Diverting Oil Imports to United States Allies

T he International E m ergency Econom ic Pow ers A ct w ould authorize the President, in 

o rder to deal with an Iranian cutoff o f oil to United States allies, to require Am erican 

oil com panies and foreign entities they control to ship oil they acquire abroad to 

certain specified nations and in certain specified quantities. W hile there must be a 

"foreign interest” in the oil for the President to invoke lE E P A ’s pow ers, foreign 

interest unassociated w ith the nation that is creating the em ergency would be sufficient.

Section 232(b) of the T rad e Expansion A ct w ould allow the President to impose a quota 

on oil im ports for national security reasons, including reasons relating to foreign policy 

considerations; how ever, it w ould not give him pow er to direct the diversion o f oil 

im ports to o ther countries.

January 12, 1981

MEMORANDUM OPINION FOR 

THE ASSOCIATE ATTORNEY GEN ERA L

Iran may end or reduce exports of its oil to some of our allies who 

are heavily dependent on Iranian oil. You have asked us whether the 

President has authority to divert to those allies shipments of foreign oil 

that would otherwise be imported into the United States. We believe 

the President has this authority over at least some such shipments. 

There are several possible sources of authority; the International Emergency Economic Powers Act (IEEPA), 50 U.S.C. §§ 1701-1706 (Supp. I 

1977), seems the clearest and most appropriate.

I. The International Emergency Economic Powers Act

We believe that the IEEPA empowers the President, in dealing with 

a declared national emergency, to require American oil companies and 

entities they control to sell any oil they acquire or can acquire 

abroad—except perhaps oil the company itself already owns, free of all 

foreign rights—and to sell it only to nations specified by the President 

and in quantities the President specifies. If the President enters such an 

order to deal with the Iranian hostage crisis, or the emergency declared 

in connection with the Soviet invasion of Afghanistan, he need not 

declare another national emergency. If the need to divert oil shipments 

arises from a separate emergency, that emergency should be declared. 1

'W e w ould alert you lo Congress* injunction that “em ergencies are by their nature rare and brief, 

and are not to be equated w ith norm al, ongoing problem s. A national em ergency should be declared

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Section 203(a)(1)(B) of the IEEPA, 50 U.S.C. § 1702(a)(1)(B), authorizes the President, in dealing with a national emergency, to:

investigate, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, 

use, transfer, withdrawal, transportation, importation or 

exportation of, or dealing in, or exercising any right, 

power, or privilege with respect to, or transactions involving, any property in which any foreign country or a 

national thereof has any interest; 

by any person, or with respect to any property, subject to the 

jurisdiction of the United States.

On its face this provision appears to give the President power to 

require American companies, and foreign entities they control,2 to 

ship oil they acquire abroad to certain other nations and in certain 

quantities.

The principal difficulty with the President’s using this power is that it 

is unclear whether all oil acquired abroad by American companies is 

“property in which [a] foreign country or a national thereof has any 

interest.” Some oil is owned by a foreign nation or foreign national but 

can be acquired by an American company; this is plainly property in 

which there is a foreign interest, at least until after the time it is 

acquired. Since “any” interest will suffice, we believe that oil in which 

a foreign nation or national has a contract right—for example, a right 

to refuse to allow the oil to be shipped unless a certain royalty is paid— 

is also subject to the President’s power.

Because the United States is not now importing oil from Iran, the 

foreign interest will not be that of Iran, and will probably not be that of 

an Iranian national; it may be argued that § 203(a)(1)(B) does not reach 

property in which the only foreign interest is unassociated with the 

nation that is the cause of the emergency. We do not believe this 

argument is correct, however. Section 203(a)(1)(B) refers to “any foreign country or a national thereof” (emphasis added), and the legislative history of the IEEPA suggests that the principal reason for the 

foreign interest limitation was to prevent the President from regulating 

“domestic” transactions, see, e.g., H.R. Rep. No. 459, 95th Cong., 1st

and em ergency authorities em ployed only w ith respect to a specific set o f circum stances w hich 

constitute a real em ergency, and for no o th er purpose. T h e em ergency should be term inated in a 

tim ely m anner w hen the factual state o f em ergency is o v er and not continued in effect for use in o ther 

circum stances. A state o f national em ergency should not be a norm al state o f affairs.” H .R. Rep. No. 

