: This study is about the differential in operating expenses of foreign-built, U.S. flagged ships. In addition to such high operating expenses, Jones Act ships must also charge higher freight rates to account for their substantially higher capital costs. See: “Matson Sues to Remove MSP Subsidies for APL’s Guam Service,” Maritime Executive, Nov. 28, 2018.
 Philip G. Hoxie and Vincent H. Smith, “The Jones Act is a lose-lose for Puerto Rico and US LNG,” American Enterprise Institute, July 22, 2019.