Marketplace Middle East - Blog
4/17/09
The Perils of 21st Century Piracy
We are becoming experts of geography, or at the very minimum, we're intrigued by the region’s sea lanes -- and 21st century piracy off the coast of Somalia.

Needless to say, having two key arteries for hard goods and up to 40 percent of the world’s oil passing through an area can pique one’s interest.

Welcome to the Suez Canal, feeding into the Gulf of Aden and the Strait of Hormuz that funnels into the Arabian Sea. The two passageways were taken for granted until the swashbuckling style of these less-than-modern-day pirates threw trade off kilter and confidence for a loop.

We have heard from scores of experts on the subject, with the average television viewer peering into the coverage wondering the obvious: why is it that a flotilla of military vessels cannot wrestle complete control of the seas off the coast of Somalia?

Now that U.S. Secretary of State, Hillary Clinton has expressed Washington’s desire to rally for tighter international patrols and coordination, we are likely to see more action -- but also more challenges -- from the pirates.

First and foremost, in one of the poorest and least governed countries in the world, these pirates must believe the upside potential is superb, with the downside risks relatively controlled by their track record of success. According to a handful of sources, the pirates brought in about $80 million dollars last year –- with the Sirius Star carrying a $100 million payload of Saudi crude the biggest target to date.

In researching this topic you learn quite a bit along the way. Slow-moving ships are the most vulnerable, anything travelling under 16 knots. The very large crew carriers (VLCCs) are rare targets, unless carrying a huge load, which slows them down.

Martin Murphy is one who now spends his life tracking the perilous seas, and says we may be lacking perspective. He is the author of "Small Boats, Weak States, and Dirty Money: Piracy and Maritime Terrorism in the Modern World." His research indicates that no more than one percent of the ships passing through the Gulf of Aden have been either attacked or hijacked.

"The bigger impact is the psychological effect on the owners and the operators. Almost any crew man that has been pirated over any stage of their career never goes to sea again," says Murphy.

Captain Richard Phillips, as a free man, standing on soil must wonder whether his life should still be on the high seas.

When exploring the numbers, it would appear that shipping companies are steering clear of the Gulf of Aden for security reasons. Murphy invites us to think again -- he says it is more about the fees being charged by the Suez Canal Company and, therefore, the Egyptian government.

Revenues through the Suez Canal are down 21 percent year over year, partially due to those higher fees and the fact that trade is projected to be down nine percent this year, according to the World Trade Organization. The number of vessels going through the canal was down 20 percent in the same period for these very reasons.

Passage fees, according to those tracking the industry, have surged up to between $300,000 and $600,000 per vessel. Specialty piracy insurance only adds an additional cost along the way since Lloyds of London has declared large parts of the Gulf of Aden a war risk.

Sounds ominous, but again we need a bit of perspective according to Murphy. "When you compare Somali piracy to piracy in other areas of the world," says the King's College scholar, "The level of violence we see in other parts of the world, Nigeria, the Philippines, Somali piracy is uncomfortable but relatively benign."

That is certainly not our perception at the moment, but images can outgun reality anytime in this world of 24 hour news and internet activity.

This brings us to another point: the lasting impact we may see as a result of the latest rounds of attacks. Security will be fortified. The pirates will raise the stakes, and new strategies to counter their attacks are being discussed.

In a post 9/11 world, I asked Murphy if it wouldn’t be wiser to deploy armed marshals on board, as some of the airlines do. "This is a lively debate within the maritime shipping community," he said, adding that the bulk of the shipping community believes that armed guards "are inappropriate for merchant vessels." Some believe putting armed guards on board will only import more danger.

If one were to take a helicopter view of the situation, using a mix of security and diplomatic tools makes the most sense. Yes, it needs to be addressed onshore with the governments (or quasi-governments); yes, a flotilla of military ships to serve as escorts should continue; and finally, some added security onboard to fend off these renegades seems not dangerous, but logical.

And finally, let’s not overlook the impact this may have on the region in general. Countries that line the Red Sea and the Gulf of Aden have active ports; even the smaller territories such as Djibouti have attracted foreign direct investment on the back of regional growth. If the pirates are not brought under control, don’t expect foreign investors to ignore the dangers that are flaring up far too often.

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The most challenging issue at the moment are the Pirates in the Somalia, Oil price will go up if this goes on
John, Very nice writeup and I think you hit it perfectly as to the true perils these pirates have brought to these waters in the Middle East. We cannot let these
crimes continue and we must be more aggresssive as a whole to combat this.
ABOUT THIS BLOG
John Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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