Piracy will push up oil price

11 February 2011

Buyers will pay price for piracy


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12 February 2011 | Adam Leach

Purchasers will have to pay higher prices for oil if the hijacking of tankers by pirates increases.

The shipping industry has cautioned that if the number of oil tanker hijackings continue to grow, it will have a major impact on the global price of oil and disrupt its supply.

This week Somali pirates hijacked the VLCC Irene SL, an oil tanker carrying two million barrels of oil en route to the US through the Persian Gulf. The tanker’s cargo represents around 5 per cent of the daily global seaborne oil supply.

Joe Angelo, managing director of Intertanko - the International Association of Independent Tanker Owners, said the latest attack marked a “significant shift in the impact of the piracy crisis in the Indian ocean.”

“If piracy in the Indian Ocean is left unabated, it will strangle these crucial shipping lanes with the potential to severely disrupt oil flows to the US and to the rest of the world,” he said in a statement.

Peter Sand, shipping analyst at BIMCO, an independent international private shipping association, believes short periods of supply disruption from the region can be handled but commodity prices could rise as a result.

“There are still quite high global inventories of oil around the world, so the world will not stop,” he told SM. But added: “The repercussions into the commodity price could be serious.”

He said the consequences would intensify if the problem persisted for prolonged periods of time, due to the reliance of markets on the shipping lane. “With the Persian Gulf providing around 40 per cent of the world’s crude oil exports there is no immediate alternative to supply,” he added.

In 2008 SM reported shippers were switching routes to avoid the region and spending money on private security to protect cargo.

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