Over the weekend, the oil spill at a British Petroleum rig in the Gulf Coast continued, and Secretary of the Interior Ken Salazar said that it may take up to three months before the leak is plugged. “It potentially is very catastrophic. And I think we have to prepare for the worst,” Salazar said.
States along the coast are bracing not only for the cleanup efforts needed when the oil begins to wash ashore but also for the economic impact of the spill. Over the weekend, David Kotok, of the market-analysis firm Cumberland Advisers, penned an exceedingly gloomy missive on the situation. “Three scenarios lie ahead. They rank as bad, worse, and ugliest (the latter being catastrophic and unprecedented). There is no ‘good’ here” he wrote:
This will be a financial calamity for many firms, not just BP and its partners and service providers. Their liabilities are immense and must not be underestimated. The first estimate of $12.5 billion is only a starter. Thousands of small and independent businesses as well as larger public companies in tourism are hurt here. This is not just about the source of half the nation’s shrimp. That is already a casualty. It’s also about the bank loans for the $200,000 shrimp boat and the house the boat owner and/or his employees live in and the fact that this shock piles on a fragile financial system that is trying to recover from a three-year financial crisis. [...]
Federal deficit spending will certainly rise by tens, and maybe hundreds, of billions as emergency appropriations are directed at larger and larger efforts to clean up this mess. At the same time, federal and state revenues tied to Gulf-region businesses will fall.
For comparison’s sake, the Exxon Valdez oil spill exceeded $7 billion.
Louisiana, where oil has already started coming ashore, is the largest seafood producer in the continental United States, with annual sales of almost $2 billion. The federal government has banned commercial fishing for at least 10 days off the coasts of four states, and already, affected fisherman are seeking damages in the millions from BP. Forty percent of the fish harvested in the lower 48 states comes from the Gulf of Mexico. Louisiana also has a recreational fishing industry that pulls in revenues of about $1 billion per year, according to state figures.
According to the Environmental Protection Agency, the Gulf of Mexico supports a $20 billion tourist industry, which will also be impacted by the spill. “I have reports…that travelers are canceling plans for May and June reservations for fear oil will be on the beach,” said John Hairston, chairman of the Gulf Coast Business Council’s tourism committee.
President Barack Obama yesterday emphasized that BP will ultimately be held responsible for the cost of the cleanup, including for the cost of federal resources that are deployed. “Let me be clear: BP is responsible for this leak. BP will be paying the bill,” Obama said. BP made $163 billion in profits from 2001-2009. It made $5.6 billion in the first quarter of this year alone.
Read more about the economic costs of the oil disaster in today’s Progress Report.