In the wake of several highly publicized pirate attacks off the coast of Somalia in 2009 I spent three months interviewing pirates, hostage negotiators and former hostages to try and shed light on how Somali piracy had become a business. The result was “Cutthroat Capitalism” (pdf), an article that broke down a pirate attack into a series of rational formulas.  Think of it as an easy to understand guide to managing a pirate attack and negotiation.  At the time a coalition of navy ships was just starting to patrol the Gulf of Aden and directly threaten pirates. Just a few weeks before my article was published  US navy snipers shot and killed several pirates as they held the captain of the Maersk Alabama in a lifeboat. At the time I thought it was an aberration, and piracy would continue on as normal. In light of recent events where four American yachtsmen were shot an killed in a botched Navy raid it seems that the gulf of aden is taking a dangerous turn.

Somali pirates have offered something that no other pirate organization had in the history of naval conflict: reliability during negotiations.  The key to their business isn’t only in their seamanship where they are able to successfully board and capture valuable vessels, but that they cultivated relationships with hostage negotiators. While negotiating ransoms the abductees families could trust that if they sent ransom money that the pirates would honor the agreement and free the hostages and captured ship. With long term relationships with kidnapp and ransom insurance companies in place the pirates were able to reach out through the press and back channels to governments and military officials as well. In many areas of Somalia they have become the defacto rulers and most important employers.

In the absence of a regulated banking authority (since Black Hawk Down the international community has all but abandoned Somalia) many ransoms are paid in Somalia through hawala bank transfers that originate in London, Dubai and the United States. After hundreds of successful hijackings and ransom payments over the years the rules have become formalized to a point where everyone knows what to expect. Ransom negotiations will take several months, but the hostages and vessel will be treated well. The pirates even often hire cooks that specialize in providing western meals for hostages. It is in their best interest to be sure that the hostages are treated well. A death would ruin their reputation with the international community and cut their profits down the line. In return the pirates expect the navy to remain out of negotiations and to hold their fire. The minute a gun fires in anger on either side the entire system is vulnerable to collapse.

Right now insurance companies make rick calculations whereby they offset the cost of ransoms and injuries with premiums. They figure that if only .02% of vessels get hijacked, at an average cost of a few million per incident, then they can account for the expense with higher premiums.  At some point, though it all becomes unstable, uninsurable and the money sets the stage for violent conflict. As maritime ransoms have climbed over the years pirates have been able to reinvest and expand their business. Where ten years ago it was common to have vessels to pay only a $30,000 or $50,000 fior release, the New York Times notes that the average ransom has climbed to almost $4 million in 2011.  That sort of money buys a lot of rocket propelled grenades, skiffs and mercenary sailors. The result is a general ratcheting up of piracy throughout the gulf of Aden. As a security risk, naval fleets have a vested interest in preventing Somali piracy from growing so big that it outpaces the business plan.

In a way I understand the aggressive tactics by the navy. They want to deter piracy, and the only way to do that is to take the conversation out of the business realm and into the military one.  Now that they are shooting pirates we can expect the death toll to rise considerably in the future.  According to the New Y ork Times “The F.B.I. agent involved was a hostage negotiator from a special team based at Quantico, Va., who was experienced in both domestic and international hostage crises, a law enforcement official said Wednesday. It was unclear whether the agent had ever negotiated with Somali pirates.”[1]. This leads me to think that the negotiator here was not an old hand at Somali piracy and lacked any long-term contacts with pirage gangs.  He/she was using the rulebook that the FBI uses with terrorists, bank robbers and deranged lunatics, not business men.  Instead of offering up ransom, the agent offered the pirates a chance to escape with their lives. They could return the hostages and keep the boat. But no ransom would be paid.  It’s not the sort of thing that the pirates are used to hearing, and then, shortly thereafter the Navy took two pirate negotiators into custody—effectively holding them for ransom against the pirate crew on the yacht “Quest”.

It’s no shock at all that the event ended in the deaths of all of the crew and several of the pirates.  I don’t really buy the story that the navy put out that the pirates fired an RPG at the navy ship and provoked an armed response. It seems completely out of character for the out-gunned, out-classed pirates who were well aware of what would happen if they fired first. More likely, I believe that the navy is adopting new tactics to deal with piracy at the immediate expense of hostages. In the short term this will mean the deaths of captive crew members, but in the long run it may curtail some of the hijackings.  Unless of course, the pirates change their tactics to match the naval aggression.

If I were going to predict what will happen in the next five years, I believe that eventually pirates will stop holding individual crews at ransom, and change their tactics to show that they can also escalate their potential to do damage. They want to keep their business going, and the only way to do that is show the navy that attacking and killing pirates isn’t in their best interest. Several years ago Somali pirates captures the oil tanker the Sirius Star and it’s load of more than $100 million worth of light sweet crude.  If instead of holding the crew at gunpoint, they could have instead wired the vessel with explosives and threatened to sink it at grave environmental cost for fisheries, transit, and the coastlines of Jordan, Somalia, Kenya, Egypt, Pakistan, India and Saudi Arabia.  Leading to a new formula that I did not put in the original piece in Wired.

Violence deterrent = Naval response  /  potential damage cause by catastrophic pirate attack.

If they sink just one super tanker, the navy will relent just like the Americans did after the Black Hawk Down even in Mogadishu.  Although I hate to admit it, the pirates hold all the cards in this game.