The oil spill is the Gulf is an environmental disaster. The leak needs to be stopped, measures taken to reduce damage to the environment to a minimum, repair the damage as much as possible and restitution needs to made to the people affected. I don’t think anyone would argue with this and, indeed, BP has publicly promised to do so. How this will be done is not something I can comment on but I think the political and economic issues need exploring.
A natural question to ask is “Can BP afford to make amends?”. A quick look at the published accounts (and a few broker sources) would indicate that the company has more than enough capital to do so. The following points should make this clear:
a) The current estimated costs of the accident are currently standing at circa $1.25 billion
b) BP is liable for around $813 billion because the lease partners are liable for 35% of the costs. The partners are Anadarko Petroleum (USA-owned) and Mitsui (Japan)
c) BP’s operating capital in the US currently stands at around $56 billion pa. This represents around 35% of BP’s global operating capital.
d) BP’s gearing (debt) is around $25 billion which translates to a gearing ratio of 19%
e) The company has got strong growth potential
f) BP’s company bonds are rated AA
g) It is highly likely that the price of crude will rise in the short-term increasing BP’s cash-flow and profits.
It looks like BP can make good their promises. So, why has Barack Obama started speaking like a desperado from a bad Western? Phrases like “I’m going to have my boot on their neck” and “I’m going to ride their ass” are not exactly presidential language. I gather that today he compared the leak to a terrorist act. He keeps stressing British Petroleum even though that name has not been used for many years. The comments and intemperate language used has had a direct, and negative, impact on BP’s share price. Over $100 billion has been knocked off the share price. This is not good for the UK economy, the USA economy or the global economy because:
1.) Around £1 in £7 of every UK pensions comes from BP-related earnings e.g capital gains in share price and dividends
2.) The USA pension funds have significant exposure as the largest BP shareholder is US-owned BlackRock although there are many other USA investors as BP is floated on a number of bourses including the NYSE.
3.) Governments of other countries are BP investors e.g Norway, China, Kuwait
4.) BP’s value is not just in share price and dividends. It offers corporate bonds and a number of more complex financial instruments like, say, options.
Obama has made other anti-British statements which are damaging to UK interests. For instance he backs Argentina’s claim over the Falkland Islands. There are other examples. Could it be he harbours a grudge against the UK because of his family’s treatment in Kenya during the Mau-Mau uprising? I don’t think so. I think the answer is more prosaic.
Obama came to power on the promise of change. Better medical care for the American poor, reducing the rich-poor divide, social justice and so on. The reality is that he has been ineffectual in achieving these aims as and will probably lose a significant proportion of votes during the mid-term elections while presiding over a country which is in debt to the tune of trillions of dollars provided by Chinese and SE Asia investors, , a fictitious growth financed by those trillions of debt, a collapsing industrial base (e.g. Chevrolet, Ford GM), a structural deficit of around 9.5% of GDP while thousands of Americans are still in the sub-prime trap. We should not forget that Obama was President before the sub-prime scandal started or that the USA were the principal cause of the economic horror story we are all now faced with. From Barack’s perspective what better than a bit of Xenophobic rhetoric to distract the voters? Especially if the target is the old Colonial Master?
It would seem that Obama might be listening to reason given his press release after yesterday’s telephone conversation with Dave the Prime Minister. I hope Dave told him in very clear terms that the UK has been a friend and ally to the USA for many years. We supported them in the UN, joined in both Gulf wars and Afghanistan and that the quid pro quo is the USA supports the UK. Also, if the Brit-bashing goes on the UK will cease to regard America as a friend and will take appropriate steps. Options the UK could do might include repealing the current extradition treaty, reducing the UK commitment in Afghanistan to the level of other NATO armies, strengthening the garrisons in the Falklands by taking troops from Afghanistan and so on. The message should be made explicit that we will not tolerate anti-UK rants and, if necessary, will increase our trade and political ties with Europe and the Commonwealth. The final sanction being the UK will leave NATO and remove American Military installations from our territories.
I also hope that the board of BP will not bow to Obama’s pressure to cut the dividend and tell the President that he has no legal or moral right to request such an action. As President of the most capitalist nation on earth he should know this. They should also re-iterate their promise to repair the damage done (as much as is humanly possible) and give the necessary compensation. They should also make it clear that they will fight in the American Courts if retrospective penalties are rushed through the American Legal system as this would be unconstitutional.
We learnt the hard way in 1939 that appeasement is fruitless. The only way to deal with a bully is to fight back.