459, 95th C ong., 1st Sess. 10 (1977).

2 A m erican corp o ration s are clearly subject to the jurisdiction o f the U nited States. See R estatem ent (Second) o f Foreign R elations L aw o f the U nited States, §§27, 30 (1965). F oreign entities they 

control m ay also be, although they m ay be subject to the com peting jurisdiction o f th e foreign 

country. In addition, § 203(a)(1)(B) perm its the President to “ regulate, [or] direct and com pel, . . . 

[the] exercising [of] any right, pow er, o r privilege w ith respect to . . . any [foreign] p ro p erty .” We 

believe this authorizes th e President to require an A m erican com pany to exercise its control over 

foreign entities in the w ay the P resident directs, at least w hen the direction furthers the purposes o f 

o th e r regulations im posed under the IE E P A .

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Sess. 11 (1977), not to limit the foreign nations whose interests might be 

affected. Moreover, Congress probably expected the IEEPA to be used 

for emergencies—international monetary disorders, for example—that 

do not originate in any single country. Similarly, a diversion of oil 

imports might be an effort to coordinate our international trade in a 

way that serves the economic and political objectives the President is 

pursuing in dealing with a declared emergency. If it were, we believe 

that it would be the sort of action Congress expected the President to 

take under the IEEPA.

Some oil located abroad may be entirely owned by an American 

corporation and not subject to any foreign nation’s or national’s property or contract rights.3 It is much more difficult to conclude that there 

is a foreign interest in this oil. It seems unlikely, although perhaps 

arguable, that a nation’s ability to tax a quantity of oil, seize it or 

prevent its shipment by asserting eminent domain, and otherwise exert 

jurisdiction over it, constitute an “interest” in the oil. Some courts have 

suggested that a foreign nation has an “interest”—within the meaning 

of § 5(b) of the Trading with the Enemy Act, the predecessor of the 

IEEPA —in any item it exports. Those courts reasoned that by selling 

its products abroad a nation helps “to sustain its internal economy and 

provide it with foreign exchange.” See United States v. Broverman, 180 

F. Supp. 631, 636 (S.D.N.Y. 1959); Heaton v. United States, 353 F.2d 

288, 291-92 (9th Cir. 1965). But we have substantial doubt that this is a 

sufficiently direct interest to permit regulation under § 203(a)(1)(B) of 

the IEEPA, at least if the object of the regulation is not to disrupt a 

nation’s internal economy or deprive it of foreign exchange.4

3 W e express no opinion on the extent to w hich A m erican corporations' acquisitions o f oil from 

foreign nations may be regulated retroactively under the IE E P A .

4 W e have these doubts for several reasons. First, the language o f § 203(a)(1)(B) suggests that the 

term “ interest” should not be interpreted in a w ay that has no connection to its usual legal meaning. 

Section 203(a)(1)(B) refers to p roperty in w hich a “ foreign cou n try or a national thereof has any 

interest” (em phasis added); this m ay suggest that the drafters intended to reach only those kinds of 

interests of foreign nations w hich could also be held by individuals. M oreover, in describing the 

President’s pow ers, § 203(a)(1)(B) uses highly inclusive language— “investigate, regulate, direct and 

com pel, nullify, void, prevent o r prohibit, any acquisition, holding, w ithholding, use, transfer [etc.]” — 

that was evidently intended to cov er a w ide variety o f possible actions. Section 203(a)(1)(B) does not 

use com parably inclusive language in describing the range o f foreign interests covered. T his may 

suggest that the drafters o f the IE E P A did not intend the term '‘interest” to be extraordinarily 

inclusive. In ordinary legal usage, a nation w ould not have an “ interest” in a piece o f p roperty unless 

it ow ned it or had an indirect, partial, contingent, or future interest in it, o r a con tract right to it; one 

w ould not ordinarily say that a nation had an “ interest” in all the p roperty located w ithin its borders.

