The global shipping industry has declared a victory of sorts over Somali pirates. Upgrades‚Äîfrom crew safe rooms to armed guards‚Äîas well as improved international military coordination and¬†maritime standards, have taken their toll on those gangs. The number of incidents¬†peaked in 2011, when 40 attacks were recorded in November alone. By 2012, that figure had dropped to 15 successful attacks off the East African coast in 2012, according to U.N. data.
But the victory has come at a high cost. In fact,¬†one analysis¬†from¬†Quartzsuggested the shipping companies would be better off simply handing over suitcases full of cash: Annual revenue for the Somali pirates has been estimated at $120 million, versus a price tag for security and upgrades¬†estimated¬†at between $1 billion and $3 billion. As a result, some piracy experts worry about complacency setting in given the recent gains, especially for an industry constantly under margin pressure looking to cut costs.
There is more to protect than ever before. It’s no coincidence that a new crew of pirates has beefed up its operations in the Gulf of Guinea on Africa’s Western coast at the same time that Somali piracy has weakened. The gulf’s pirates are operating in waters off of many of Africa’s oil and gas-rich nations, including Nigeria, Ghana, the Ivory Coast, Cameroon, Gabon and Angola.
Africa’s proven oil reserves¬†have grown¬†by nearly 120 percent in the past three decades, from 57 billion barrels in 1980 to 124 billion barrels in 2012, according to the U.S. Energy Information Administration. The EIA estimates that there are at least another 100 billion barrels in offshore deposits.
To protect one of the world’s scarcest and most valuable natural resources will require an anti-piracy effort in the Gulf of Guinea to match that to combat Somali pirates in the Gulf of Aden. It also must take into account the unique nature of the oil and gas offshore business, the lack of a comprehensive regional plan among Western African nations and the financial infrastructure of pirate finance onshore, experts said.
A growing divide
“We should think of piracy as going where the traffic is and not the other way around,” said Jon Huggins, program director of Oceans Beyond Piracy at One Earth Future, a nonprofit specializing in global governance.
“If traffic is increasing and waters are not well-policed way, it’s always possible it will emerge,” he said. “We are concerned that people look at these numbers and say the piracy threat is over. … The Gulf of Guinea is the bigger one now. There is a black market for refined oil products and charges of collusion at hire levels.”
Best practices in the Somali anti-piracy maritime standards include spending less time close to shore. But oil ships have to loiter at anchor, which makes them vulnerable. And resupply vessels, often owned by international oil and gas companies, have to run out to the rigs. An American vessel was¬†recently attackedby pirates.
The crew was freed last month, but piracy in the Gulf of Guinea off Nigeria has jumped by a third this year, according to Reuters. Companies are beginning to recognize the risk, and international maritime organizations are starting to come up with some¬†best practices¬†more suited to the situation. Those include protected anchorages, which keep a group of ships under the watch of a security protocol while loitering at shore.
Because those waters are under the control of various national governments for many miles out, shippers cannot have private armies on board without contracting through local governments, if they are even allowed to have arms at all. Yet no ship with private security on board operating in other heavily pirated waters has ever been taken, according to Huggins, making the challenge even greater in the Gulf of Guinea.
Urs Dur, a shipping analyst at Clarkson Capital Markets, doesn’t think international oil and gas companies will cut corners when activity in the Gulf of Guinea is escalating. Shippers trying to “skimp” on anti-piracy measures would have a hard time telling that to an insurer‚Äîor self-insured oil and gas company‚Äîwhen they are carrying millions of barrels of oil.
“You think ExxonMobil would let you have lower protections on board? Going through that area you take protection‚Äîas simple as that,” he said. He added that he would be surprised if the savings represented by anti-piracy expense cutting would ever be a deciding factor, because such costs are passed on to the consumer, the cargo owner.
The issues in the Gulf of Guinea are not about added cost, but of a more intractable variety: dealing with various sovereign governments. The irony of Somalia is that it was a failed state, allowing piracy to flourish, but at the same time, making it easier for an international coalition to take up arms and defend vessels, said Joe Cox, president and CEO of the Chamber of Shipping of America.
Cox said the U.S. government, which asked his organization to become involved in East Africa in the past has made no such request yet about the Western coast. “It’s a different animal because it’s not a failed state. What do you do when you are in waters where governments say you can’t take military action?” Cox said. He added that a company is at a disadvantage when dealing with a government onshore that is supposed to provide protection, but may also be linked to corruption involved with the black market for petroleum. “How does a company even with the enormity of Exxon Mobil say to Nigeria, ‘Look, would you please take some action to exercise your sovereignty in your waters?’ Is that the role of the company or country?” Cox asked.
“Pirates were opportunists five years ago,” Dur said. “The best way to solve a problem is to destroy the root of it, and I presume that’s the money.”
That’s a point on which the World Bank agrees. A¬†recent report¬†it produced with Interpol said that the gains made against the Somali pirates miss the most important measure: cutting off the financial structure built around the their successful looting and ransom campaigns.
The military campaigns and best management practices aren’t enough, said Stuart Yikona, a senior financial sector specialist at the World Bank.
As with any profit-motivated crime, he said, the root incentive needs to be removed. Piracy is a business, and though its structure may vary from legal forms of capitalism, there is “still somebody who says, “I have a lot of money and want to invest’ and foot soldiers saying, ‘I am unemployed or only getting $2.’ Guess what a difference $20,000 makes.”
“The international community is good at crisis management, but longer-term planning is more difficult,” Huggins said.
Pirates have stock exchanges and shareholder meetings to discuss ransom strategy, and some of their cash goes into setting up restaurants to supply their networks with food. Pirate financiers are no different than legal financiers in seeking to maximize opportunities.
“It’s low-hanging fruit to send in the military when money is flowing through wire transfers and cash across borders, and a pirate financier may have sponsors and protectors in the political establishment,” Yikona said. “Go and attack their pockets. The financial community needs to rise up and mobilize to do what was done on sea on land. The financial side of this business is where you have the biggest loopholes.”
The biggest problem is the West Coast of Africa, he said. “How do you deal with the Gulf of Guinea? That is where you should be looking,” Yikona said. “The Horn of Africa was 2005 to last year.”
“We’re at a point where the boys [in the Gulf of Guinea] are starting to see they can do this with impunity, so why not keep it up?” Cox said.
‚ÄîBy Eric Rosenbaum, CNBC.com