Pirates Up the Ante with Supertanker's Capture

The Somali hijack of a ship carrying $100 million worth of crude imperils all Gulf oil shipments to the West. So insurance rates will rise

By Stanley Reed

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Saudi-owned crude oil supertanker Sirius Star during its naming ceremony in South Korea on June 18, 2008. REUTERS/Daewoo Shipbuilding and Marine Engineering /Landov

The weekend seizure of a Saudi supertanker called the Sirius Star off Africa's east coast marks a costly and potentially dangerous new development in the escalating wave of pirate attacks against shipping in the waters off Somalia. The pirates are said to have seized the vessel some 420 nautical miles offshore, about 100 miles farther out to sea from previous attacks. They have also managed to grab a huge, very valuable ship belonging to the world's most important oil exporter.

The tanker's owner, Dubai's Vela International Marine, says the tanker was fully laden. That would mean it has about 2 million barrels of crude on board, roughly one-quarter of Saudi daily production, and is worth nearly $100 million. Vela is a subsidiary of Saudi Aramco, the kingdom's national oil company. "It's a massive escalation of the problem," says Roger Middleton, a researcher at London's Chatham House think tank and author of a recent study on Somali piracy.

Just months ago, such an incident would have severely shaken the world's oil markets, but this time, because prices are already under pressure, there was only a brief upward tick on Nov. 17. Prices fell below the important $55-per-barrel level on Nov. 18. In fact, PFC Energy, a Washington consultancy, reports "increased interest" in $30-per-barrel put options, indicating growing skepticism that OPEC will be able to halt the recent steep price falls.

Persian Gulf Oil Shipments at Risk

Still, the pirates' ability to seize such a huge and valuable vessel has important implications for the global economy. The ship was headed from the Saudi oil terminal at Ras Tanura to the Netherlands Antilles, from where the cargo would continue on to the U.S. Vessels of this size, too large to transit the Suez Canal, must steam around Africa's Cape of Good Hope.

According to Samuel Ciszuk, an analyst at Global Insight in London, such a hijacking far out at sea "brings virtually all crude shipping from the [Persian] Gulf to the West in range of possible attacks." He says that insurance rates will inevitably rise and that tankers will need to be rerouted farther from the east African shores, increasing their travel time.

The Sirius Star hijacking is just the most brazen and ambitious of an escalating campaign by pirates operating around the Horn of Africa. A cargo ship operated by the Islamic Republic of Iran Shipping Lines was also hijacked in the same area on Nov. 18 and was believed headed for the pirates' holding area, according to the Associated Press, citing the U.S. Navy's Fifth Fleet. The cargo ship was loaded with 36,000 metric tons of wheat and headed for Iran, according to China's official Xinhua News Agency. According to the piracy reporting center of the International Maritime Bureau, a London organization that monitors piracy, there have been 92 attacks, 36 of them successful, in the area off Africa in 2008.

The aim of the attackers is to gain ransom. Middleton, the London researcher, estimates that $18 million to $30 million has been paid so far in 2008. The large ransoms are encouraging and funding increasingly sophisticated operations that use mother ships, often trawlers, to launch speedboats carrying gunmen against increasingly large targets far out at sea. Most of the pirates appear to be based in Puntland, a poor and lawless region of Somalia, as well as the homeland of the country's President Abdullahi Yusuf. "Even if the higher echelons of Somali government and clan structure are not directly involved in organizing piracy, they probably do benefit," Middleton writes.

Piracy Crackdown Gains New Urgency

Vela, the Sirius Star's owner, says it believes the ship is now at anchor off the Somali coast. The pirates' usual procedure is to take a ship to one of their safe havens and then commence ransom negotiations with the owners. These talks can drag on for weeks. Vela implies that it has already made contact with the pirates. All 25 crew members on board are believed to be safe, the company said. The largely Philippine crew also includes Britons, Poles, a Croatian, and a Saudi. "Our first and foremost priority is ensuring the safety of the crew," Salah B. Ka'aki, the company's CEO, said in a statement. Middleton said payment of a ransom is "the most likely way" to resolve the situation.

The Sirius Star could prove a bonanza for the pirates because it is of such great value, but it may bring new urgency to a crackdown already under way against piracy in shipping lanes that are vital to the West and the world. Warships from the U.S., Russia, and NATO countries are patrolling a zone in the Gulf of Aden leading to and from the Suez Canal zone. British sailors in inflatables recently thwarted the hijacking of a Danish merchant ship, killing at least two pirates and handing eight other suspects over to Kenyan authorities for trial. A standoff also continues between U.S. Naval vessels and pirates holding a Ukrainian ship loaded with tanks and other weapons.

But the site of the Saudi tanker hijacking is far from where the world's navies have been patrolling. Stamping out such lucrative operations is going to require a long, concerted effort. "If the toll is $1 million each time you pass through the Red Sea, it's going to become very expensive for shipowners," says Evangelos Pistiolis, CEO of Top Ships (TOPS), an Athens shipping company.

Reed is London bureau chief for BusinessWeek.