April 30, 2010

Oil Slick Economics

The recent BP failure in the Gulf of Mexico is sure to inflict an exorbitant cost on the Gulf Coast region. Some speculate that the damage to Louisiana and the outlying area will be worse than both Exxon-Valdez and Katrina. Recovery efforts are doing their part to contain and clean what they can, but the slow federal response is ensuring that this is a losing battle. 5,000 barrels of crude oil are spilling out each day.

The immediate economic cost is high but relatively measurable by most counts. What happens next, however, is a different story. Accordingly, Louisiana is the number one producer of oil domestically, and the number 2 producer of natural gas. The impact there will be drastic for sure, but worse yet is that Louisiana is the 2nd highest exporter of seafood in the country. The shrimp season has essentially been ended before it even began. The economic impact locally and nationally will be huge, no doubt.

The lack of a shrimp and fishing season for the bulk of the region means thousands and thousands of lost jobs, and less food for the country. Further, it could be analyzed through the contextual lens of hurting the re-opening of gulf oil exploration that was just allowed by President Obama only a month ago. The allowance of such resource utilization would no doubt yield positive economic change for the country, but with the onset of this BP oil slick the further exploration of the region will likely come to a halt... Further increasing the dependence foreign fuels.

What we are seeing here is the negative costs associated with environmental destruction caused by the BP oil spill. The effects of which will be greatly harmful to not just the environment but the economy. A huge market for seafood has essentially been wiped out for now, and the damage to the oil/natural gas will take years to assess.

For many it may already be too late as the oil has begun reaching Louisiana... but urging a rapid response, as was expected of former president George W. Bush after Katrina, could at the least minimize the scale of the potential impact. The LA National Guard has been mobilized, the Air Force deployed, and BP has already begun hiring paid positions to help in the cleanup process. Perhaps we are only seeing the result of years of textbook planning for such emergencies. Maybe it's just me, but maybe this feels a little under-appreciated.

The federal government, while in a sort responding, needs to do so with a much greater sense of urgency. There are more than just votes to be lost because of this (though there are plenty of those to be lost as well). The cleanup crewe has already amassed 20,000 gallons of oil... but at the current rate of spillage it just isn't enough. This is an emergency... Just because it does not LOOK like Katrina did does not make it any less severe. The results could very well be much worse than that of Katrina, and perhaps much longer lasting and further reaching. More people are needed in the cleanup, and the federal government needs to assist in the clean up in much more than simply political jargon.

The devastation to nature should but serve as a precursor to the impact this oil slick will have on the U.S. currency.

SOURCES: CNBC: Oil Spill Impact Could Be Worse Than Valdez and Katrina,
AP: Choppy seas frustrate effort to contain oil spill,
Wall Street Journal: Oil Slick Threatens U.S. Gulf Coast

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