Enough with the BP Bashing

U.S. politicians are more than willing to spout populist rhetoric when it comes to the oil spill in the Gulf of Mexico, but at what cost?

British Prime Minister David Cameron and members of his cabinet have started calling upon U.S. federal officials, and President Obama in particular, to moderate their tone concerning British Petroleum. They have good reason to do so: the company is one of the United Kingdom’s largest taxpayers and millions of its pensioners indirectly rely upon the dividends issued by BP for their monthly benefits.

But moderation is a commodity in short supply in Washington these days. Last week the president proudly proclaimed his desire to find an “ass to kick” for the ongoing environmental disaster in the Gulf of Mexico. He even expressed his apparent desire to sack BP’s CEO, Tony Hayward, if only he had the chance. Obama may be unique among U.S. presidents in that he has already fired the boss of one of the world’s largest companies: Rick Wagoner of General Motors. The difference in this case, however, is that the United States is not an investor in BP.

The Pew Foundation reports that, for the week ended June 6, more than one third of all newspaper coverage and almost two thirds of all cable news coverage concerned the Deep Water Horizon catastrophe. It is no small wonder that U.S. politicians are so willing to engage in populist rhetoric. But at what cost?

Secretary of the Interior Ken Salazar announced that BP should pay the salaries of any labourers unable to work because of the six-month moratorium his department has imposed upon all deep-water drilling in the Gulf. White House Press Secretary Robert Gibbs has tried to explain how this government-mandated ban “is a result of the disaster,” rather than the by-product of precautionary regulatory policy.

If what happened to the Deep Water Horizon was a systemic problem that threatens other wells, a moratorium would seem appropriate. But one couldn’t blame BP for a problem from which all wells suffered. On the other hand, if this disaster was unique to BP, it makes no sense to impose a blanket ban.

Administration officials justified the six-month moratorium, issued two weeks ago, on the basis of a report that allegedly had the backing of seven experts nominated by the National Academy of Engineering. As it turned out, none of these experts actually reviewed a draft of the report with the six-month moratorium included. In a joint statement issued only days after the moratorium announcement, they explained that, while they were in broad agreement with the terms of the report, they believed a blanket moratorium “… is not the answer. It will not measurably reduce risk further and it will have a lasting impact on the nation’s economy which may be greater than that of the oil spill.”

Legislation is currently before Congress that would retroactively impose liability on BP to pay billions of dollars more than required under existing rules. These rules were originally enacted to encourage development by providing companies with certainty about the potential costs of a well blowout just like the one that happened. It may have been an unwise policy to subsidize such risk, but that was the promise that was made to BP and other companies when their investments were made. That BP has nonetheless indicated a willingness to exceed the legislative cap many times over, and to establish funds to pay out the thousands of damages claims that will be filed against it arising from the disaster makes good business sense. There is no reason to believe that BP executives had to be browbeaten into taking this position.

Now the Obama administration has demanded that BP cancel its quarterly dividend payment, with each new threat cutting the value of the company precipitously. If U.S. investors were at the business end of this sort of treatment in a developing economy, is there really any doubt that the U.S. government would remind the host state of its obligations under international law? Would it not chastise local politicians for indulging in reckless populist rhetoric?

What is sauce for the goose should be sauce for the gander.