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Houthis Attack Greek Ship in the Red Sea

Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Somali Pirates Have Escalated The Global Shipping Crisis

  • Arsenio Dominguez, secretary-general of the International Maritime Organization, warned shipping companies to be on high alert for piracy after several vessel seizures off the Somali coast as well as in the Gulf of Guinea.
  • The distraction provided by the Red Sea attacks has allowed several hitherto dormant piracy hotspots to spring back to life.
  • Other than disruptions to shipping activity, surging piracy in African waters is likely to lead to increasing shipping costs due to hefty insurance premiums.
Pirates

Since November, hundreds of cargo ships have been forced to take a 4,000-mile detour around the continent of Africa as they look to avoid attacks by Yemen's Houthi rebels on ships passing through the strait of Bab al-Mandab. 

Unfortunately, the distraction provided by the Red Sea attacks has allowed several hitherto dormant piracy hotspots to spring back to life. To wit, pirate attacks on ships sailing along the Somali coast have spiked, with more than 20 attempted hijackings since November driving up prices for insurance coverage and armed security guards. Last month, Houthi rebels attacked and set ablaze a cargo ship sailing through Somalia’s Gulf of +Aden.

"They took this chance because the international naval forces that operate off the coast of Somalia reduced their operations," Ismail Isse, a pirate financier, has told Reuters, adding that he was involved in the hijacking of another bulk carrier in December.

"If we do not stop it while it's still in its infancy, it can become the same as it was," Somali President Hassan Sheikh Mohamud told Reuters last month.

Interventions by the international community have been mixed. Last week, the Indian Navy managed to intercept Maltese-flagged bulk carrier MV Ruen Ruen; captured all 35 pirates aboard and rescued 17 hostages. 

"This intervention does show that the risk/reward is very much against the pirates, and hopefully that will make them think a few times over,"Cyrus Mody, deputy director of the International Chamber of Commerce's anti-crime arm, has said.

In contrast, a Bangladeshi foreign ministry official has told Reuters that the government is "not in favor of any kind of military action" to free the Abdullah, a Bangladeshi-owned bulk carrier hijacked by Somali pirates 10 days ago. Related: Hopes of a Gaza Ceasefire Are Putting Oil Prices Under Pressure

Last month, Arsenio Dominguez, secretary-general of the International Maritime Organization, warned shipping companies to be on high alert for piracy after several vessel seizures off the Somali coast as well as in the Gulf of Guinea. Dominguez has urged shipping companies to observe stringent security practices that were common during the previous piracy crisis.  

They need to be more in line with how they were back in 2008 to 2012 off Somalia. We’re having conversations to create awareness surrounding the Gulf of Guinea . . .  with the increased traffic in the region, we should avoid new escalation or increased incidents of piracy,’’ he said. 

Increasing Costs

The waterways off Somalia are some of the world's busiest shipping lanes thanks to their status as the shortest maritime route between Europe and Asia. Each year, ~20,000 vessels pass through the Gulf of Aden on their way to and from the Red Sea and Suez Canal.

But the Gulf of Aden is not the only piracy hotspot in Africa that’s seen a revival during the Red Sea crisis. Last month, pirates operating off Equatorial Guinea’s coast kidnapped a ship’s crew. Last decade, the Gulf of Aden and the Gulf of Guinea were some of the most dangerous piracy zones for oil companies and other seafarers with piracy activity peaking in 2018. 

These regions are particularly vulnerable to the menace due to lack of sufficient equipment and manpower as well as the fact that attacks usually occur far off coastlines beyond countries' territorial jurisdictions. Further, the Gulf of Guinea is rich in oil and gas and has a well-trained militia thanks to the Delta's secessionist movement

The Gulf of Mexico remains another piracy blackspot due to its abundant oil and gas resources, although pirates there are mostly associated with  local crime groups rather than cartels.

Thankfully, the African menace was largely eliminated several years ago by the adoption of on-board security measures, including traveling with armed guards. Several coastal states have also adopted more rigorous anti-piracy action. 

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Other than disruptions to shipping activity, surging piracy in African waters is likely to lead to increasing shipping costs due to hefty insurance premiums. Underwriters have been charging ships sailing through the Red Sea linked to U.S., British, and Israeli companies as much as 50% extra in war risk premiums due to the persistent threat of attacks. The war risk premiums for Red Sea travels have now hit ~1% of the value of a ship, translating into hundreds of thousands of dollars in additional costs for a seven-day voyage.

“The ships that have so far had problems, almost all of them have some element of Israeli or U.S. or U.K. ownership in there somewhere,” Marcus Baker, global head of marine and cargo with Marsh, has told Business Insurance. 

By Alex Kimani for Oilprice.com

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