Petroleum

Pirates Continue to Target Oil Tankers Amid Low Oil Prices

Shipping Oil

The oil industry depends on a sophisticated system of maritime shipping. Shortly after oil first started to make waves within the global energy industry during the latter half of the 1850s, oil producers started to invest more efforts into developing oil tankers that could transport huge hauls of oil from remote locations to the global marketplace. Since the first ocean-bound oil tankers were produced during the 1860s, the oil industry has become increasingly dependent on ocean shipping routes to transport the majority of the world’s crude oil. Today, oil shipping makes up about a third of total maritime trade. Moreover, since 2000, the overall capacity of the global fleet of oil tankers and ships that transport other petroleum products has increased by more than 73 percent (UNCTAD, 2015). As the oil industry has continued to expand its maritime shipping operations, oil pirates have started to ramp up armed attacks against ocean-bound oil shipments.

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Maritime Piracy

Maritime piracy has long been a concern for the world’s oil and gas companies. While in recent years, global incidents of oil-related piracy have been on the decline, the International Maritime Bureau recently released a report highlighting how piracy has been on the rise in 2020. During the first quarter of the year, there has been a noticeable spike in piracy around the world’s shipping routes, with 47 attacks this year compared to 38 during the same period in 2019 (Smith, 2020). As international oil companies continue to struggle with the historic plunge in crude oil prices, the threat of oil piracy has added another complicating factor for the world’s oil industry.

Maritime piracy is a dangerous yet lucrative activity that takes place along the coastlines of many of the world’s less developed countries. Many people may not know that there is a definition for maritime piracy. According to the Oceans Beyond Piracy Foundation, the definition of piracy would include attacks on commercial activity within the high seas, which is known as all regions of the sea more than 12 miles off a coastline and not held under the political watch of any country. Within 12 nautical miles of a coastline, maritime-related attacks are classified as hostile robberies in the ocean. These incidents would fall under the jurisdiction of the nearest country, while piracy incidents occurring further out to sea are governed by international law.

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United Nations Convention on the Law of the Sea

The 1982 United Nations Convention on the Law of the Sea (UNCLOS) established a framework to address piracy under international law. Article 100 of UNCLOS says that, “All States shall cooperate to the fullest possible extent in the repression of piracy on the high seas or in any other place outside the jurisdiction of any State” (United Nations, 2012). The United Nations General Assembly has strived to repeatedly encourage the international community to collaboratively work together to address armed robbery and piracy at sea. The Division for Ocean Affairs and the Law of the Sea is responsible for providing an annual report to the United Nations Secretary General that outlines new updates related to piracy and other crimes at sea.

Oil Prices and Piracy

As the fossil fuel industry has experienced tremendous pressure from collapsing oil prices, one would think that oil piracy would be on the decline because oil has become less valuable. However, some economists have hypothesized that the collapse of the global economy in 2020 has influenced the development of desperate acts to secure commodities and items of value. As other economic opportunities have virtually disappeared in many of the world’s less developed countries, many low-level criminals have turned to piracy.

When oil prices previously collapsed between 2014 and 2016, there was optimism about a potential decline in oil-related piracy. In a 2016 interview with Bloomberg, Florentina Adenike Ukonga of the Gulf of Guinea Commission (a regional governmental body that promotes development in West Africa) said, “With oil at a low bottom price of below $30 per barrel, piracy is no longer such a profitable business as it was when prices hit $106 a barrel a few years ago” (Weber, 2016). Ukonga highlighted that a drop in oil prices was reducing piracy in West Africa. However, attacks have progressively increased since then as a result of the global economic downturn.

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African Piracy

The Gulf of Guinea has long been a key production hub for the oil and gas industry. This region is surrounded by eight oil exporting countries, most notably Nigeria, which is the largest oil producer in Africa and the fourth-largest natural gas exporter in the world. In 2018, there were 112 reported incidents of piracy in West African waters (BBC, 2019). The majority of these attacks have targeted large tanker ships that are filled with oil and gas. Some smaller commercial shipping boats have also been attacked by pirates within the region. In addition to incidents occurring more than 12 miles off the coast, there were numerous violent attacks within the anchorage and loading facilities near the Nigerian port of Lagos. The high value of shipments, no law enforcement, political instability, and an increase in socioeconomic poverty are all viewed as factors that have contributed to a rise in piracy in West Africa. This region is now known as the world’s number one hotspot for oil piracy.

East African shipping routes off the cost of Somalia have historically been plagued by robberies and

hijackings. However, the piracy rate in East Africa has been on a downward decline since peaking in 2011 (BBC, 2019). After experiencing a surge in piracy in the early 2000s along the Somali coastline, the international community started to effectively work together to patrol the region and take action against incidents of piracy. The European Union Naval Force, NATO, the UN Security Council, and Spanish Special Forces are among others in the international community that have been fighting back against pirates off the coast of Somalia. After deploying naval forces and warships to the region, piracy-related incidents have dropped off a cliff. However, the rise in attacks on the other side of the continent against oil tankers have more than made up for the decline in East African attacks.

