Diverting Oil Imports to United States Allies

Diverting Oil Imports to United States Allies
The International Em ergency Econom ic Powers Act would authorize the President, in
order to deal with an Iranian cutoff of oil to United States allies, to require American
oil companies 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 powers, foreign
interest unassociated with the nation that is creating the em ergency would be sufficient.
Section 232(b) of the T rade Expansion Act would allow the President to impose a quota
on oil imports for national security reasons, including reasons relating to foreign policy
considerations; however, it would not give him power to direct the diversion o f oil
imports to other countries.
January 12, 1981
MEMORANDUM OPINION FOR
THE ASSOCIATE ATTORNEY GENERAL
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 Emer­
gency 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 “emergencies are by their nature rare and brief,
and are not to be equated w ith normal, ongoing problems. 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), author­
izes the President, in dealing with a national emergency, to:
investigate, regulate, direct and compel, nullify, void, pre­
vent 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 in­
volving, 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 for­
eign country or a national thereof” (emphasis added), and the legisla­
tive 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 which
constitute a real em ergency, and for no other purpose. T he em ergency should be term inated in a
timely m anner w hen the factual state o f em ergency is over and not continued in effect for use in other
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 Cong., 1st Sess. 10 (1977).
2 A m erican corporations are clearly subject to the jurisdiction o f the United States. See Restate­
ment (Second) of Foreign Relations Law o f the United States, §§27, 30 (1965). Foreign entities they
control may also be, although they may be subject to the com peting jurisdiction of the 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, or privilege w ith respect to . . . any [foreign] property.” We
believe this authorizes the President to require an A m erican com pany to exercise its control over
foreign entities in the w ay the President directs, at least w hen the direction furthers the purposes of
other regulations imposed 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 prop­
erty 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 American corporations' acquisitions o f oil from
foreign nations may be regulated retroactively under the IEE PA .
4W e have these doubts for several reasons. First, the language of § 203(a)(1)(B) suggests that the
term “interest” should not be interpreted in a way that has no connection to its usual legal meaning.
Section 203(a)(1)(B) refers to property in w hich a “foreign country or a national thereof has any
interest” (emphasis added); this may suggest that the drafters intended to reach only those kinds of
interests of foreign nations which could also be held by individuals. M oreover, in describing the
President’s powers, § 203(a)(1)(B) uses highly inclusive language—“investigate, regulate, direct and
compel, nullify, void, prevent or prohibit, any acquisition, holding, w ithholding, use, transfer [etc.]” —
that was evidently intended to cover a wide variety of possible actions. Section 203(a)(1)(B) does not
use com parably inclusive language in describing the range o f foreign interests covered. This may
suggest that the drafters o f the IEE PA did not intend the term '‘interest” to be extraordinarily
inclusive. In ordinary legal usage, a nation would not have an “ interest” in a piece of property unless
it owned it or had an indirect, partial, contingent, or future interest in it, or a contract right to it; one
would not ordinarily say that a nation had an “interest” in all the property located w ithin its borders.
Second, Congress 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. No. 459, 95th C ong., 1st Sess. 11 (1977). W e recognize that
§ 203(a)(1)(B), enacted as part of the IE E P A in 1977, contains the same language as § 5(b) of the
Trading with the Enem y A ct; the cases cited in the text interpreted this language. C ongress presum ­
ably knew o f these cases when it enacted § 203(a)(1)(B) in this form. But if w e w ere to adopt the
broadest possible interpretation of these cases—that a nation has an “interest” in property, within the
meaning of § 203(a)(1)(B), w henever transactions in that property can have an im portant effect on its
econom y —we would, allow the President to regulate w holly domestic transactions, in violation of
C ongress’ clear intentions; foreign countries' econom ies may be substantially affected by w holly
dom estic American transactions. We see no other principled interpretation o f the term “foreign . . .
interest” in § 203(a)(1)(B) that would 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) au­
thority to regulate transactions in foreign exchange would be invoked
only where the President’s concern was with the use of foreign ex­
change in the transaction. Congress probably did not intend the Presi­
dent 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 Presi­
dent 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 trans­
actions involving” property in which there is a foreign interest. By
within a foreign nation but w holly ow ned by an A m erican corporation, at least when the purpose of
the regulation is not to disrupt the foreign nation’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, trans­
portation, 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 prob­
ably free additional supplies for our allies to purchase. The legal objec­
tions 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—con­
ducts 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 While this finding did not, of course, anticipate the Iranian oil cutoff w ith w hich w e are now
concerned, it did emphasize the risks of depending on oil from countries w ith w hich the United States
m ight have “political disagreement[s]" and the unreliability o f oil supplies from those nations. It even
mentioned the Iranian revolutionary regim e’s reductions in oil shipments as an example. See 44 Fed.
Reg. 18,818, 18,820 (1979). M oreover, in 1975 the A ttorney G eneral issued an opinion that a finding
made in 1959 continued to authorize im port adjustm ents by the President. He said that no new finding
was necessary in 1975, even though there had been a "drastic change from the factual situation w hich
provided the basis of 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 irector o f the Office o f Em ergency
Planning to the Secretary of the Treasury, see Pub. L. No. 93-618, § 127(d), 88 Stat. 1993 (1975). 43
Op. A tt’y Gen. No. 3 at p. 2 (1975). T he A ttorney G eneral reasoned that the President’s § 232(b)
pow er to take “such action . . . as he deems necessary’’ to adjust im ports is authority to take not just
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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’ inten­
tions 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 domes­
tic industries or, more generally, to deal with the domestic conse­
quences 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 Ameri­
can 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 domes­
tic effects of imports, it did not explicitly limit the President to consid­
ering only domestic effects. Instead, it used the term “national secu­
rity,” 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 measure but continuing course of action, “a continuing process of m onitoring and modifying
the im port restrictions, as their limitations becom e apparent and their effects changed.” Id. Courts
enforced restrictions w hich the President imposed as late as 1968, even though the restrictions w ere
based on the 1959 findings; the courts did not seem to doubt that those findings adequately supported
the President’s action. See, e.g., G ulf Oil Corp. v. Hickel, 435 F.2d 440 (D.C. Cir. 1970).
T he A ttorney G eneral’s opinion did not com m ent on the transfer of the function. It seems
reasonable to conclude, how ever, that if the findings can survive the passage o f 16 years and a ‘‘drastic
change" in circum stances, they can also survive a transfer of functions within an administration.
Indeed, earlier this year the President imposed a G asoline Conservation Fee, see Pres. Proc. No. 4744,
45 Fed. Reg. 22,864 (1980), rescinded by Pres. Proc. No. 4766, 45 Fed. Reg. 41,899 (1980), partly on
the authority of § 232(b) and the M arch, 1979, findings o f the Secretary o f the Treasury. F or these
reasons, w e believe that the M arch, 1979, findings will support an im port quota imposed by the
President 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 Secretary o f Com m erce
make a new investigation and enter the finding appropriate to an im port quota designed to respond to
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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 produc­
ing, 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 Pro­
gram, and § 251(a) would not grant the President authority to order
redistributions of. oil.6 For this reason, the International Energy Pro­
gram 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 of the Agreem ent provides that:
T he G overning Board may at any time decide by unanimity to activate any appropri­
ate em ergency measures not provided for in this A greem ent, if the situation so
requires.
T he G overning Board is com posed of members from each participating country. A rticle 50, § 1.
M easures adopted by the Board in this way may impose on the United States additional “obligations'*
w ithin the meaning of § 251(a) o f the Energy Policy and C onservation A ct, although it might be
argued that since the United States can veto such a measure, it cannot be said to impose an obligation.
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