Second, C ongress clearly intended that the President not use the IE E P A to regulate “ w holly 

dom estic” transactions. See, e.g., H .R. Rep. N o. 459, 95th C ong., 1st Sess. 11 (1977). W e recognize that 

§ 203(a)(1)(B), enacted as part o f the IE E P A in 1977, contains the same language as § 5(b) o f the 

T rading w ith the Enem y A ct; the cases cited in the text interpreted this language. C ongress presum ­

ably knew o f these cases w hen it enacted § 203(a)(1)(B) in this form . But if w e w ere to adopt the 

broadest possible interpretation o f these cases—that a nation has an “ interest” in property, w ithin the 

m eaning o f § 203(a)(1)(B), w henever transactions in that property can have an im portant effect on its 

econom y—w e w ould, allow the President to regulate w holly dom estic transactions, in violation of 

C ongress’ clear intentions; foreign countries' econom ies may be substantially affected by w holly 

dom estic A m erican transactions. W e see no o ther principled interpretation o f th e term “ foreign . . . 

interest” in § 203(a)(1)(B) that w ould allow the President to regulate transactions in oil that is located

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The President may be able to reach transactions in American-owned 

oil located abroad under a different provision of the IEEPA, 

§ 203(a)(l)(A)(i), 50 U.S.C. § 1702(a)(l)(A)(i). That provision authorizes 

the President, in dealing with a national emergency, to “investigate, 

regulate, or prohibit . . . any transactions in foreign exchange . . . by 

any person, or with respect to any property, subject to the jurisdiction 

of the United States.” An American company which owned oil located 

abroad would presumably have to deal in foreign exchange in order to 

sell the oil; the foreign exchange transactions associated with such sales 

might be regulated in a way that compelled the company to comply 

with the President’s directions. While this provision of the IEEPA on 

its face seems to permit such regulation, some substantial objections can 

be raised. Arguably, Congress envisioned that the § 203(a)(l)(A)(i) authority to regulate transactions in foreign exchange would be invoked 

only where the President’s concern was with the use of foreign exchange in the transaction. Congress probably did not intend the President to take advantage of the fact that foreign exchange was involved 

solely as a means of reaching transactions that he otherwise could not 

regulate. In other words, in enacting § 203(a)(1)(B) Congress may have 

intended to limit the President’s power over transactions in property to 

property in which there was a foreign interest; if so, Congress would 

not have intended the President to use his authority over transactions in 

foreign exchange to circumvent that limitation. For these reasons, we 

have substantial doubt about the President’s authority under the IEEPA 

to regulate transactions in oil that is located abroad but entirely owned 

by American companies. To the extent that the reasons for regulating 

such transactions are related to the fact that the transactions involve 

foreign exchange, the argument that § 203(a)(l)(A)(i) grants the President authority to regulate them is enhanced. On the facts as known to 

us, however, it is difficult to discern such a relationship.

Finally, it can be argued that while § 203(a)(1)(B) authorizes the 

President to “direct and compel . . . [the] acquisition” of oil in which 

there is a foreign interest, the foreign interest disappears as soon as an 

American company acquires the oil, and the President loses his power 

to direct the oil to a destination or otherwise to control its sale. For 

several reasons, we believe this argument is incorrect. As far as the text 

of the Act is concerned, the President has the power to “regulate” the 

acquisition of the oil; this suggests that he may order that it not be 

acquired unless it will be shipped to the destination he has designated. 

In addition, the President may “regulate [or] direct and compel . . . 

any . . . use, transfer, . . . transportation . . . dealing in . . . or transactions involving” property in which there is a foreign interest. By

w ithin a foreign nation but w holly ow ned by an A m erican corporation, at least w hen the purpose o f 

the regulation is not to disrupt the foreign n ation’s econom y. See a/so Permian Basin Area Rate Cases,

390 U.S. 747, 777, 780 (1968).

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requiring oil to be shipped from one foreign country to another, the 

President appears to be simply regulating or directing a transfer, transportation, or dealing in the oil. Moreover, the President may “regulate, 

direct and compel, nullify, void, prevent or prohibit, any . . . dealing 

in, or exercising any right, power, or privilege with respect to” oil in 

which there is a foreign interest. We believe the President may, under 

this authority, order American companies to obligate any oil they can 

obtain from a foreign nation or national to other countries. These are 

riot merely strained textual arguments designed to give the President 

control over essentially domestic transactions. The fact that the oil 

involved has a foreign origin may be significant, not adventitious. For 

example, the President may determine that precisely because the United 

States is a leading consumer of oil from other nations, it must make a 

special effort to aid its allies.