Other Regions Plagued by Pirates

East and West Africa are not the only places around the world that have experienced high levels of piracy. Many regions that undergo a period of political and economic instability can be vulnerable to piracy. The Malacca Strait, which is a busy stretch of the ocean between Indonesia and Malaysia, has also experienced a significant number of piracy attacks since 2015. While similar efforts by the international community have been implemented to discourage future attacks, the coalition of international stakeholders has not had as much success here as was experienced in East Africa. In addition to the Malacca Strait in Asia, attacks off the coast of Latin America and the Caribbean have also been on the rise. The coast of Venezuela has also been a hotbed for piracy, with a large number of oil tankers traversing through the region.

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The Strait of Hormuz

One other region that has been significantly impacted by maritime piracy is the Strait of Hormuz in the Middle East. The Strait of Hormuz is a critical route for the countries within the Persian Gulf, which collectively make up the world’s largest exporting region of fossil fuels. According to data provided by the International Energy Agency and OPEC, the countries within the Persian Gulf Countries (Bahrain, Kuwait, Oman, Iran, Iraq, Qatar, Saudi Arabia, and the United Arab Emirates) supply about 32 percent of the world’s crude oil production and 27 percent of hydrocarbon exports, which includes 44 percent of crude oil, 14 percent of refined petroleum products, and 15 percent of natural gas (IEA, 2018). The vast majority of these exports pass through the Strait of Hormuz, making this region a target for oil pirates.

Fossil fuel exports that have passed through the Strait of Hormuz have historically faced threats from international conflicts and geopolitics in the Middle East. During the Iran-Iraq War (1980–1988) and First Gulf War (1990–1991), threats targeted at oil tankers nearly doubled global oil prices (Talmadge, 2008). Since these wars, Iranian militants have continued to threaten security within the Strait of Hormuz with increasing levels of theft and extortion. In 2019, the British oil tanker Steno Impero made international headlines after it was seized by pirates within the Strait of Hormuz. Between 2008 and 2011, piracy incidents originating primarily from Somali pirates spiked within the Arabian Sea outside the Strait of Hormuz, which compelled the international community to identify maritime piracy as a chronic threat to the fossil fuel industry.

Energy Security

Within the context of energy security, a spike in oil-related piracy can create significant impacts for international trade. A recent study found that higher insurance and security costs led to an eight to 12 percent increase in the cost of shipping commodities through the Arabian Sea (Besley et al, 2015). However, given that a reliable and affordable supply of crude oil is critical for meeting the global energy demand, oil importers are inclined to send their military forces to places like the Persian Gulf to help secure the flow of crude oil exports. For example, in 2008, India signed a defense cooperation agreement with Qatar in order to protect its fossil fuel shipments (Pratson and Shepard, 2020). China also recently signed a similar agreement to allow its navy to patrol the Strait of Hormuz to deter pirates from targeting crude oil exports bound for China (Cornwell, 2019).

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Rising Rates of Piracy

According to research conducted by political risk consultancy Verisk Maplecroft, incidents of oil-related piracy are expected to rise throughout 2020 and 2021. These incidents are expected to be most prevalent off the coast of West Africa. While international efforts have been made in recent years to secure other major international shipping routes in East Africa and through the Strait of Hormuz, West Africa remains vulnerable to a rise in piracy due to the lack of an international security presence.

The number of shipping crewmembers kidnapped off West Africa jumped by 50 percent to 121 in 2019, which is up from 78 crewmembers kidnapped in 2018 (Smith, 2020). Alexandre Raymakers, a senior Africa analyst at Verisk Maplecroft says, “This trend will continue into 2020 and into 2021 as regional security forces, hampered by security hot spots across the continent, and a lack of adequate equipment, continue to be unable to effectively tackle piracy” (Smith, 2020). Unless the international community comes together to address this region, international oil companies like Chevron, Exxon Mobil, Shell, Total, and Eni will continue to experience high levels of piracy in the near future.

Sources

BBC News. (2019). “Piracy in West Africa: The world’s most dangerous seas?” BBC News: Reality Check Team.

Besley, T., et al. (2015). “The Welfare Cost of Lawlessness: Evidence from Somali Piracy.” Journal of the European Economic Association.

Cornwell, A. (2019). “China Might Escort Ships in Gulf under U.S. Proposal: Envoy.” Reuters.

IEA. (2018). “World Energy Balances: 2018.” International Energy Agency.

Gladstone, R. (2014). “Global Piracy Hits Lowest Level Since 2007, Report Says.” New York Times.

Pratson, L., and Shepard, J. (2020). “Maritime piracy in the Strait of Hormuz and implications of energy export security.” Journal of Energy Policy, 140(11379).

Smith, E. (2020). “Pirates are expanding in West Africa, threatening offshore oil storage.” CNBC: Oil and Gas.

Starr, S. (2014). “Maritime Piracy on the Rise in West Africa.” West Point: Combating Terrorism Center, 6(4).

Talmadge, C. (2008). “Closing time: assessing the Iranian threat to the strait of Hormuz.” Journal of International Security.

UNCTAD. (2015). “Review of Maritime Transport.” United Nations Conference on Trade and Development.

United Nations. (2012). “Piracy Under International Law.” United Nations Oceans and Law of the Sea: Division for Ocean Affairs and the Law of the Sea.

Werber, C. (2016). “Oil is now so cheap even pirates aren’t stealing it anymore.” Quartz.

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