Obama Couldn't Force $20 Billion Payment, But BP Had No Choice

Americans don't often pass up an opportunity to complain about England, as Stephen Colbert pointed out this week.

That's why we were so pleased to tie the heavily favored British team at the World Cup last Saturday. The BP oil spill is is a more extreme example: the English have tainted our coast, and we want to see them pay. (That's the perception at least, even though 40 percent of the company's shareholders are U.S.-based.)

Now, President Obama has demanded that BP set aside $20 billion in an escrow account for the victims of the April 20 oil spill, already the largest in history. BP executives have tentatively agreed to the demand after meeting with President Obama today, just after last night's groundbreaking Oval Office speech.  As Jess Leber told us yesterday, Obama could also punish the company further by taking away its federal contracts.

On first glance, legal experts like University of Pennsylvania law professor David Zaring wrote that the administration simply didn't have the authority to demand BP pay anything near $20 billion.

Current federal law caps BP's economic liability at $75 million (not counting non-governmental lawsuits). Still, the Obama administration appeared unfazed. "The president has the legal authoirty to direct BP to set aside money and set up an independent claims process so that those who have been harmed economically as a result of this disaster have their claims processed quickly, efficiently and transparently," said White House Press Secretary Robert Gibbs.

But due to the enormous public and political pressure, the British oil giant would have been foolish to put up a fight. And although the administration is clearly taking the escrow seriously, it certainly won't cripple the oil conglomerate.

Kenneth Feinberg, who oversaw the 9/11 victims fund and is currently monitoring Wall Street salaries under TARP, will take point. But the terms are still fuzzy on when BP will be required to have the escrow ready. The New York Times reports that the deal's "preliminary terms would give BP several years to deposit the full amount into the fund so it could better manage cash flow, maintain its financial viability and not scare off investors."

Even before last night's speech, his administration started to flex its political might to get the escrow's wheels moving. "We want to make sure that money is escrowed for the legitimate claims that are going to be made and are being made by businesses down in the Gulf, people who have been damaged by this," said Obama adviser David Axelrod on Meet the Press on Sunday. "We believe that BP has the resources to meet the claims. And we're going to make sure that they do." On Monday, 54 Senators echoed this sentiment in a letter to BP requesting the escrow.

There are dozens of tactics the Obama administration can adopt to punish British Petroleum for this oil spill disaster. Expect to see the administration exhaust all legal and political avenues, at least to cover its own heiny. But the most promising and permanent punishment would be to annihilate the chances of a future spill by ending offshore drilling in favor of cleaner, safer energy alternatives like wind and solar.

Photo credit: USCGD8