Fouling up more than just the environment

The now almost two-month long and ongoing BP oil spill disaster in the Gulf of Mexico is turning out to be much more than merely an environmental disaster. It is messing up diplomatic relationships between Britain and the United States, pitting the interests of ordinary American citizens and businesses against those of pensioners in the UK, and causing jitters in British financial markets. In the meantime, experts are warning that it may become Christmas before the gushing oil well is capped.

Amid what is seen as increasing anti-British rhetoric among certain American politicians and media, US President Barack Obama this week will give an address to the American nation on the situation after a two-day trip to the Gulf region. The trip on Monday was his fourth to the Gulf, visiting Florida, Mississippi and Alabama and, for the first time since the oil rig exploded and sank, making it an overnight trip.

While American States along the Gulf of Mexico are making increasing demands for financial compensation from BP Plc as the massive oil spill continues to spread along their shorelines - slamming the tourism and fishing industries - President Obama was expected to announce plans requiring BP to put billions into an escrow account to be used for compensating victims. "We want to make sure that money is escrowed for the legitimate claims," said White House senior adviser, David Axelrod.

Florida attorney-general Bill McCollum sent a letter to BP last week Thursday, requesting that the company deposit $2.5 billion into an escrow account to cover potential losses, reported the Wall Street Journal.

The spreading spill likely represents "a staggering blow" to the state's economy and already has "seriously" hurt local tourism and fishing, McCollum wrote.

To date, the spill has closed as much as 37% of the Gulf of Mexico to fishing, cut offshore drilling in the nation by half, polluted at least 225 kilometres of shoreline from Louisiana to Florida, and cost BP more than $1.43bn.

In the interim, BP's share price has plummeted, losing £55bn of its market value, and the company's entire outlook is very bleak, which affects most of us. Every British insurance company, building society and pension fund has large holdings of BP shares in its portfolio.

“If you have a pension, at present or in prospect, your income falls with every sour word Obama speaks. It's a fine way for a friend to behave, if indeed we should regard the president as a friend,” one UK commentator wrote over the weekend.

With quarterly dividend payments by BP due next week, the company is under pressure from certain US lawmakers to suspend its dividend - currently valued at about $10.5bn annually - until the Gulf crisis is resolved and damages are paid to individuals and businesses in the region.

Senior British officials, however, have attempted to bolster BP, warning about the economic impact of destabilising a company that is a staple holding of British pension funds. Reports claim that the company accounts for between 12% and 14% of all dividends paid by British companies.

British Prime Minister David Cameron is said to have issued a veiled warning to President Obama not to undermine BP's "economic importance" to Britain and the US, as the two men held crisis talks over the oil spill disaster. At the end of a tense week in transatlantic relations, the prime minister and US president tried to calm tensions in a 30-minute phone call this last Saturday between the Oval Office and Chequers.

It emerged that senior US politicians are pushing Obama to seek $100bn in damages against BP for the disaster – which would almost certainly see the company go bankrupt.

Concerns about BP's financial situation and a potential takeover bid reached fever pitch last Thursday when BP shares hit their lowest level since 1997 at one point in London, after crashing to a 14-year low overnight on Wednesday in New York.

As the war of words in the US intensified, British business leaders leapt to BP's defence. Having already had its credit rating slashed from AA-plus to AA by Fitch on 3 June, the cost of insuring BP against a potential debt default reached a level at one point on Thursday which was as if it had junk status.

There seem to be very few angels in this sorry saga. The extent to which BP has been cutting corners and courting disaster is illustrated by the fact that over the past three years, it has been cited by American authorities no less than 760 times for “egregious, willful” safety violations.

In its original application for the well, BP told regulators it was prepared for a worst-case oil spill of 250 000 barrels a day, but the practice has proved that claim had no basis in reality.

On the American side of the equation, it has now also emerged that US government regulators missed one-third of their required inspections of the Deepwater Horizon in the months leading up to the disaster.

In may be part of the tense political/diplomatic game being played at the moment.

The Times also reported over the weekend that a high-level British offer of help to clean up the Gulf of Mexico oil spill was rebuffed by America shortly after the accident. A few days after the BP-leased rig sank on 22 April, the British Cabinet Office made a direct offer to the US State Department to airlift half of Britain’s 1 200-tonne stockpile of chemical dispersants.

According to the report, UK officials said the US claimed that the chemicals held in Britain did not have the correct paperwork, but a spokeswoman said: “We are not aware of any problems with licensing. I cannot say why they have not accepted the offer. That is a question for the US State Department.”