The Connally Hot Oil Act of 1935 was enacted in the wake of the Supreme Court's decision to strike down Section 9 (c) of the National Industrial Recovery Act (NIRA) in Panama Refining Co. v. Ryan, which gave the President authority "to prohibit the transportation in interstate and foreign commerce of petroleum ... produced or withdrawn from storage in excess of the amount permitted ... by any State law". It revived the provisions of Section 9 (c) of the NIRA and added procedural safeguards, which the Supreme Court argued was constitutional. Ostensibly enacted to protect the industry from "contraband oil", it was mainly a way of cartelizing the industry to stabilize falling prices. The new law reestablished the NIRA's original provision that violators would receive a maximum jail sentence of six months, but also increased The maximum fine penalty from $1,000-which was enacted in the NIRA- to $2,000. Though the legislation was intended to expire on June 16, 1937, it was maintained afterwards as a permanent law. There was some debate as to the law's effects on the transport of other fuels such as coal and timber, and many independent oil producers vehemently opposed the government regulations. However, in 1937 four federal courts upheld the Connally Act, which was later administered by the Federal Petroleum Board, a part of the Department of the Interior, which was also created by the law as well.
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