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Extorting the Insurance Companies
by James Dunnigan
October 29, 2008

Discussion Board on this DLS topic

The piracy in the Gulf of Aden is basically an opportunity for the Somali pirates to extort money from the maritime insurance companies. Since most of the ships moving through the Gulf of Aden are going to, or coming from, the Suez canal, where it costs, on average, about a quarter of a million dollars to pass through, pirate ransoms are seen as a minor additional cost. Last year, the canal took in $4.6 billion, charging large merchant ships several hundred thousand dollars each to make the 12-16 hour transit. The canal fees are worth it, as this shortcut sharply cuts the cost of getting goods from Europe to Asia. About seven percent of all world trade goes through the Suez Canal. Pirates are demanding a million dollars or more per ship from the owners. This has pushed up insurance rates to over $10,000 per ship moving through the Gulf of Aden (going to or coming from the Suez canal). The ship owners just consider that a cost of doing business (like increased fuel costs or the annual bump to Suez Canal transit fees.) The ship owners are keen to avoid crew casualties for the crews, as this will hurt morale, and cause merchant ship crews to demand "danger bonuses" for steaming through the Gulf of Aden. Dead crewmen also means bad publicity, which insurance companies do not like (as they get so much of it already).

Some 70 ships have been attacked in the Gulf of Aden this year, with pirates using two or three large fishing ships as "mother ships" to get pirates and their speed boats several hundred kilometers off the north Somali coast. This is in the middle of the Gulf of Aden, where most of the ship traffic is. More nations are sending aircraft and warships to patrol the Gulf of Aden. But none of these nations are willing to go ashore to destroy pirate bases, and some are restricting the use of force (against the pirates) by their warships. The anti-pirate forces are constrained by their governments wish to avoid anything that will look bad in the news. The pirates know how to manipulate the media. So a policy of shooting up any speedboats full of gunmen found off the north coast of Somalia, carries with it the risk of bad press and being accused of war crimes.

The pirates know that, as long as they keep the body count (among the ship crews) down, they can go on with this scam for some time. At the moment, less than one half of one percent of the ships transiting the Gulf of Aden are even being attacked by the pirates, and fewer are being captured. From a business point of view, the shipping companies see this as a manageable risk. Insurance rates go up (and this pays for the ransoms) for ships moving through the Gulf of Aden, and life goes on.

The Somalis, however, are quite enthusiastic about this new economic opportunity. So far this year, the pirates have collected about $30 million in ransoms. Deduct about a third of that for fees (to the middlemen) and bribes (to the governments and clans in the north where the pirates operate, and you still have quite a payday for less than 2,000 freebooters. Thousands more Somali gunmen are moving in to get a piece of the action (which is now dominated by a few gangs, and fishermen who have long operated on the coast.) It's expected that this rush to the "gold coast" will result in turf battles and more casualties among the pirates. Since this is fairly normal violence for Somalia, it does not garner much media attention.

Islamic militants are increasing their attacks on civilians and foreign aid workers in central and southern Somalia. This has split the unity of the Islamic Courts groups. Some want to "purify" Somalia by forcing out or killing all foreigners and non-Moslems. This has already resulted in several attacks, and many threats, on Christians in the southern part of the country. Most foreign aid groups have already either shut down their operations, or are considering it. That's because of the increasing violence by Islamic terrorists, who cannot be bribed or placated in any way. But most of the Islamic Courts want more power, and as well as the goodies that the foreign aid workers bring in.

The violence in Mogadishu continues to cause several hundred casualties a week. The Ethiopians are not, historically, afraid of the Somalis, and can be just as violent. That is what is happening in Mogadishu. The Islamic militants continue attacking the Ethiopians, and the clans who do not support the Islamic Courts. The Ethiopians attack right back, driving out the civilians known, or suspected, of supporting the Islamic militants. In the last year, half the population has been driven out of the city, and forced to live in new refugee camps in the outskirts. The Islamic radicals live there too, surviving on foreign aid and commuting into the city to continue the fight. Nothing unusual by Somali standards.

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