To the surprise of hardly anyone, Russia has announced the suspension of the Black Sea Grain initiative. Moscow released a statement hours before the agreement was due to expire. Had there been any doubt about its ending, that was dispelled when news came through that the bridge across the Kerch Strait had been struck and closed to road traffic, although Russia said that the former decision had not in any way been influenced by the latter event.
“Unfortunately, the part of the Black Sea agreement that concerns Russia has not yet been fulfilled. As a result, it has been terminated,” said Russian presidential spokesman Dmitry Peskov. “As soon as the Russian part of the deal is fulfilled, the Russian side will immediately return to the implementation of this deal,” Peskov added. TASS reported that Peskov said that the decision not to extend the grain deal was taken before “the recent terrorist act on the Crimean Bridge,” and that this attack had not influenced Moscow´s decision.
Russia’s foreign ministry said that this meant the withdrawal of safety guarantees for shipping, the ending of a maritime humanitarian corridor and the disbanding of the Joint Coordination Centre at the mouth of the Black Sea in Istanbul, which had been established to monitor the implementation of the deal.
The last ship to travel under last July’s thrice extended UN/Turkiye-brokered deal left the port of Odesa early on Sunday July 16th .
The agreement had died something of a slow death. Russia had not agreed to register any new ships since June 27th, while one of the three points, Yuzhne, had ceased to be part of the deal ever since the last extension.
Last week in a last-ditch effort to keep the deal alive, the UN had repeated an already-rejected proposal, offering to set up, eventually, a system whereby a new subsidiary of the Russian Agricultural Bank that would be a part of SWIFT for specific non-sanctioned trades. Russia said that the ploy was procrastination, attempting to keep the agreement open while offering nothing but empty words in return. Russia’s President Putin told South African President Cyril Ramaphosa in a phone call on Saturday that commitments to remove obstacles to Russian food and fertilizer exports had yet to be fulfilled. “Under these conditions of outright sabotage in the implementation of the Istanbul agreements, the continuation of the ‘Black Sea initiative’, which did not justify its humanitarian purpose, becomes meaningless,” the Russian foreign ministry said.
Ukrainian officials did not immediately comment on whether the final ship, the Turkish-flagged, 1996-built, 26.897 gt TQ Samsun (IMO 9125566) had left Odesa. However, on Monday its AIS showed it heading for Istanbul, with arrival due on Monday July 17th.
President Volodymyr Zelensky said Monday that Ukraine was prepared to continue grain exports after Russia exited a landmark deal brokered with Turkey and the UN to unblock deliveries from the major producer. “Even without the Russian Federation, everything must be done so that we can use this Black Sea corridor. We are not afraid. We have been approached by companies that own ships. They said that they are ready” to continue shipments, Zelensky said in comments distributed on social media by his spokesman Sergiy Nykyforov.
What happens now?
The end of the deal is an annoyance rather than a disaster. Ukraine has implemented alternative export routes, with more capacity now possible along the Danube and by rail / road. The different gauges between Ukrainian and Eastern European countries, a legacy of the 19th century, are not solvable, but the logistics to get round the problem have improved.
For other countries, the situation is also better than it was in the months immediately after the war, because global supply has increased from countries such as Brazil and, ironically, Russia. Prices for wheat Wv1 have fallen about 17% so far this year while corn Cv1 is down around 26%.
Global corn stocks began the 2021/22 season at a six-year low, meaning that the invasion of Ukraine by Russia had a significant impact. But a sharp increase in exports from Brazil since then has helped to boost supplies. The US Department of Agriculture has forecast global corn stocks by the end of the 2023/24 season will be at a five-year high.
Global wheat stocks fell to a seven-year low at the end of the 2022/23 season, but a slightly increase is forecast in 2023/24.
The Black Sea corridor helped Ukraine export 32.8m tonnes of agricultural products, including 16.8m tonnes of corn and 8.9m tonnes of wheat in the past season. Before the conflict, Ukraine was exporting roughly 25m to 30m tonnes of corn a year and 16m to 21m tonnes of wheat, both mostly via the Black Sea.
Ukraine’s ports were blocked until the agreement, brokered by the UN and Turkiye, was reached in July last year. Ukraine recently has floated an idea of providing its own compensation pool that could be accessed by owners of vessels if they were hit in the Black Sea while transiting grain. But it received something of a tepid response in the maritime market. The logistical problems (e.g., how it would link to London market insurance) made it unclear whether it would be possible to ship grain if Russia withdrew. The consensus was that few owners if any would be prepared to risk their vessels crossing the Black Sea if Russia has not agreed to safe passage. War risk insurance policies need to be renewed every seven days for ships, and they are not cheap.
Ukraine’s grain exports were forecast to fall in the 2023/24 season anyway, simply because Ukraine planted less seed last year in the aftermath of the Russian invasion, on less available land. Corn exports are expected to fall by about a third to 19m, well below the record 30.3m tonnes shipped in the 2018/19 season. Wheat exports are expected to fall to 10.5m tonnes, down from the prior season’s 16m and compared to a peak of 21m tonnes in 2019/20.
The question being asked is whether, despite logistical tweaks and improvements, these volumes can be exported via the Danube and via road. For crops grown in the eastern non-occupied parts of Ukraine, it would be an expensive and complex journey.
Another problem, which could be solvable in several ways, is that Ukrainian exporters have, understandably, decided that more profit can be made selling their grain cheaply in eastern Europe than for a slightly higher price in western Europe. That has caused unrest among farmers in the region. They claim that local mills have been buying the imported grain rather than the domestically produced goods.
The EU temporarily has allowed five countries – Bulgaria, Hungary, Poland, Romania and Slovakia – to ban domestic sales of Ukrainian wheat, corn, rapeseed and sunflower seeds, while allowing transit for export elsewhere. As it stands this will be phased out by mid-September.
Added to the global grain mix is that the eastern EU is expecting a larger harvest this year. Ports such as Constanta in Romania are therefore expected to struggle to handle the volume of grain it is likely to receive from Ukraine plus other production centres.