The Dangers of “Kicking Ass”

The United States is playing a dangerous game with the BP Oil Spill.

Unlike others, at least President Obama has refrained from referring to BP by its old name of “British Petroleum” (which it hasn’t used since its merger with Amoco 12 years ago). Nevertheless, while the rhetoric may seem like a good idea while the mid-terms are coming up, in the long run US politicians may come to regret their behaviour.

It should go without saying that BP deserve a degree of opprobrium. There are serious concerns over their safety record, and the effects of the oil spill are catastrophic. BP will incur serious liabilities for the damage inflicted. To their credit, they have so far not attempted to avoid these.

The first is that the desire to “kick some ass” is not in the interest of anyone other than a politician in search of a soundbite. Satisfying though it may be in some quarters to punish BP for their accident, this will hurt those most badly affected by the spill. An irony of compensation is that when you have been mistreated by someone, it becomes in your interest that they are as financially successful as possible. This is because they need enough money to be able to pay you compensation: if they are in financial difficulties, you risk not receiving the full amount you deserve. The courts are aware of this conundrum, and avoid imposing what is termed “crushing liability” for this reason. Inflicting further damage on BP’s balance sheet and share price is unnecessary, irresponsible and will only hurt those worst affected by the spill.

I say “further” because BP’s value is not just being affected by the negative publicity (rightly deserved) coming from the spill, but the positioning from Washington. In particular, BP’s share price is falling because of the threat of the US injuncting BP paying dividends to its shareholders. This is entirely unnecessary: BP currently has enough to meet its obligations to both its shareholders and the victims of the spill. The effect is only to damage the overall financial health of the company, which isn’t in anyone’s real interest.

More damaging to the US though are the long-term political effects. The rhetoric coming from Washington reeks of protectionism; were such measures attempted by another EU state, this would end up in court. The tit-for-tat retaliations are already beginning, and the US has far more to lose from this than the UK. While BP has agreed to halt its dividend, hurting UK pensioners, the quid pro quo has been that it will not pay the wages of those laid off by the moratorium on deep-sea drilling. The anger at that will be directed at the White House, not BP.

In particular, the US is vulnerable to being held to the same standard as BP. The extent could be very damaging indeed. American banks could be held liable for causing contagion that spread to, and severely damaged, the UK economy. US companies that have polluted the here, or tobacco companies that have caused lung cancer in the UK could even face liability. American efforts to protect Warren Anderson, the then-chairman of Union Carbide from extradition to India over the Bhopal disaster are particularly galling when compared to their treatment of Tony Hayward. A very reasonable request that American firms be held to the same standards as BP could be damaging politically and economically.

BP has caused damage, they are at fault, and they must pay out. But kicking them benefits nobody.