Sequeira Johanna Pauline, 3466339

BUSM3886 Business and Government in the Global Context

Assignment 1



A critical analysis on the Deepwater Horizon oil spill in Mexico
(2010) using Susan Strange theory of power.




Name: Johanna Pauline Sequeira
Student id: 3466339
Program: Masters of Business
Administration

Sequeira Johanna Pauline, 3466339
The Deepwater Horizon was a floating rig that was built by Hyundai and owned by
Transocean. From March 2008 onwards, the rig was leased to BP. The well is situated
in the Gulf of Mexico sand is surrounded by five of U.S major countries. On the April
20, 2010 the rig blasted causing severe repercussions. It is known that this explosion
was worse than the Exxon Valdez spill (Gerstein, 2010). More than 127,000 barrels
of oil was spilt into the ocean during the disaster (Gerstein, 2010). BP has been
regularly dumping mud into the ocean to control the spill in the ocean (2010). The
other two parties that are related to the explosion are Transocean and Halliburton,
which handled the cementing and drilling activities. BP undertook several relief
activities, like drilling wells and creating containment domes, using top kills and other
such methods. This was done only after the insistence of government officials (Walsh,
2010). A number of attempts were made to suppress the leak: containment domes, top
kills etc. (2010). This essay aims to analyze how power operated in the BP Deepwater
Horizon oil spill, using Susan Strange theory.
Strange had a key role in developing International Political Economy as a study and
became one of the early campaigners of studying politics and economics for industrial
relations. Power is the capacity of an individual to exert his will over others. Susan
Strange talks about three main strands in her work i.e. Structural power, Relative
power and Hegemony. She also talks about globalization in her essay The Erosion of
the State (Strange, 1997).
Strange talks about structural power, which originates from four structures, i.e.
security, finance, production and knowledge. These are the essence of the state's
power. The US reacted to the spill, by calling upon the Homeland security to assess
the nature of the spill. All three parties that were negligent faced a huge financial
penalty. The use of dispersants to handle the spill had both positive and negative
repercussions. Lastly, the regulatory authorities itself had no knowledge about the
cost cutting decisions of the companies that in turn led to the disaster. No one facet is
entirely important. The others lift each and every one of them up. It follows Lukes
second dimension of power: creation of agenda (Lukes, 1974). It analyses how
decisions need to be made, and the relation of states with each other, with the society
(i.e. the people) and the firms. In the case of the BP spill, the decisions that were
made by BP, Transocean and Halliburton, saved the companies significant time and
money. The greatest misconception is that the international system has not changed,
Sequeira Johanna Pauline, 3466339
and will never. The structural interaction within a particular sector of the international
political economy, affects the decision making power and the outcomes may vary
(May, 1998). In relation with the case study, BP had its own standing in the market.
Its technology advancement led it to move on through world markets. BP moved on to
U.S. so as to produce highly economic goods i.e. oil, with BP trying to achieve high
product value and the State trying to achieve economic growth.
Strange argues that the four structures of power is the cause for changes in the
structural power, in which the IPE is being controlled and the emergence of the
knowledge structure in relation to power. She says that power is not limited to one
territory and that changes in the firms, transnational firms are increasing becoming
inevitable. For the Deepwater Horizon disaster, it is implied that the overall
responsibility is not of BP alone, but also of Transocean and Halliburton. BP had
leased the cementing and the drilling activities to Transocean and Halliburton. She
goes on to say, political authority, economic activity and exchange and geographical
territory, no longer sustain itself (May, 1998) It is alleged that the project was
pursued with political influence with very little scientific output. The economic
activity, affected the fishing and tourism industry, with an impact of around $23
billion. Susan Strange talks about eclecticism. Where situations cannot be resolved,
because there is no one ultimate source of social power and secondly it should not be
resolved because no matter who is right, each of them provide with effective social
insights (May, 1998).

