Before its state-owned operator Petrobras struck big oilfields deep below the Atlantic floor in 2007, Brazil used to be chronically energy-deficient. No wonder President Lula helicoptered offshore to dip his hand in oil, and no wonder his chief of staff said of the discovery that, ?We have strong evidence that God is Brazilian.? India has seen its share of similar excitement occasioned by offshore gas discoveries. When Reliance Industries began production from its KG-D6 block in September 2008, this was the first hydrocarbon production of its kind from any deepwater field in India. It was also among the world?s top offshore projects for that year, expected to account for 40% of the country?s indigenous hydrocarbon production. What does the explosion of an oil rig off the coast of Louisiana have to do with all this? It raises a lot of safety concerns about offshore rigs. It will definitely impact US energy policy, which in turn will impact both oil prices and regulations in the rest of the world.

The nine-year old Deepwater Horizon rig owned by Swiss offshore drilling contractor Transocean and leased by British energy giant BP exploded in the Gulf of Mexico on April 20. While 11 workers died, the rest (including 17 injured ones) were evacuated. Two days later, the rig sank and crude oil started streaming out. Over the following weeks, the spill has averaged 5,000 barrels a day (and could rise to 40,000-60,000 barrels in a worst-case scenario). It has now reached the islands off Louisiana. The state plays host to around 40% of US wetlands, where around 75% of all US waterfowl rest or nest. Excepting Alaska, Louisiana also produces more fish and seafood than any other US state. Tar balls are now being spotted in Alabama. Beaches and wildlife refuges in Mississippi and Florida are holding their breath. Oil booms, robotic submarines, skimming vessels, a gigantic steel dome?all kinds of containment strategies have been tried, but success has remained limited. Stopping the leak at source requires a well that will intercept the original one with concrete. Drilling for this relief well is already at 9,000 feet but it will take months before becoming operational.

An ecological disaster is certain, only its magnitude remains to be told by time. Tighter US regulations are also certain. The really relevant factor is how the market has factored in President Barack Obama?s acceptance of offshore drilling, and how it will react if this were to be reversed. To put things in context, as per the International Energy Agency estimates, deepwater oil currently costs about $35-65 per barrel to produce. This is well below the price of around $80 per barrel that we have lately been seeing. Plus, the industry has factored in increasing deepwater investments, and prices will take an upward hit if these are put on the backburner. In 2010-14, it is expecting an around 37% increase in deepwater development as compared to the previous five-year period.

For those who think a deepwater reversal is on the policy cards, look no further than California governor Arnold Schwarzenegger. He makes a populist case: ?You turn on the TV and see this enormous disaster; you say to yourself, why would we want to take on that kind of risk?? When the 1979 accident took place at the Three Mile Island nuclear power plant, exactly this kind of case halted the US nuclear energy industry in its tracks. In the interim, the likes of France, Japan, Switzerland and Sweden powered on. Today, as oil demand from China and India (the two countries have also brought nuclear energy into renewed focus) aggressively drives up global oil demand, the US is regretting and reconsidering that historical halting. Today, it is less likely to let TV bytes determine energy policy. Today, offshore drilling is getting bipartisan support.

Newt Gingrich says that what the US needs are safer systems for offshore development, rather than a turning away from the national security consequences of an alternative policy. Sarah Palin is forcefully living down the ?spill, baby, spill? taunts, and fighting back with, ?no human endeavour is ever without risk?. What?s significant is that the Right seems to be walking alongside the alternative types on the deepwater bridge. Obama?s energy secretary Steven Chu?s response is a telling example: ?You know, airplanes crash. We find out what happened, and we go forward, and every time these truly unfortunate accidents happen, you learn from them.?

The thing is that while the world has already plucked the low-hanging fruit off the hydrocarbon tree, it hasn?t yet come up with cost-efficient alternatives that are truly green. Cost-efficient inventions have multiplied rather faster in the deepwater zone. Nowhere is this more visible than in the Gulf of Mexico. Latest technologies for delving into the deep of the world?s oceans?via everything from bigger offshore floating platforms to the most sophisticated onshore control rooms?have helped turn the Gulf into the US?s fastest growing source of oil. Not only does it now account for a third of US domestic supplies, most of these are coming from deepwater regions. The thing is also that deepwater drilling is inherently risky. This is not surprising. The US has been mining coal for much longer, yet it experienced a terrible mining disaster in West Virginia recently, the worst in four decades. Yet it won?t stop coal mining.

The same applies to drilling for oil in deep waters. But the US will certainly improve on safeguard regulations.

An obvious example relates to remote control systems like the acoustic switch that, it now emerges, has already been mandated by regulators in oil-producing countries like Norway and Brazil. India needs to follow these developments closely. Remember, Transocean drillships are also operating offshore in India, notably at the aforementioned KG-D6 block. It is important to see the Gulf of Mexico developments in perspective. Remember, also, the oil spewed out consequent to the Deepwater Horizon explosion is nowhere close to the 500 million barrels of crude that the Iraqi army purposely spilled off tankers and oil terminals in Kuwait during the first Gulf war.

Finally, we are living in an era of increasing resource nationalism. This means, first, that the big oil companies are being pushed out of established feed zones like Russia and Venezuela. Second, going further afield has become imperative. In this ever-deeper terrain, both investment and environmental risks necessarily multiply. JP Morgan estimates that the price of the Deepwater Horizon incident will be around $1.6 billion. Let?s get real. Given the speed at which we continue to guzzle hydrocarbons, more expensive accidents are just around the horizon. We can and must build better regulatory safeguards. But there is no way we can get guaranteed protection in deep waters.