Piracy costs world economy up to $12 bn a year

Thursday, January 13, 2011

NEW YORK - Somali pirates have driven up shipping costs in the Indian Ocean, resulting in world economic losses estimated at $7 billion to $12 billion a year, a study by One Earth Future Foundation said Thursday.

Armed with AK-47s, pirates in rickety skiffs have carried out brazen hijackings, seizing massive oil tankers, cargo vessels and luxury boats.

The main direct costs of piracy include ransom, piracy insurance premiums, rerouting of vessels away from risky waters, zones, naval deployments by countries fighting piracy, piracy prosecutions and organization budgets aimed at fighting piracy, the Colorado-based think tank said in the study on the costs of piracy.

Navies from the US, European Union countries, China, India, Russia and Japan have been deployed in joint efforts to fight piracy, adding expenses to their national defence budgets.

The study said Somalia-based pirates are considered responsible for 95 percent of the cost.

The recent wave of piracy began with seizures of vessels off the Somali coasts in 2005. The pirates have since been emboldened, targeting larger vessels including tankers on the high seas.

Other areas of piracy risk include the Gulf of Guinea, the Malacca Straits and off Nigeria.

The study, issued Thursday by the London foreign-policy think tank Chatham House, said some 1,600 acts of piracy have been recorded since 2006, causings the deaths of more than 54 people.

“Some of these costs are increasing astronomically,” said Anna Bowden, director of the research project. “What is even more concerning is that all these are simply treating the symptoms. Almost nothing is being done to treat the root cause.”

Bowden said ransoms demanded by pirates have skyrocketed. A South Korean company paid $9.5 million in November to gain the release of a tanker, up from $7 million paid in January 2010 for a Greek-owned supertanker, which was carrying $162 million worth of oil to the US.

The average ransom was $5.4 million, compared to $3.4 million in 2009 and $150,000 in 2005.

The study estimated the total of ransoms paid in 2009 and 2010 at $425 million. If excess costs incurred in negotiations and delivery fees were added, the approximate amount spent on ransoms could total around $830 million during the two-year period.

The study said about 10 percent of ships around the world have rerouted to avoid pirate-infested sea lanes, which may affect countries like Egypt, which derive revenue from shipping through the Suez Canal. The study said that Egypt apparently had lost 20 percent of canal revenue because of rerouting by shipping lines.

The study pointed out that it had been difficult to obtain information from shipping companies.

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