$100 Oil and Obama's Katrina

If I had to bet on it, I'd wager that six months from now, the BP oil disaster ends up serving as a painful and slippery reminder about how supply risk incidents can impact the overall economy, and even political administrations. In fact, I believe that just as the poor and delayed FEMA response to Katrina came back to hurt the Bush administration, a similar delayed response will come back to hurt the Obama White House as well. But this time around, it will also cause similar damage to BP's reputation, even though it was a supplier that was responsible for administering the rig. The latest article I read from Bloomberg and Business Week provides evidence about the magnitude of the disaster and its financial and environmental costs.

According to the story, "The growing oil slick fed by an underwater leak in a BP Plc well in the Gulf of Mexico may threaten production, shipping and refining of oil and natural gas in Mississippi, Alabama, and Louisiana. Those three states account for 19 percent of U.S. refining capacity as of 2009, according to data from the U.S. Energy Department's Energy Information Administration ... The spill could drift west toward New Orleans, hindering ships entering and leaving the Mississippi River or deliveries of cargoes to the Louisiana Offshore Oil Port, Lipow said in a telephone interview today." Much like during Katrina, Washington had the chance to respond to the oil rig disaster in the early days, but opted to rely on field reports (in this case, from both its own sources and BP) that the incident would not become such a potentially big deal.

The incident is also a reminder about how procurement organizations should prepare for the primary and secondary impacts of rising oil prices, as well as the potential for supply shortages (if the full impact of the disaster is felt). A few months ago, many of us did not consider that a natural disaster such as this had the potential to drive oil -- and subsequently energy, plastics, transportation and other related commodities -- up to levels we'd expect only in an overall inflationary market (i.e., due to demand, speculation, etc.). For me, this is further proof that procurement organizations must further put themselves on the front lines of monitoring world affairs, and should analyze the news not just for its immediate impact, but also its downstream consequences on their buying and supply management activities as well.

Jason Busch

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