Why the Oil Spill isn’t BP’s Fault

There’s nothing the mainstream press enjoys more than an environmental disaster.

And paradoxically, there’s nothing the green lobby gets a bigger kick from than an environmental disaster.

But the real disaster isn’t the oil spill it’s the fact that eleven people were killed when the oil rig exploded in late April.

Not that you hear too much about that.

You see, as terrible as it may seem, and as incomprehensible as the amount of oil leaking into the Gulf of Mexico is – up to 162,000 barrels equivalent per day – the long term effect of the oil spill is likely to be, well, hardly noticeable.

Sure, you’ve seen the protests about the impact on wildlife and oil washing up on the beaches. And sure, there have been plenty of references to the Exxon Valdez in 1989, which according to our friends at Wikipedia resulted in the deaths of “100,000 to as many as 250,000 seabirds.”

We’ll agree, that’s a lot of birds. Although, when you put it in perspective, even the top-of-the-range number would have only resulted in a decline of the world bird population by 0.00025%.

And even the population of the formerly endangered bald eagle was barely dinted by the Exxon Valdez. According to the same Wikipedia reference, 247 bald eagles died following the incident.

If we assume they died as a direct result of the Exxon Valdez oil spill it still only reduced the total bald eagle population of the Alaska/British Columbia region by about 0.35%, given that population numbers in that region in the early 1990s were forecast to be between 60,000 and 80,000 individual birds.

In other words would would have taken a disaster 243 times larger than the Exxon Valdez to wipe out the entire bald eagle population.

So the miniscule impact on wildlife following that event hardly warrants the use of the term “ecological disaster.”

Ecological annoyance would probably be more accurate.

Look, I’m not saying that you can just go around killing things and then say, “Oh, but it’s only 0.0000000001% of the total population, it doesn’t matter.” What I am saying is this…

First of all, there’s a tendency by the mainstream media to fall for the environmental propaganda too easily. All they need is a couple of videos of a budgie covered in oil and a distressed rock drenched in the same for it to make front page news.

But secondly, and perhaps more importantly, whenever such a “disaster” as this happens it’s invariably the case that the blame is apportioned to the wrong person or organisation.

As you’ll have noticed, the evildoer tag has been attached to BP, with the CEO Tony Hayward being cast as the Dick Dastardly of the corporate world.

But as is usually the case, the real cause of the problem has been overlooked. You see, it’s not BP that is ultimately to blame, even though the oil has come from their oil rig. And it’s not entirely the fault of the legislation passed in the US during the 1980s that limited the liability of oil companies to just USD$75 million if a spill occurred.

No, the ultimate cause of the problem is something as basic as a lack of private property rights.

Yep, that’s right, a lack of private property rights over gulfs, oceans and shorelines is the direct and ultimate cause of the BP oil “disaster” and the Exxon Valdez oil “disaster”, and any other oil disaster you can think of.

A few weeks ago Markets and Money editor Dan Denning referred to a term known as tragedy of the commons.

The gist of the argument is that property that is either owned communally or by no-one in particular is cared for less than property that is freely owned by a private individual or organisation.

You can see that in almost every instance in society. In most cases where property is privately owned and where the owner values the property, it is better taken care of than property that is publicly owned.

Which is exactly the reason why the oil spill in the Gulf of Mexico occurred.

A lack of private property rights over seas and oceans naturally means that individuals and organisations are less careful about what they do in it or to it.

As an aside, take for example the case of the young American lass who was trying to sail around the world and had to be rescued in the Indian Ocean at a cost of $300,000 to the Australian taxpayer.

Do you really think that if the oceans were privately owned the owner would allow a 16 year old to sail through unassisted, without paying a fee to do so, without insurance should an accident occur, or without paying the private owner an insurance fee in the event of a rescue being needed? Something not too dissimilar to the fees you pay to the RACV or NRMA I suppose!

Anyway, when nobody owns something then there’s no recourse for compensation should you do any harm to it. Even if it’s publicly owned property the quest for compensation will be less rigorous than if it’s privately owned property.

