Maritime piracy and the global economy
On Nov. 17, 2008, Somali pirates hijacked a Saudi oil tanker 450 miles off the coast of Kenya. The tanker, loaded with U.S. $100 million in crude oil, is the largest ship ever pirated. Internationally, piracy has long been a problem off the coasts of unstable countries including Nigeria, Indonesia, Bangladesh, and Somalia. However, piracy in the Gulf of Aden, the body of water between Yemen and Somalia and the main trade route between Asia and Europe, has reached monumental proportions, more than doubling in the past year. It is threatening global trade and may prevent maritime transit through the Suez Canal, which would drastically increase shipping costs and could detrimentally affect trade throughout the international community.
The Roots of Piracy
Piracy tends to flourish in destabilized, impoverished countries where the government cannot effectively enforce domestic law. Piracy in the Gulf of Aden has become the area of main concern because of its scale and global economic implications. The causes of piracy in Somalia are deeply rooted in governmental ineffectiveness, particularly in Puntland, a semi-autonomous region of Somalia where most of the pirates plaguing the country originate. Since 2006, the local authorities in Puntland have had virtually no ability to enforce law due to regional wars and rampant inflation. “This lack of law and order on land meant a lack of law and order at sea,” Dr. Peter Lehr, professor at the University of Saint Andrew’s, told the HPR, “which means that high sea trollers from all over the world intruded on Somali waters and fished there illegally.” This illegal fishing makes it very difficult for Somali fishermen to make a living. The rise of corruption has compounded this instability: as the government can barely pay its officials, pirates commonly use bribery to ensure easy operation in the ports.
Both incentives to engage in piracy and ease of operations have contributed to the recent surge seen in the Gulf of Aden. In the past, piracy consisted largely of a small group of fishermen hijacking a boat close to shore. However, in recent years, pirates have begun using sophisticated technology, such as GPS, heavy arms, and fast boats. There is a rising trend of organized piracy, involving a mother ship and a large network of pirates. These factors have enabled large-scale hijackings, as seen in the events of Nov. 17. Piracy is extremely lucrative; since Jan. 2008, the average ransom price for a vessel has gone from U.S. $500 thousand to U.S. $25 million. “As a pirate in Somalia, you can earn $70,000 per attack. You can’t get that much as a fisherman,” Lehr said. The lure of easy money attracts individuals to piracy all over the world.
Economic Impact
Before the current economic crisis, the impact of piracy on international trade was relatively minor. In 2005, the International Marine Bureau estimated that piracy cost the shipping industry from U.S. $1 billion to U.S. $16 billion dollars a year; when compared to the annual value of maritime commerce of U.S. $7.8 trillion, this sum is not terribly significant. The drastic increase in piracy in the Gulf of Aden in particular has already created serious economic problems. Insurance rates for shipping through the area have skyrocketed, even in relatively secure areas. Additionally, ship owners continue to pay the increasing ransoms pirates demand to facilitate shipment of their goods. As Dr. Donna Nincic, a professor at California Maritime Academy, told the HPR, “The ship owners have strong incentive to pay the ransoms. It is never going to be in owners’ best interest not to pay the ransom because nobody will ever sail with them again.” While these payments are not significant to the shipping industry as a whole, they are significant to individual shipping firms, and a ripple effect could seriously cripple international trade.
The greatest economic consequence of piracy has been made manifest in the past months. Because piracy is so prevalent in the Gulf of Aden, shipping lines have begun to avoid the area altogether, meaning that they are also avoiding the Suez Canal. ODFJELL, a Norwegian shipping company, declared on Nov. 17 that it would send all of its tankers around the Cape of Good Hope instead, necessitating higher shipping costs and lengthening shipping times by 15 to 17 days. “If more and more companies avoid Aden altogether,” says Nincic, “the costs are no longer just a rise in insurance; they’re costs of additional transit. Those costs will be passed onto the consumer.” Piracy is no longer a minor economic irritant; it is beginning to affect the consumer, and in an already turbulent economy, this spike in shipping costs can significantly affect prices worldwide.
The Solution
Those seeking solutions to the problem of piracy may be well advised to use the Strait of Malacca as a case study. As Nincic told the HPR, “Indonesia and the Malacca Straits had a huge piracy problem until Indonesia, Singapore and Malaysia decided with a lot of encouragement from the international community simply not to take it anymore. They instituted joint patrols of the Straits and piracy dropped.” These patrols made piracy much more risky and difficult to undertake in the region, effectively deterring individuals from engaging in it. In Somalia, there is currently very little risk for pirates when compared to the significant profits, in part due to the lack of cohesion among the international community in addressing the challenge. As Peter Chalk of the RAND Institute told the HPR, “There is currently no overarching framework guiding international action against piracy.” There are NATO and E.U. ships in the Gulf of Aden, but their rules of engagement with pirates are vague; individual countries have yet to specify when and how their navies are to engage the pirates.
Piracy is considered legally to be a crime against humanity, meaning that pirates can be tried in any court in the world. However, pirates are simply not being arrested on a scale that would inhibit their continued operations. The Gulf of Aden is a large body of water, and in order to effectively fight piracy there must be a large, well-coordinated naval presence to patrol the waters. As Cyrus Mody, manager of the International Marine Bureau, told the HPR, “Being in the vicinity is one thing; actually engaging the pirates is entirely different. The naval vessels need to seek out and arrest and confiscate the arms and ammo that the pirates have.” A coordinated naval presence, as seen in the Malacca Straits, has deterred piracy, and because of the potential of unprecedented economic consequences, it is imperative for international community to act quickly and decisively.