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Gulf oil spill's economic impact will be long term

As oil seeps into Louisiana marshlands, economists say the financial fall-out is only just beginning to spread across the Gulf of Mexico — and possibly beyond.

Even if BP teams succeed in capping the undersea gusher, the economic damage could drag on for years depending on how much oil actually lands ashore and how extensive the damage is to Gulf fisheries.

"I think things are really bad," said Nathaniel Karp, chief U.S. economist for BBVA Compass, a Birmingham, Ala., bank. "It could get even worse."

Calculating the degree of economic damage remains a guessing game, as scientists question how much oil will actually touch ground and how far the spill will stretch.

But there's consensus that the stakes are huge, with the seafood industry facing the biggest threat but tourism capable of delivering the most severe economic blow.

In the weeks after the spill as fears of contaminated water spread throughout the Gulf, dive operations as far away as Key West reported cancellations.

Hotels in coastal cities report scattered cancellations and a severe drop in bookings.

"We're not getting the phone calls," said Tim Kerigan, tourism director for Florida's Gulf County. Summer home rentals are off a staggering 80 percent since the April 20 explosion on a BP oil well on the Gulf floor, he said.

Moody's, a major credit-rating agency, recently warned of strains on tax revenues for local governments across the Gulf if property values take a dive because of oil contamination. The report even warned that -- in a nightmare scenario of currents taking large amounts of oil to the Sunshine State -- the spill could slam Florida harder than the recession.

A May 5 report Karp helped write for BBVA predicted the spill would deliver a $4.3 billion economic hit, mostly from losses in tourism and fisheries. "In the long-run, environmental damages have the potential to wreck local economies," the report noted.

Karp said he would probably increase that number if he were writing the report today. ``I'm more worried now,'' he said. ``Even if we start seeing some positive results now in terms of the leak, you still have all that oil.''

In Louisiana, so far the only known coastal victim of the gusher's oil, tourists and seafood wholesalers spend about $1.5 billion a year, according to government figures. Mississippi and Alabama rely on tourism and seafood for at least $5 billion.

Even with the hope Thursday that spewing oil would be stopped by a risky BP effort to plug it with debris and mud, Gulf businesses fear their troubles have just started.

``We're not at the beginning of the end,'' said Kevin Voisin, vice president of new business development and Motivatit Seafood in Houma, La., an oyster plant that shut down Wednesday because it had no oysters to shuck. ``This is the beginning of the beginning.''

Seafood restaurants across the country could see prices rise and demand fall if plants like Motivatit continue struggling for supplies or regulators declare Gulf seafood a health hazard. But as the oil crisis stretches into its second month, some are beginning to conjure even more far-reaching problems for the Gulf economy.

If the Gulf oil slick becomes a navigational hazard, cargo ships would avoid nearby ports -- straining key economic engines to coastal cities. And the oil industry itself -- worth about $70 billion to the Louisiana economy -- could end up a financial casualty if the spill prompts a regulatory crackdown. On Thursday, President Barack Obama halted exploratory drilling for undersea Gulf wells while Washington reviews safety rules for the operations.

``We have a number of people who actually work on rigs or on platforms,'' said Loren Scott, an LSU economics professor emeritus who now runs a consulting firm in Baton Rouge.

``Our biggest concern is if they start putting restrictions on, that will really slow down the activity in the Gulf -- or add so much cost that they'll go somewhere else to drill,'' said Scott, whose clients have included oil companies.

Semoon Chang, director of the Center for Business and Economic Research at the University of South Alabama, said he's increasingly worried about the Gulf itself becoming a barrier to commerce.

``I just don't know what's going to happen to commercial shipping there,'' Chang said of the Port of Mobile, which generates about $263 million in revenue and taxes each year, according to state statistics. ``Big container ships, will they come if they know they have to navigate through oil-contaminated water?''

Florida's tourism board has drawn up contingency plans for spending $250 million on a campaign to counteract an oil-covered beach in the Sunshine State -- a scenario the plan describes as ``devastating.''

Last week, Key West was the subject of national headlines when tar balls washed up on some of its beaches. They were later found to be from regular pollution, not the Gulf spill.

While tourism officials feared fall-out, new figures from Smith Travel Research show occupancy actually increased 6 percent last week in the Keys to just over 80 percent compared to a year ago.

Still, hotels appear to be cutting prices to lure guests to the coast.

Keys room rates dropped 3 percent, and hotels throughout the Gulf during May saw rates drop twice as fast, according to a special Smith survey of coastal lodging markets.

Along the Gulf, Smith found, hotels are filling more beds than they did a year ago, with occupancy up about 6 percent last week to 58 percent.

Moody's noted that personal income jumped nearly 10 percent in Alaska in 1989 after the Exxon Valdez spill.

But ultimately the spill cost Alaska about $2.8 billion in economic activity, thanks in part to the severe damage to the Pacific herring fishery.

The Moody's report saves some of its grimmest hypotheticals for Florida, which has yet to be linked with any oil from the Deepwater well.

``The state's high dependence on tourism dollars and jobs is significant, and a gradually worsening disaster with any part of Florida's 1,197 coastline miles could have long-term implications even greater than the recent recession or Hurricane Ivan in 2004,'' Moody's wrote.

For now, fisheries are taking the biggest hit.

``So far, it's been devastating,'' said John Williams, executive director of the Southern Shrimp Alliance and owner of a seafood shop in Tarpon Springs.

``It's the worst time in the world for this to happen to our industry. Because our shrimp are moving offshore right in those underwater plumes,'' he said.

The Gulf accounts for about 73 percent of the nation's shrimp output, according to federal statistics, so a severe blow to that fishery could ripple through dining circles across the country.

Due to the spill, roughly 22 percent of the Gulf is closed to seafood harvesting -- mostly idling oyster and shrimp boats that operate within the 55,000 square miles of sea now off-limits.

Glen Brooks, president of the Gulf Fishermen's Association, said most of his members with commercial fishing boats are still fishing in the Gulf. ``Most of that area that's closed is in waters we don't fish anyway,'' he said.

The waters closer to the shore of the Florida Panhandle remain open, allowing boats to continue their hauls.

Still, Brooks worries about long-term damage to the industry should the oil contamination wipe out future generations of fish. Brooks said fish spawn in the deep waters of the oil spill.

``All that larvae is up in that water,'' he said. ``Those are fish we'd probably be catching six to 10 years from now.''

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