II. Section 232(b) of the Trade Expansion Act

Section 232(b) of the Trade Expansion Act, 19 U.S.C. § 1862(b), 

appears to permit the President to respond to an Iranian oil cutoff by 

imposing a quota on oil imports into the United States. The effect of 

such a quota would depend on market conditions, but it would probably free additional supplies for our allies to purchase. The legal objections to this approach can be answered; the practical problems may be 

more serious.

Section 232(b) authorizes the President to “take such action, and for 

such time, as he deems necessary to adjust the imports of [an] article 

and its derivatives so that such imports will not threaten to impair the 

national security.” The President can make such an adjustment if the 

Secretary of Commerce—formerly the Secretary of the Treasury, see

Reorganization Plan No. 3 of 1979, § 5(a)(1)(B), 93 Stat. 1381—conducts an investigation and finds that an article “is being imported into 

the United States in such quantities or under such circumstances as to 

threaten to impair the national security.” In March 1979, the Secretary 

of the Treasury completed such an investigation and concluded that 

imports of crude oil and oil products into the United States threatened 

to impair the national security.5 See 44 Fed. Reg. 18,818 (1979). It is

5 W hile this finding did not, o f course, anticipate the Iranian oil cuto ff w ith w hich w e are now 

concerned, it did em phasize th e risks o f depending on oil from countries w ith w hich the U nited States 

m ight have “ political disagreem ent[s]" and the unreliability o f oil supplies from those nations. It even 

m entioned the Iranian revolutionary regim e’s reductions in oil shipm ents as an exam ple. See 44 Fed. 

Reg. 18,818, 18,820 (1979). M oreover, in 1975 the A tto rney G eneral issued an opinion that a finding 

m ade in 1959 continued to authorize im port adjustm ents by the President. H e said that no new finding 

w as necessary in 1975, even though there had been a "drastic change from the factual situation w hich 

provided the basis o f the 1959 finding," and even though, shortly before he issued his opinion, the 

authority to make such a finding had been transferred from the D irecto r o f the O ffice o f E m ergency 

Planning to the S ecretary o f th e T reasury, see Pub. L. N o. 93-618, § 127(d), 88 Stat. 1993 (1975). 43 

O p. A tt’y G en. N o. 3 at p. 2 (1975). T he A tto rney G eneral reasoned that the P resident’s § 232(b) 

pow er to take “ such action . . . as he deem s necessary’’ to adjust im ports is authority to take not ju st

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clear that the President’s power to “adjust” imports includes the power 

to impose an import quota. See Federal Energy Administration v. 

Algonquin SNG, Inc., 426 U.S. 548, 561, 571 (1975).

We understand, however, that the President wishes to divert oil 

primarily to deal with the foreign policy consequences of an Iranian 

cutoff. It might be argued that it is inconsistent with Congress’ intentions to use § 232(b) to deal with the foreign policy implications of 

imports. The language of the statute and its legislative history suggest 

that Congress expected § 232(b) to be used primarily to protect domestic industries or, more generally, to deal with the domestic consequences of imports. See, e.g., § 232(c), 19 U.S.C. § 1862(c). It may be, 

however, that an Iranian oil cutoff would threaten instability in American domestic markets as well as in world markets, and that a reasonable 

method of preventing this instability would be to limit imports; in this 

way the cutoff might be justified as a measure to aid the domestic 

economy. We do not know whether the facts support this view. More 

fundamentally, however, while Congress clearly focused on the domestic effects of imports, it did not explicitly limit the President to considering only domestic effects. Instead, it used the term “national security,” which ordinarily comprises matters of foreign policy. Congress 

did not attempt affirmatively to exclude this aspect of the normal 

meaning of “national security.” Since Congress used the term “national 

security,” we believe that the President has the authority to consider all 

the aspects of national security—including foreign policy—when he 

adjusts imports under § 232(b).

