Gulf Oil Spill Catastrophe Yet Another Black Swan Event

A Black Swan event is defined as an event that has a very low probability of occurring but should it occur the consequences are catastrophic. The oil drilling industry has a good track record in preventing oil spills but unfortunately the explosion and subsequent sinking of the Deepwater Horizon oil rig in the Gulf of Mexico on April 20, 2010 highlights the fact that in deep water oil drilling when something goes wrong the results are likely to be catastrophic.

The gulf oil spill that is now threatening the marshlands, estuaries, beaches, the commercial and sport fishing industries, tourism, and hundreds of thousands of related jobs does fit the definition of a catastrophic black Swan event. As an estimated 5000 barrels of crude oil are still spewing into the gulf from the uncapped wellhead the oil spill is still spreading and is now threatening the coastlines of Louisiana, Mississippi, Alabama, and Florida. Unless the wellhead can soon be capped and the flow of oil stopped the spill may also extend to the Texas beaches.

The oil spill disaster is threatening many of the same areas that were so drastically battered by Hurricane Katrina. The long term affects of the oil spill will likely be even worse than those caused by Hurricane Katrina as with the beaches ruined and fish, shellfish, shrimp, birds, and other wildlife largely destroyed, it will take many years for the affected areas to recover. The probability is high that the oil spill disaster will cost hundreds of thousands of jobs as families who depend upon the fishing and tourism industries for their livelihood lose the very foundation of their businesses and places of employment.

The extent of the Deepwater Horizon explosion, sinking, and oil spill catastrophe continues to grow day by day. Thus far BP, the oil company that owns the blown out oil well, has been unable to cap the well and stop the flow of oil into the Gulf. The difficulty of that task is vastly compounded by the fact that the wellhead is over 5000 feet deep. BP has been unable to successfully deploy the underwater robots designed to handle such tasks. Until the well is capped no one knows just how catastrophic the event may prove to be. While the loss of eleven oil workers on the rig was tragic enough additional tragic events will follow. There is no doubt that the cost of the damage to wildlife, property, and employment is already into the many billions of dollars and that more human grief and suffering will occur with no end in sight.

At a time when the American economy is still struggling to recover from recession the Deepwater Horizon oil spill event has occurred at a most unfortunate time. However, that seems to be the nature of Black Swan event’s, their probability of occurring at all is considered to be so low that no one is prepared for the catastrophe that unfolds when the events do occur and they tend to occur when we are least prepared to deal with them.

Hurricane season in the Gulf of Mexico begins in about 30 days. Should oil still be flowing into the Gulf as a hurricane passes close by the Gulf oil spill catastrophe may mushroom into the greatest Black Swan event ever to affect the United States.