Yesterday June 16, 2010, the Obama administration announced that BP had agreed to its request for a $20 billion escrow account to be setup to aid victims of the oil spill.  The fund that’s set up will be run by Kenneth Feinberg the lawyer and mediator who ran the fund for victims of September 11.

This is welcome news considering the fact that there has been significant uncertainty about the future of BP.  Its stock market value has been cut in half since the initial onset of the spill, and it was rumored earlier this week that a certain bank had warned its employees not to issue debt contracts to BP that extend beyond a year.   Then you take into consideration that FEMA the federal government’s disaster recovery arm has yet to recover from the barrage of floods, hurricanes, tornadoes, and fires that have depleted its funds over the past five years.

It goes without saying that the federal government needs BP just about as much as BP needs the government right now.  The agreement by BP to the demands of the Obama administration should not come as a surprise to anyone paying close attention to what is at stake.  However, by being readily agreeable to the President’s request, BP effectively killed multiple birds with one stone.  In order for BP to survive they were already going to have to pay for the damages from this tragedy.  So by acquiescing to the  the administration’s demand, BP was able to cast itself as compassionate, while at the same time enabling the administration to show some stealth and build some political capital in the process.

Despite the staggering sum being set aside, some have speculated this amount would be insufficient to cover the long-term costs this disaster is bound to run. To offer some comparison, BP had gross earnings of $246 billion in 2009 with net profits being $17 billion.  So in actuality, BP is putting up all of last years profit and some change as a show of goodwill to the administration and the American public.  It is safe to conclude that we need BP to be alive and well in order to not only preserve 23,000 jobs, but also to ensure that our nation recovers from this catastrophe.

Over a month has passed since the initial explosion that claimed the lives of 11 British Petroleum workers, and created possibly the single greatest disaster in the history of oil exploration.  The initial response of the companies involved was to placate the citizenry by assuring that the damage and impact would be minimal, estimating that about 1,000 barrels a day is what was spewing into the gulf.  However, a month later, it has become clear that the initial estimate missed the mark by an order of the magnitude of 40.  Then there was the blame game as BP, Transocean, and Halliburton sought to deflect responsibility from what could potentially be a huge long-term liability.

Early in the wake of the disaster, several industry experts asserted that controlling the crisis would rely primarily on BP’s, who has led the efforts, ability to determine the best method by which to plug the hole.  Efforts to control the spill have been unsuccessful up until this point, despite varied attempts at utilizing a multitude of techniques to curb the spill.  The lack of progress has led to increased frustration and calls for President Obama and the administration to take over the efforts to control the spill. The administration, however, has taken no formal position on whether or not they intend to take control of the situation with the spill.  Last week Interior Secretary Ken Salazar went as far as saying that BP had to either control the situation or prepare to get out of the way, but he has since had to backtrack from his earlier statements.

The growing calls for the federal government to take charge are now being uttered by several lawmakers including Ben Nelson (D) of Florida, who think that the oversight of the response and cleanup can be handled by the military.  The question as to whether or not the administration ought to take over is one that most people are split over, and the response depends in large part on who you talk to.  Residents of the gulf coast boiled over with frustration are urging that the administration needs to step in and take over the process, as do a host of legislators including members of the President’s party.  Industry experts and observers, however, continue to insist that the only option is to let BP continue with its ongoing efforts in hopes that it comes up with a solution.

Neutral observers like myself are more inclined to believe that the best path forward is to let BP continue to spear head the efforts.  It is no secret that the US government has no expertise in oil exploration, and as a result is not equipped with the technology, knowledge, or tools that it takes to operate an oil rig, much less contain a catastrophe such as this.  The administration’s main focus going forward has to be on monitoring the effort to control the spill, ensuring that the affected areas receive the appropriate assistance, and that the accountable parties own up to their social and financial responsibilities.  Most importantly, the administration needs to step in and give the public a sense that they are taking charge of the situation, and will protect the public’s interest.