The practical problems may be more difficult to solve. Section 232(b) 

allows the President to “adjust . . . imports.” It is difficult to construe 

this as authority to order the holders of oil to do a particular thing with 

the oil they cannot import. Consequently, § 232(b) does not give the 

President direct control over the oil diverted from the United States; it 

is subject to the vagaries of the market. This may be an inefficient, or 

even ineffective, way of supplying the needs of our allies.

a single m easure but continuing course o f action, “a continuing process o f m onitoring and m odifying 

the im port restrictions, as their lim itations becom e apparent and their effects changed.” Id. C ourts 

enforced restrictions w hich the P resident imposed as late as 1968, even though the restrictions w ere 

based on the 1959 findings; the cou rts did not seem to doubt that those findings adequately supported 

the P resident’s action. See, e.g., G u lf Oil Corp. v. Hickel, 435 F.2d 440 (D .C . Cir. 1970).

T he A tto rney G en eral’s opinion did not com m ent on the transfer o f the function. It seems 

reasonable to conclude, h ow ever, that if the findings can survive the passage o f 16 years and a ‘‘drastic 

chan ge" in circum stances, they can also survive a transfer o f functions w ithin an adm inistration. 

Indeed, earlier this year the P resident imposed a G asoline C onservation Fee, see Pres. Proc. No. 4744, 

45 F ed. R eg. 22,864 (1980), rescinded by Pres. Proc. N o. 4766, 45 Fed. Reg. 41,899 (1980), partly on 

the auth o rity o f § 232(b) and th e M arch, 1979, findings o f the S ecretary o f the T reasury. F o r these 

reasons, w e believe that the M arch, 1979, findings will support an im port quota imposed by the 

P resident to deal w ith an Iranian oil cutoff. O f course, if circum stances and the applicable regulations, 

see § 232(d), 19 U.S.C. § 1862(d), perm it, it may be m ore prudent to have the S ecretary o f C om m erce 

m ake a new investigation and enter the finding appropriate to an im port quota designed to respond to 

an Iranian oil cutoff.

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III. The International Energy Program

The Agreement on an International Energy Program, 27 U.S.T. 1685, 

Nov. 18, 1974, T.I.A.S. No. 8278, is designed to share the effects of oil 

shortages among the nations participating in the agreement. The United 

States and the allies who would be most affected by an Iranian oil 

cutoff are participants. Certain of the participants’ obligations take 

effect if the total imports of all the participating nations fall more than 

7 percent from the previous year, or if any one nation’s available oil 

supplies fall more than 7 percent. Specifically, each participant is then 

obligated to reduce its demand for oil by 7 percent from the previous 

year and share its savings among the other participants. Under § 251(a) 

of the Energy Policy and Conservation Act, the President has the 

power to issue regulations “requiring] that persons engaged in producing, transporting, refining, distributing, or storing petroleum products, 

take such action as he determines to be necessary for implementation of 

the obligations of the United States under . . . the international energy 

program insofar as such obligations relate to the international allocation 

of petroleum products.” 42 U.S.C. § 6271(a). We are advised that such 

regulations already exist. See 10 C.F.R. § 218.1-218.43.

We understand, however, that the United States has already reduced 

its consumption of oil by more than 7 percent from last year. If this is 

true, then even if other nations’ oil supplies fell sharply, the United 

States would apparently have no further obligations under the Program, and § 251(a) would not grant the President authority to order 

redistributions of. oil.6 For this reason, the International Energy Program seems an unlikely source of authority for dealing with an Iranian 

oil cutoff.

J o h n M. H a r m o n

Assistant Attorney General

Office of Legal Counsel

6 A rticle 22 o f the A greem ent provides that:

T he G overning Board may at any time decide by unanim ity to activate any app ro priate em ergency m easures not provided for in this A greem ent, if the situation so 

requires.

T he G overning Board is com posed o f m em bers from each participating country. A rticle 50, § 1. 

M easures adopted by the Board in this w ay may impose on the U nited States additional “ obligations'* 

w ithin the meaning o f § 251(a) o f the E nergy Policy and C onservation A ct, although it m ight be 

argued that since the U nited States can veto such a m easure, it cannot be said to impose an obligation.

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