The relation between the state and the firm is determined by the power, both structural
and relational. In this case, BP is the firm, and the US is the government. BP has been
providing the technology to produce highly economic goods, whereas the government
has been providing the necessary finance. They benefit from each other. While mostly
it is the relational power i.e. Strange suggests that it is the less powerful structural
power i.e. creation of agenda that needs to be understood correctly. Lukes second
dimension of the power theory talks about decisions and its control on the agenda of
political situations (Lukes, 1974). Relational power is used to analyze the flow of
power in international politics. The U.S protection restricted the British firms, from
taking any more government contracts, lobbying and taking other political donations.
Hegemony is whereby, a global leader and the other actors in the system use coercion
or persuasion to get things done that others would not normally do. The concept of the
Sequeira Johanna Pauline, 3466339
relational power is used to analyze major challenges in economies, where there is
slow growth i.e. recession. U.S relational strength with regard to the BP study has
been overwhelming, when compared to the other big powers (May, 1998).
The Structural power in the U.S. has definitely increased. Hegemonic theory studies
the periods of world history and the explanation of present times difficulty.
Hegemony is good and can be achieved through persuasion, coercion and exploitation.
The U.S used coercive power at its hegemonic peak, but the costs that were paid by
the state were to bring about changes in the economic growth post war (Strange,
1987). Many of the Gulf coast residents, question the recent attempts of persuading
them to accept the settlement offers rather than suing BP. Contradicting to Strange,
Rosenau says that "the close correspondence of three things i.e. the political
authority; economic activity and exchange; and geographical territoryno longer
holds and binds, while there is a conflict between two worlds, state centered,
knowledge centered (May, 1998) State centered is where; the government
dominates the authority power, whereas knowledge centered is where the authority
lies in the hands of a more powerful authority. BP had the technology, the brand
image and the power to sustain its activities, however when the disaster occurred
there was an influence by the State. This concludes that the location of the production
does not hold as much importance than where it is designed, and who makes the key
decisions on world markets. What is necessary is that a decision takes place, and not
where it takes place (Rosenau, 1990). Globalization, increasing information
technology, the liberalization of states and the increased societal awareness has led to
the revision of understanding of businesses.
Liberty and accountability move hand in hand in terms of power responsibility.
However, globalization has started to weaken that accountability. Globalization is a
part of reality and it exists on various levels (Strange, 1997). BP does not do its own
drilling, cementing and other specialized duties, but is leased to other authorities i.e.
Halliburton and Transocean, cementing activities and exploratory and production
drilling. The authority of the government and state has been diminishing, and
decision-making is influenced by external factors. Globalization has led to changes in
the financial system. Big firms like BP are looking to achieve higher product value,
whereas the state is looking towards economic growth. The diminishing relation
between the state and the firms has led to the movement of authority from one hold to
Sequeira Johanna Pauline, 3466339
another. It has becomes vulnerable to the dynamics of the market rather than its own
individual changes. The long lasting economic depression occurs due to flaws in the
financial system and causes long lasting and irreversible environmental damage
worldwide (1997). The BP spill occurred due to absence of industry practices and
government policies. BPs cost cutting decisions hampered the safety of the well.
Hegemony requires a lot from a strong authority, along with the competencies to use
it in developing the international system.
Due to the spill, the interests of a number of parties were affected by it. Effects to the
marine wildlife, the fishing and tourism industry and the human heath can be
analyzed using the Stakeholder theory, which talks about the working of a business.
Studying each of them using Freeman viewpoint helps to understand problems where
other than profit maximization, key concerns like morals and ethics also need to be
studied. The main viewpoint of the theory is in its simplicity and the necessity of a
purpose, and the main challenge lies in identifying and analyzing that purpose. Every
business that needs to be successful has to have a theory. For a business to be
successful it has to create value. This value creation cannot be done in isolation, but
all interests have to flow in the same direction, and thats when the business is
successful. So for the long-term outlook of a business, one has to look towards the
interests of the customers, the employees and the society. Even if one is missed out on,
the total achievement possible can be reduced than what was possible by the total
amalgamation of all the parties interests (Freeman). This theory of business needs to
take into account the environment in which it operates, the social mission (i.e. what it
is trying to achieve for the society) and key competencies (i.e. the skills that are
needed to achieve it) (Drucker, 1994).
Accordingly, BP, Transocean and Halliburton are at fault together. Around 11 lives
were los and 4.9 million oil barrels spilt into the ocean. BP being over budget and
behind schedule had cut safety corners and had ignored the pressure safety tests of the
Macondo well project (Read, 2011). As on Sept 2010, BP report the blame was also
placed on Halliburton and Transocean. The managers of the rig misread the pressure
data and the rig was replaced with cheaper substitutes like seawater that was not
suitable to withstand the high pressure, causing the explosion. All the three parties
