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Barack Obama's Oil Spill Speech May Help Bankrupt BP

By Boyce Watkins, PhD on Jun 16th 2010 9:15AM
Filed under: Dr. Boyce Money, News, The Economy

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Last night, President Obama spoke clearly and firmly about how he and his administration will make sure that BP pays "for the impact this spill has had on the region." The speech was strong and necessary, since the Obama Administration is consistently at risk of being hammered by the political fallout from the oil spill.

Obama's oil spill speech was yet another chance for his administration to show that it is strong in its efforts to correct the problems created by the spill and to also show that it is disconnected from BP. The speech was further bad news for BP, the once powerful oil giant, since it is further confirmation that they will face unpredictable amounts of economic damage as a result of this crisis.


The problem for BP is not just the magnitude of the cost of the spill, but the fact that the amount is unpredictable. Before the spill took place, there were liability limits in place, in part due to the Oil Pollution Act of 1990, as well as other theoretical scenarios that had been drawn out to predict the legal hurdles and other challenges of this kind of spill. However, many of these theoretical scenarios had never been tested: It turns out that BP underestimated the probability of a spill, overestimated their ability to respond, underestimated the magnitude of the PR damage resulting from the oil spill, and underestimated the number of politicians who would run for the door when the company was under fire. BP was never prepared for any of this.

Before the spill began, BP earned over $40 million dollars PER DAY in profit. The company was making money hand over fist, and I never would have predicted that an event like this could threaten to bankrupt the company. But now that the stock has dropped by 48 percent and politicians are starting to criminalize the company's managers, I expect that BP may be financially destroyed as the result of this crisis. When a company's stock is highly valued on the market, huge costs will certainly impact the company, but it can retain its ultimate value. But the only thing worse than debilitating costs are huge damages that are almost entirely unpredictable. Given that it is nearly impossible to return the Gulf region to what it was before the spill, the reality is that the federal government could find justification for almost any penalty it imposes on BP, even up to a trillion dollars.

President Obama's oil spill speech is the start of a very long, draining downhill process for BP. Also, the way the entire oil industry does business will change as a result of what's happening right now in Washington. Even worse, though, is the fact that the people of the Gulf region will never get their environmental health back, which is the worst tragedy of all. This is an economic, political and environmental mess -- from which BP will likely also never recover.


Dr. Boyce Watkins is the founder of the Your Black World Coalition and a Scholarship in Action Resident of the Institute for Black Public Policy. To have Dr. Boyce commentary delivered to your email, please click here.

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