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Why Pirates Are Giving Up On Oil

Published in Oil Industry News on Tuesday, 7 January 2020

Graphic for News Item: Why Pirates Are Giving Up On Oil

Piracy in some of the world’s most critical oil chokepoints is on the rise--but now, pirates are resorting back to another method of income generation better suited to times of lower oil prices: taking human captives.

Sometimes, black market oil prices just aren’t lucrative enough. In the days of $100 oil, oil theft was a hot commodity. Today, pirates are supplementing their stolen oil income with ransomed sailors, creating a whole new set of problems for the oil industry to tackle.

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Where Piracy is Hot, and Where It’s Not

Piracy is being dealt with fairly successfully in certain regions of the world. In others, efforts to shore up maritime security have failed. But the threat of pirates taking human captives is alive and well in all regions.

East Africa - Once a piracy hotspot, piracy off Somalia’s coast has fallen in recent years as the international community--including Iran--stepped up to tackle this pressing problem that disrupted the flow of goods, including oil, through the critical oil route. Somalia, too, has stepped up its ability to prosecute pirates. The East Africa area includes the Bab-el-Mandeb between Yemen and Djibouti, as well as the Gulf of Aden. Piracy incidents here hit a high of 54 in 2017, before falling back to just 9 in 2018, according to One Earth Future’s annual report The State of Maritime Piracy 2018.

But while piracy off Somalia has toned down in recent years, the problem of using captive humans as an additional income stream has not gone away. One Iranian seafarer, for example, who was held captive by Somalia pirates was finally released after four years due to poor health. Three of his shipmates, however, are still being held to this day.

West Africa - While things appear to be cooling off in the pirate world off Africa’s east coast, the west side is seeing a disturbing rise in piracy. And not just any piracy--piracy with a human captive component. The area most subject to piracy here is off the coast of Nigeria and the Gulf of Guinea in general. So much so has this alarming shift risen from oil to persons over the course of the last year in West Africa, that India--the most prolific source of maritime sailors in the region--has banned all Indian seafarers from working on vessels in Nigerian waters and in the Gulf of Guinea. On the line here for Nigeria is $10 billion annually in crude oil sales to India, who purchases more than one-third of all Nigerian oil.

Just last month, pirates in the Gulf of Guinea hijacked two Indian oil tankers in two separate instances. But they didn’t stop with the crude oil. They also took the Indian crewmembers hostage both times. While one set of hostages have since been released, the second batch is still being held in captivity, adding to the growing unrest in the region as shippers and sailors fear for their own safety and for the safety of their crew.

Overall in 2019, there were a total of 89 crew hijacked for ransom in the Gulf of Guinea, and there is now even a special rider offered by one insurer, Beazley, called the “Gulf of Guinea Piracy Plus” that compensates vessels up to a certain maximum should they fall prey to pirates.

This area is where 82% of all kidnappings on the world seas take place, as crime syndicates in the Niger Delta region of Nigeria look to capitalize not only on the country’s sizable crude oil trade but on the ransom for the many kidnapped sailors that traverse nearby waters as well.

The rise of this oil-piracy-with-a-side-of-people has been attributed, quite lazily, on poverty in the area, but the extracurricular kidnappings and ransoms come with a special brand of gratuitous brutality that speaks less of poverty-induced desperation and more of wanton criminality and woefully insufficient prosecutorial infrastructure and corrupt governments.

Southeast Asia - There is also a rise in piracy off the Singapore Strait, Strait of Malacca, and in the Sulu and Celebes Seas. In the last month of 2019, there were six attempted piracy attacks over a string of just six days. All together for 2019, there were 30 recorded piracy incidents just in the Strait of Singapore alone. The area is another critical path for oil traveling from the Persian Gulf to the booming East Asian market.

There has not only been an overall increased risk of piracy in this area, but an increased risk of kidnapping for ransom as well. In the Sulu Sea, most of the ransom incidents were claimed by Islamist terrorist organization Abu Sayyaf Group (ASG), based out of the southern Phillippines. Its latest ransom demand for a kidnapped Indonesian national was $567,000. The group is known for beheading hostages when ransoms aren’t paid.

The Cost of Piracy

Piracy has a cost, but it’s more than just stolen oil. All of the costs associated with stolen oil, including the lost oil itself, the ransom money, insurance risk premiums, and so on will invariably be added into the cost of every barrel of oil the world over. Ransom payments, per person, can range anywhere from $18,000 to $570,000. And those ransoms are mostly being paid.

“Pirates are predominantly taking crew because that is where the money is. People are paying it,” Phil Diacon, Dryan Global chief executive told Maritime Intelligence.

War risk premiums for ships traveling through the Gulf of Guinea, for example, incurred $18 million in extra charges in 2017. And over a third of all ships traversing the Gulf carried an additional kidnap and ransom rider at a total cost of $20 million--just for the Gulf of Guinea.

Contracted maritime security is another expense.

All together, piracy in West Africa alone cost more than $800 million in 2017.

Then there is the human cost. Some captives are held as little as a few days while payments are arranged. Others are held for years. Case in point: The captives are often subjected to beatings, starvation, threats, and uninhabitable conditions.

The most recent incident of oil piracy came over the last days of 2019, as eight sailors were abducted from a Greek oil tanker near a port in Cameroon.

Persistent weak maritime security in pirate-stricken oil chokepoints across the globe will continue to weigh heavily on the oil industry and chip away at oil profits.

Source: oilprice.com

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