Simply because of the lack of a profit motive and the lack of direct ownership. If oil washes ashore at a theme park located on a private beach and a public beach, odds are that the private owner will act faster to clear the mess as it could have an impact on revenues and profits.

But the public beach would have less of an incentive. The clean up process would probably need approval from committees or boards. It would need to be the “right” kind of cleaning process, not just any old process, and so on. The bureaucrats would be in their element. Looking busy doing nothing.

Then there’s the matter of private ownership of the oceans. It’s not such a crazy idea you know. It’s no crazier than private ownership of land.

Of course we’ll agree that it’s harder to erect a fence in the middle of the Atlantic Ocean, but that’s the beauty of technology that can simply and easily record boundaries electronically on maps. Just as national waters are recorded on maps today.

Consider the situation in the Gulf of Mexico right now if specific areas of the gulf were owned by the private sector. As an owner of a particular area you’d be keen to ensure that those using it took good care of it.

Not only because it would make it more attractive for others to do business there – eg. Other oil drillers or fishermen or tourist operators – but also because of the consequences of inappropriate actions by firms in your property could have on adjacent sea and land properties.

We’ve got no idea whether BP has been negligent with their drilling operations or not. But what we do know is, that if BP was drilling in a privately owned Gulf of Mexico, the private owner would want to be darn sure that BP was behaving itself.

The private owner would want to receive a fee from BP for the use of that particular sea area. Doubtless the owner would also want to make sure that BP had adequate insurance should anything happen.

The private owner may also provide addition services to those using it’s sea property – such as oil spill services.

After all, an oil spill by one driller would have a major impact on other companies doing business in that area of private sea – other drillers, fishermen, shipping firms, etc.

And imagine the consequence of the oil drifting into adjacent sea areas.

For the private sea owner, if one business causes other businesses to stop using that area of the sea then that’s going to be bad news for the owner.

But as another aside, what about other issues, such as piracy on the high seas? If you own a section of the ocean and you’re able to charge ships to use it, you’d be able to attract more traffic if you can demonstrate how secure your section of the ocean is. That ships can pass freely without the fear of ambush.

Anyway, getting back to the oil spill. While BP is being cast as the villain, the truth is that BP isn’t as villainous as the mainstream media, politicians and special interest groups claim.

I mean, does anyone seriously believe that BP intentionally caused the oil rig to explode, killing eleven men and releasing millions of barrels of oil into the Gulf of Mexico.

Yet listen to the mainstream knuckleheads and you’d think BP couldn’t give a stuff that up to USD$11.3 million worth of oil is leaking into the Gulf each day. Could it really be true that BP doesn’t care that it’s losing so much money in potential profits?

No, of course it isn’t. BP would rather have the oil flow into a tanker rather than into the sea.

However, because of a lack of private property rights there’s no private owner putting pressure on BP to clean the mess up. In addition, there’s no private owner who could have invested in equipment or chemicals to ensure the problem didn’t spread into adjacent privately owned areas.

Or, there was no private owner to stipulate that BP should have an emergency plan in place should the worst occur.

Instead you’ve got US president Obama calling the oil spill “the worst environmental disaster America has ever faced.” And claiming that he’s going to “kick ass” – we assume he means kicking bottoms not kicking donkeys.

But funnily enough, nearly two months after the rig exploded we’re yet to see exactly what governments or government agencies have done.

The fact is that if oceans were privately owned BP may never have been able to afford to locate a rig where it did. After all, drilling thousands of metres under the sea bed is pretty expensive and risky.

But as is usually the case, when you’ve got a government manipulating a market to encourage offshore exploration in areas that otherwise would not be economical, it will always create distortions and lead to unintended consequences.

Especially when a government passes a law limiting the liability of offshore drillers to just USD$75 million. Which – if you’ll pardon the pun – is a drop in the ocean compared to the billions the clean-up is forecast to cost.

So look, I won’t deny that perhaps BP deserves to shoulder some of the blame. But the fact remains that the biggest contributor to the current oil spill, the Exxon Valdez, and all other so-called environmental disasters is actually the basic lack of private property rights over the seas.


