The continuing BP oil spill disaster has grabbed headlines around the world for weeks, but estimates of its economic impacts are only beginning to be assessed, and many will stretch out for years to come. The oil disaster is already being labeled the worst in American history, and with hurricane season fast approaching in the Gulf, the additional moniker of “Oilzilla” has also been coined to communicate its potentially monstrous effects.
BP oil leak – Obama and BP
The Exxon-Valdez polluted 1,300 miles of coastline with 11 million gallons of oil. In the first year, the state of Alaska lost over $5 billion in diverse economic activity. Eventually, Exxon was forced to pay $3.5 billion in clean-up costs and fines. Within the first week, local wildlife was decimated, a loss valued at more than $218 million.
However, the Exxon-Valdez proved that the first year of losses is only the tip of the “oil-berg”. Twenty years later, some Alaskan species, primarily the herring, have yet to recover, and the commercial fishing industry continues to struggle. Thousands of gallons of oil still remain trapped in the sand and will require many decades to degrade.
The BP oil leak has already defiled the Gulf with over 30 million gallons of crude, nearly three times the Exxon-Valdez amount, and with no end in sight. The economic devastation to Louisiana has been immediate. It has contaminated 100 miles of coastline, polluted coastal wetlands, and threatens national wildlife refuges, the home for many endangered species. The state of Louisiana was also forced to shut down fishing in the area. Commercial fisherman that harvest nearly one billion pounds of fish and 3.2 million recreational fishermen were shut down in the process.
The economic carnage does not stop there. The Gulf States, from Mississippi through Florida, have suffered from both curtailed fishing operations to severely reduced tourism when most were counting on a favorable travel season to overcome the recession. The Gulf accounts for over 70% of the nation’s shrimp output, according to federal statistics. Due to the spill, roughly 22% of the Gulf is closed to seafood harvesting, thus idling oyster and shrimp boats that operate within the 55,000 square miles of sea now off-limits. Restaurants as far away as New York are already feeling the rise in fresh seafood prices. However, large grocery chains buy their shellfish from as far away as Thailand and Indonesia, but demand for those products should increase very soon.
While seafood prices are rising, tourism is unfortunately falling. Occupancy rates are down 90% in some regions along the Florida panhandle, and the threat of a dismal summer travel season will only increase when higher gasoline prices at the pump curtail family travel plans. While financial pundits have focused lately on Euro to Dollar charts, they soon will be decrying the impacts of rising transportation costs, which affect nearly everything from the food you buy to all retail products in general.
Major concerns do not stop with inflation. Of larger concern to Louisiana are the lost jobs from the oil industry if their operations are curtailed or if they decide to move their rigs to other locales. $70 billion alone has been assigned to that impact, far greater than the $15 billion figure tossed around for current economic damages and clean-up expenses. The Gulf shipping industry is also threatened. If the Gulf becomes a barrier to commerce, the tax and revenue impacts on local port authorities and import/export businesses will be devastating.
And what about BP Oil? The company is the largest oil producer in the United States and fifth in the world, but its stock has plummeted 34% since the explosion in April, destroying $96 billion in wealth in the process. BP PLC has thus become a likely takeover candidate by another oil industry giant.
Although investors may be searching the Indonesian stock exchange for growth opportunities, Gulf fishermen are pondering another long-term issue. Fish spawn in deep water, and future generations of fish are already being destroyed by current contamination. Glen Brooks, president of the Gulf Fishermen’s Association, recently opined, “All that larvae is up in that water. Those are fish we’d probably be catching six to 10 years from now.”