Trump Invokes Defense Production Act to Force California Offshore Drilling as Oil Hits $100
Energy Department deploys Cold War powers to override state permitting for Sable Offshore as Iran conflict chokes 20% of global supply.
The Trump administration invoked emergency powers Friday to force the restart of offshore oil production in California, bypassing state environmental reviews as WTI crude closed above $98 per barrel for the second consecutive day. The move marks the most aggressive federal intervention in energy markets since the 1970s oil shocks, connecting three converging pressures: a historic supply disruption from the Iran conflict, inflation fears tied to spiking fuel costs, and surging electricity demand from AI infrastructure buildout.
Energy Secretary Chris Wright signed the order Friday under the Defense Production Act, directing Sable Offshore Corp. to restart the Santa Ynez platform and pipeline off Santa Barbara County, which has been dormant since a 2015 spill released over 100,000 gallons of oil. The DPA invocation allows Sable to circumvent California state laws that have heavily restricted offshore drilling since a massive 1969 oil spill.
Wright defended the action as essential to “strengthen America’s oil supply” and ensure West Coast military installations have reliable energy. Governor Gavin Newsom immediately promised litigation, accusing Trump of using “this crisis of his own making to attempt what he’s wanted to do for years: open California’s coast for his oil industry friends”.
Iran War Drives Historic Supply Shock
The California drilling order arrives as markets grapple with what Rapidan Energy calls the largest oil supply disruption in recorded history. The conflict has shut down the Strait of Hormuz, erasing the 20 million barrels of petroleum that used to traverse the waterway each day, with the IEA reporting only “a trickle” now passing through.
Oil production from Kuwait, Iraq, Saudi Arabia, and the UAE collectively dropped by 10 million barrels per day as of March 12, representing the largest supply disruption in global oil market history. About 20% of global supply has been disrupted for nine days, more than double the previous record set during the Suez crisis of 1956, according to Rapidan Energy.
The crisis differs from past supply shocks because Saudi Arabia and the UAE—holding the overwhelming majority of swing capacity—have been cut off from global markets by the Hormuz closure, leaving the market with “no meaningful cushion”. Markets will need to balance by destroying demand through sharply rising oil prices, with the U.S. Strategic Petroleum Reserve “finite and insufficient to fully offset” the bottled supply.
Energy Stocks Surge on Scarcity Premium
The energy sector has emerged as 2026’s dominant equity performer. The S&P 500’s energy segment is up over 24% year-to-date, effectively carrying the index during broader market stagnation, per analysis from MarketMinute.
JPMorgan raised its 2026 EPS estimate for ExxonMobil to $6.73 from $6.39, while Chevron is now viewed as a “conviction buy” with EBITDA forecasts climbing to $44.3 billion; ConocoPhillips was added to Goldman Sachs’ Conviction List with full-year EPS revised to $8.16. Valero Energy and Baker Hughes stocks are up roughly 33% and 32% year-to-date, driven by oil price tailwinds and refining margin strength, while First Solar has shed roughly a quarter of its value amid policy uncertainty.
“The conflict has not only taken offline a historically high share of global supply – it has simultaneously disrupted the primary holders of spare capacity.”
— Rapidan Energy Group analysts
Sable Offshore shares halted trading multiple times after prices jumped as much as 34% on news of the DPA order. The company has told investors that production could increase from about 30,000 barrels of oil equivalent per day to more than 50,000 if the system restarts, per CalMatters.
AI Infrastructure Adds Structural Demand Layer
Beyond geopolitical supply shocks, energy markets face a structural demand shift driven by artificial intelligence. The U.S. Energy Information Administration reports that surging electricity demand from data center expansion and industrial growth could increase natural gas generation by 7.3% through 2027, with coal’s projected decline slowing significantly as fixed generating capacity meets incremental power needs.
In the United States, natural gas accounts for over 40% of data center power demand; between 2024 and 2030, natural gas and coal combined are expected to meet over 40% of additional electricity demand generated by data centers, representing a new, durable source of industrial demand that is largely price-insensitive, according to analysis from OilPrice.com.
| Source | Share of Demand | 2030 Projection |
|---|---|---|
| Natural Gas | 40% | Rising |
| Coal | 30% | Declining slower |
| Renewables | 27% | ~50% of growth |
| Nuclear | 15% | Expanding |
Meeting power demand from AI will likely require the United States to increase natural gas production by 10%-15% by the early 2030s, coinciding with expanding LNG exports that will drive similar supply growth, per a study from the Hamm Institute for American Energy. U.S. data center demand will rise to 75.8 GW in 2026, expanding further to 108 GW in 2028 and 134.4 GW in 2030.
Legal and Market Battleground
California’s legal infrastructure presents formidable barriers to the DPA order. The California Department of Justice stated it “cannot comment on legal strategy” but is “reviewing this development,” noting that “the Trump Administration’s desire to put oil and gas interests over our communities and a clean environment continues unabated”. The Center for Biological Diversity confirmed it is examining how to launch a legal challenge.
A Stanford Law School environmental expert called the DPA application “a breathtaking attempt to expand the Defense Production Act, which has been expanding over the years a little bit but very rarely used in a context like this”. A Justice Department legal opinion last week asserted that invoking the DPA would override state-level permitting barriers and portions of a federal consent decree.
California enacted legislation in Trump’s first term prohibiting new state infrastructure—including pipelines and onshore processing facilities—that would support new federal offshore drilling. The state’s onshore oil fields have been in a 40-year decline, producing just 246,000 barrels a day in late 2025 compared to over a million barrels daily in the early 1980s.
- Federal-state jurisdictional battle tests limits of emergency energy powers during supply crisis
- Energy sector rotation gains momentum as oil remains above $95 despite strategic reserve releases
- AI-driven electricity demand creates durable bid for natural gas regardless of short-term oil volatility
- California offshore production potential: 30,000-50,000 bpd versus 15M bpd global supply loss from Hormuz
What to Watch
The 9th Circuit Court of Appeals is expected to rule on whether the Pipeline and Hazardous Materials Safety Administration properly shifted jurisdiction over Sable’s infrastructure from California to federal oversight in December. That decision will determine whether the DPA order has a regulatory foundation or faces immediate injunction.
Oil market structure remains fragile. Traders recognize that IEA drawdowns can “at best only offset a fraction” of the roughly 15 million barrels per day net supply loss, with prices likely to keep rising until either a ceasefire or military degradation of Iran’s attack capabilities allows tanker traffic to resume, according to Rapidan Energy Group.
The collision between emergency energy doctrine and environmental review requirements will set precedent for how quickly the U.S. can mobilize domestic production during geopolitical crises—a framework that extends beyond oil to critical minerals, refining capacity, and grid infrastructure. Whether California’s 30,000-50,000 barrel daily contribution justifies overriding four decades of coastal protection will be decided in federal court within weeks, not months.