The Danger of Escalation

It was a hit with the U.S. public, but president Obama's decision to authorize the Pentagon to kill three Somali pirates who took an American sea captain hostage sent shudders through the world's shipping and insurance industries. Because the pirates are motivated chiefly by money, maritime experts say, they have—at least until now—taken good care of the crews they hold captive. A document retrieved from a ship hijacked last year contained a "list of written rules" of conduct pirates had to follow, according to a maritime security expert who requested anonymity when discussing sensitive material. The document included a series of "punishments" to be imposed on any hijacker who struck a hostage. (Story continued below...)

Shipping companies and insurers are far more likely to fork over large ransoms if they have confidence that their personnel and cargo will be released unharmed, and while the scourge of piracy has been disruptive, so far there have been virtually no casualties among innocent people. According to estimates, there were 111 pirate attacks off the Somali coast in 2008; 42 were successful, resulting in the capture of 815 seamen. As of last week, according to one estimate, all but 37 had been released, and two had died—one reportedly of illness. Experts say the rate of attacks has increased sharply this year, and "the more [authorities] shoot, the more the pirates will shoot back," says Tom Wilson, a Somalia analyst for the British consulting firm Control Risks.

Protecting the 23,000 merchant vessels sailing annually near the Horn of Africa would require a naval fleet of at least 60 ships, according to U.S. government and private experts; the existing international antipiracy task force has about 20. And attacking the Somali coastal villages where the pirates are based could potentially radicalize generations of Somalis. "That would be a 19th-century solution," says Neil Roberts, a marine insurance expert with Lloyd's Market Association in London. Industry experts say the only solution to piracy is the creation of a viable Somali government back on dry land.

According to industry officials, ransom demands have ranged as high as $25 million—but in most cases they are negotiated down to about $2 million to $3 million, and insurers then pay out claims to the shipping companies. As hijackings have increased in frequency, pirates have become fussier about how their money gets delivered. Initially, said a shipping-industry source who also asked for anonymity, ransoms were often handed off to shady Somali expats in places like Kenya. After Kenyan authorities cracked down, the pirates began insisting on airdrops via parachute into the ocean near Somali coastal villages, where they have cash-counting machines ready. Until the U.S. opened fire, one of the pirates' biggest headaches had been dealing with the sheer volume of money they've collected. Last year, according to an insurance-industry official, one pirate's boat capsized because he had overloaded it with cash.