were grossly negligent (Rowell, 2013).The State of US blamed BP for its
irresponsibility towards maintaining effective working standards, and held it
Sequeira Johanna Pauline, 3466339
responsible towards the disaster. However Transocean and Halliburton were also part
of the blame, because of the cheap and irresponsible work done. This cheaply done
work could have been a trigger for the explosion and cause leakage. Failure of part of
the regulatory system aided and abetted BPs callous indifference of worker safety
and the environment.
According to the Oil Pollution Act of 1990, BP was designated the lead responsible
party. BP tried putting a relief well cap to prevent further leakage and also drilled
relief wells to close the leakage permanently. Skimmers were also put to use to clean
up the spill. President of the United States, Obama said that although BP is
accountable for the spill, he holds himself accountable for it (Webley, 2010) because,
BP under time pressure used coercion to get the work done in ineffective conditions,
BP had to take responsibility for the spill (Strange, 1987)
Four years after the disaster, the after effects can still be felt. BP paid millions of
dollars under compensation battles. Nearly $26 billion has been spent on cleaning up,
fines and on compensations (Anon., 2014). BP also agreed to set up a $20 billion
escrow fund for damages arising from the spill and also around $100 million for
compensation to employees who were left unemployed after the disaster (Webley,
2010). The department of Justice of the United States of America settled the case
against BP asking it to pay a total claim amount of about $4.5 towards fines, claims
and compensations. The costs of the disaster were not a one-way affair, but a two-way
affair with the marine wildlife, fishing, tourism industry and the human health facing
drastic changes.
The spilt oil has affected the surface of the ocean, but the situation that is not seen is
that the oil has also gone on to affect unexplored territories of water (Begley, 2010).
There was denial earlier on part of both the officials of the government as well as BP
to dispel these findings, however independent scientists have proven these correct
(2010). The spill has not only affected shorelines, but has also gone on to affect
uncharted territories of water and the marine life thriving there (2010). Due to the
dispersants being used by BP, the atomic nature of the soil is getting destroyed which
creates more environmental problems. Oil and methane gas has been found on the
ocean surface (2010). This has led to the lack of oxygen flow to the marine life. This
too will indirectly affect the mammals that are on top of the food chain. The spill has
been affecting not only the fishes, but also coral reefs and marshes (2010). The
Sequeira Johanna Pauline, 3466339
fishing industry faced a lot of closures and restrictions and the industry took a turn for
the worse. To ensure the safety of the seafood, restrictions were put in place for
waters encompassing huge boundaries. Addressing public health concerns, the selling
and advertising of the products was also stopped, so as to protect the brand image of
the industry. Further the NOAA barred all commercial and recreational fishing
activities from May 2 onwards (Upton, 2011). As of January 24,2011 around 1000
square miles of water boundaries was closed to both commercial and recreational
fishing i.e. the area surrounding the well head. The areas affected by the spill were
some of the richest fishing grounds for shrimp, menhaden and oysters. Disruption to
the sea food supplies has led to the availability of substitutes in the market (Upton,
2011). The countries surrounding the Gulf i.e. Alabama, Florida, Mississippi,
Louisiana and Texas lost a huge part of its profits due to the spill. Out of the $15
million that Louisiana was provided with by BP, it was used to fund emergency
advertising to suppress the misconceptions that New Orleans was laden with oil
(Anon, 2012 ). The spill had a negative impact on the vacationers and perceptions of
people created more of a ruckus as compared to the actual effects of the spill. More
than 100 of the employees that handled the clean up of the spill, were involved with
severe heath complications. It is believed that the chemicals of the oil and especially
the dispersants made the oil more toxic. After the spill, the eco rig divers were asked
by the NOAA to gather water samples for further testing. Statements by the NOAA
stating that the dives are completely safe proved to be of corporate deceit. The risks
were downplayed (Read, 2011)

Each of the industries surrounding the Gulf bore the costs of the disaster, because they
were either directly or indirectly related to it. While BP bore the major costs of the
spill, the other stakeholders also faced the ripple effect, because their value and
interests due to the spill had been weakened. As per Strange, there has been a change
in diplomacy where states bargain not only with other states but also with other firms
(May, 1998) New diplomacy is where firms join the states as power exercising
authorities over the course of national and global economic development. Even
though the states are the final authority of making decisions, if the firms dont join the
states in making decisions and taking responsibilities, there is a very low chance of
keeping up with competition from the outside market (1998).
Sequeira Johanna Pauline, 3466339
To conclude, it is undeniable that a cross culture company like BP risked the lives of
its employees and played with the power that was in their hands. In relation to the
structural power, the technology and the high engineering failed, and it needs to
master the changing and dynamic technology setup. In the end, the blame was shared
between Transocean, Halliburton and BP, but BP took most of the blame. That is to
say that when power increases, the venues for risks grow larger when compared to the
opportunities.






Sequeira Johanna Pauline, 3466339

References:

Anon. (2012 ). Two years after BP oil spill, tourists back in U.S. Gulf. Reuters.
Anon. (2014). Compensation battle rages four years after after BP oil spill.
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