Kris Sayce
Kris is never one to pull punches when discussing market developments and economic events that can affect your wealth. He’ll take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money. Kris is also the editor of Microcap Trader — where he reveals the best opportunities he’s discovered in the markets. If you’d like to more about Kris’ financial world view and investing philosophy then join him on Google+. It's where he shares investment insight, commentary and ideas that he can't always fit into his regular Money Morning essays.

Kris Sayce is the Publisher and Investment Director of Australia’s biggest circulation daily financial email, Money Morning Australia.Kris is a fully accredited advisor in shares, options, warrants and foreign-exchange investments.

Kris has close to twenty years’ experience in analysing stocks. He began his career in the biggest wasp’s nest in the financial world — the city of London — as a finance broker back in 1995.

It’s there where he got his ‘baptism of fire’ into the financial markets, specialising in small-cap stock analysis on London’s Alternative Investment Market. This covered everything from Kazakhstani gold miners to toy train companies.After moving to Australia, Kris spent several years at a leading Australian wealth-management company. However he began to realise the finance and brokerage industry was more interested in lining its own pockets with fat fees, commissions and perks —rather than genuinely helping out the private investors they were supposed to be ‘working’ for.

So in 2005 Kris started writing for Port Phillip Publishing — a company which was more attuned to his investment outlook.

Initially he began writing for the Daily Reckoning Australia— but eventually, took over Money Morning. It’s now read by over 55,000 subscribers each day.

Kris will take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money! Whether you agree with him or not, you’ll find his common-sense, thought-provoking arguments well worth a read.

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59 Comments on "Why the Oil Spill isn’t BP’s Fault"

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“””Why the Oil Spill isn’t BP’s Fault””””

yeah it wasnt ,,,it was a stray Hammerhead shark nudged the top of the well to cause the leak .

READ; it was shortcuts of normal procedures BY BP that caused this CATASTROPHIC distaster

actually maybe it was a CONSPIRACY?

di do di do di do di odi odo di do

Most of you’re stuff is ok, but this is a load of bollocks. The fact that you’ve got engineers the week beforehand saying something’s not right, but greedy execs couldn’t care less as long as the gold I mean oil kept pumping, shows me something is fishy. BP deserves to shoulder almost all of the blame. And not everything in the world has to have some sort of profit incentive. I tend to disagree that if the oceans were privately owned, the owners would “ensure that those using it took good care of it.” I would argue that in this… Read more »
The BP oil spill is 20 times worse than the media is telling us. The media is staging the clean up for the public so they won’t get paranoid. It is like stopping a tidal wave with a broom. Don’t believe what you are seeing on television. BP is burying animals and there is a stench in the air from all of the dead animals. The local people have taken it upon themselves to try and clean up the mess themselves. There is a extremely toxic and carcinogenic chemical being used to break up the oil that is polluting the… Read more »
toby hilliard

sell off the oceans?

yeah. thats what we need.

Rod Campbell-Ross
There is so much wrong with this article that it is difficult to know where to start. The law of the sea is governed by international agreement so trying to implement Kris’es suggestions might just encounter the odd hiccough if ever such a daft proposal was made. By definition “the high seas” belong to no one and that has been the case for years. It is my right to sail the seas (Which I have done – from UK to Oz) and I would not willingly give up my right to the sea. Then there are a few practical issues.… Read more »

Who is the puppet and who is the puppeteer?



So the Exxon Valdez killed 100,000 to 250,000 sea birds.Heck 50 cats on Tasman island can do that in 2-5 years.


Ron, I have an “R” license issued and controlled by the Game Council to qualified gun owners to take care of such ferals in our state forests. I have seen, first hand, the devastation they cause to the native wildlife.

Dogs aren’t allowed to wander the streets at night and you must carry a poop bag when you take your dog for a walk. Cats are free to roam at night and NO catlover picks up their deposits……however, cats DO make great slippers.


It’s not just the wildlife being affected. Watch as the HUMANS in all surrounding states get sick from all that $hit blowing their way. Normally I agree with your comments Kris, but this time I think you should re sharpen your pencil.


lol, Nick, do you keep their tails on, or only the ears? Just wondering …..hehehe