Long term economic effects of the Gulf oil disaster

Posted: Tuesday, August 03, 2010

“Dear Dan and John: What do you feel the long-term effects of the gulf oil spill will have on our nation’s economy?

Signed, Concerned”

 

While no one knows the depth of the economic damage, the most direct damage will be to the Gulf Coast oil workers and, secondarily, on long-term gasoline prices nationwide. It may be hard to realize just how important the jobs of oil riggers are to the Gulf Coast region. These highly dangerous jobs give blue-collar workers the chance to make high salaries that bring whole families out of poverty. There are as many as 10,000 oil rig workers who are now out of work due to a combination of the BP oil rig shutdown and the current administration’s deep water drilling moratorium (under review as of this writing). According to Louisiana Governor Bobby Jindal, those 10,000 jobs support over 41,000 other jobs — that’s 51,000 people out of work in Louisiana alone!

 

As to how this crisis will affect long-term gasoline prices, a lot of that will depend on how the government reacts. If they continue to stop drilling cold, the stoppage will reduce world oil supplies. Assuming a continued moratorium on deep water drilling and that the current administration will not allow environmentally safer on-land drilling in places like Alaska, Wyoming, and North Dakota’s vast oil reserve fields, then this reduced supply will drive gasoline prices upward. The good news is disasters often force reevaluations of policies. Hopefully, that will mean punishment for BP, but also a reevaluation of where it is appropriate to drill for oil.

 

This time the government should make safety a priority. That means drilling on land first (where you simply walk over to the leak and turn off the spigot), shallow water second (where divers dive down and turn it off), and deep water drilling (which is scientifically experimental) only under the strictest safety supervision. If the government chooses the first two choices, rampant gasoline price increases may be avoided. If not, prepare for reduced supplies to punish us where it hurts the worst—the pocket book.

 

* * *

Dan Searles and John Stohlman, of Medallion Financial Group, are CFP 's and Registered Representatives with over 25 years of experience in the financial industry, offering securities and advisory services through National Planning Corporation (NPC), member FINRA/SIPC, a Registered Investment Adviser.  Medallion Financial Group and NPC are separate and unrelated companies. They manage over $250 million of client assets. Dan and John can be reached at 1-800-878-9704 or Dan.Searles@natplan.com.

 

Although the opinions expressed are based upon assumptions believed to be reliable, there is no guarantee they will come to pass. The views within do not express the opinions of NPC.

 

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