Saturday, June 5, 2010

Ban on deep-water drilling: the double-edged sword

BP’s spill in the Gulf of Mexico is undoubtedly the largest and the worst spill in U.S. history in terms of economic costs. There are many repercussions from the disaster, one of which is Obama’s administration’s decision to put a temporary ban on deep-water drilling. Now, many people believe that this is the right thing to do, and possibly you are one of them. If that is the case, have you thought about the possible negative impact that such decision will have on the economy?

With the moratorium on deep-water drilling that was enacted on May 27, about 33 rigs were forced to shut down operation. These rigs provide jobs for thousands of employees, who now are left without a source of income for a long time to come. The loss of wages can account for millions of dollars which will ultimately have a devastating effect on the local economy which has already suffered from the recession. Furthermore, the ban has already affected most of the major players in the industry including Exxon Mobil, Shell and Chevron. As a result, it will lead to worsening of suppliers' relations partly due to apportionment litigations and customers’ disappointment. That will undoubtedly be reflected on the earnings of these companies and in the end, the shareholders will be the one who will bear the damage.

Nevertheless, if regulations are not revised, another BP disaster may happen and that would cause even greater losses for our society. Should government lift the band early or should they keep their stand?

Luong Hai
Summer Analyst
Analyze Capital LLC
Twitter: AnalyzeCapital


  1. Do you think there will be long-term moral implications or disdain against dominate energy conglomerates?

    I see the BP spill as a unique Black Swan the could turn out positively. The oil spill will give Obama an opportunity to tackle energy policy overall: Off-shore drilling, cap and trade, alternative energy, nuclear, ethanol subsidies.

  2. I think that there will be definitely vexation toward the oil companies in the years to come. I also believe that there are moral implications from the disasters, however, I am not very positive that it will metamorphize into something substantial such as a change in the way we consume oil or energy in the short term because the energy giants still have too much influence on the individuals who represent the people on the tribune.

    I like how yo put BP's spill as a "Black Swan." I also thing that if Obama plays his cards well, he will be able to bring very important changes. Stricter regulation on the oil industry will give a good push for developing alternative energy sources that will have less negative effect on the environment.


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