Less than 24 hours after Ukraine and Russia agreed to restart shipments of blockaded grain in a deal that was brokered by the UN and Turkey, Ukrainian officials have accused Russian forces of hitting the Black Sea port of Odesa with missiles – putting the agreement in danger of falling apart even before the ink on the paper is dry.
Moscow has not commented on the attack. Kyiv has said that preparations were still under way to resume the grain exports, despite the apparent breach. However, there were concerns that shipowners and marine insurers would take the view that the missile attack on Odesa meant that the risks involved in moving grain from the Ukrainian Black Sea coast to the Mediterranean would either make such journeys not worth their while, or rather more expensive.
The military command in southern Ukraine said air defence systems shot down two missiles on Saturday July 23rd, while two others “hit the infrastructure of the port.” However, the Ukrainian military’s southern command centre said that the strike caused no significant damage to the port.
Ukrainian foreign ministry spokesman Oleg Nikolenko said that Russia was undermining its commitments to the UN and Turkey under the grain agreement. “It took less than 24 hours for Russia to launch a missile attack on Odesa’s port, breaking its promises,” he said, adding that “in case of non-fulfilment, Russia will bear full responsibility for global food crisis”.
While Moscow has offered no comment on the matter, the Turkish government, which brokered the deal, said Russian officials had denied responsibility.
Defence Minister Hulusai Akar said that “in our contact with Russia, the Russians told us that they had absolutely nothing to do with this attack and that they were examining the issue very closely and in detail”.
Friday’s deal was designed to help release more than 20m tons of grain that are trapped in Ukraine, much of it in silos near Odesa. Russia promised that it would not attack merchant ships or port facilities involved in the movement of grain. Any missile attack on Odesa would therefore be a breach of the agreement.
On Friday, before the alleged Russian attack on Odesa, a number of insurance underwriters expressed interest in providing cover for the grain shipments, reported Reuters and Bloomberg. For logistical reasons the first shipments were expected to be some weeks away.
The agreement signed on Friday was the culmination of two months of talks and was seen as a diplomatic achievement by Turkey and the UN.
However, for grain exports to be achieved in the volume needed, a large number of dry bulk carriers, and insurance for them, will be necessary.
Neil Roberts, head of marine and aviation with the Lloyd’s Market Association, told Reuters that”there are a number of underwriters who have expressed an interest in writing this risk and one or two brokers also. It may well be a consortium that is formed. A number of things are still to be resolved and underwriters will need to assess voyages individually”.
Ukraine’s ports have been closed since Russia’s invasion in February. Insurers in the London market were also aware of the approaching deadline under which ships trapped in ports could be declared a constructive total loss, although apparently this had not caused a great deal of concern in the market – presumably on the grounds that it did not expect many shipowners to avail itself of the option.
There are still more than 80 ships stuck in Ukraine, many with cargoes onboard. These vessels will need to be moved first before new bulkers can arrive to take on board the grain currently in silos in Ukraine.
Roberts said the details underwriters would need included “what ships can be reactivated from those that are currently alongside (in Ukrainian ports). We would anticipate some kind of test run to give comfort to commercial interests. We would not expect that vessels would start coming out for at least a couple of weeks.”
He also noted that there was “the question of the chartering and who is arranging what. It is going to take a bit of time to get those contracts in place.”
Because Ukrainian waters are in the LMA’s high-risk zone, any sailings would require prior approval from underwriters, who will want more detail on the specifics of how the agreement will work before they put pen to paper.
James O’Brien, head of the U.S. State Department’s Office of Sanctions Coordination, said on July 22nd that “based on our conversations with insurers, if there’s full implementation of this arrangement, we do think that both insurance and ships will be available”.
International Chamber of Shipping secretary general Guy Platten said it was ready to work with all parties. “Ensuring crew safety will be crucial if we are to get this agreement moving quickly,” Platten said, while noting that “questions remain over how ships will navigate heavily mined waters and how we can effectively crew the ships in the region to meet the suggested deadline.”
The agreement would see the reopening of three Ukrainian Black Sea ports – Odesa, Chernomorsk and Yuzhny – for critical grain shipments. UN officials said that Russia and Ukraine had established elements such as the ports involved, the establishment of a monitoring centre in Istanbul, and inspection routines for the vessels, with both sides agreeing not to attack or hinder the movement of the vessels.
The UN officials said they planned to start work immediately to implement the initiative. Over the weekend it took the first steps to establish a Joint Coordination Centre – to be located in Istanbul – which the UN said would be the heart of the operation.
Turkey has offered to provide monitoring and inspection to meet Russia’s demands to assure the ships would not be used to transport military equipment into Ukraine.
The UN reported that the agreement called for Ukrainian pilots to be used to guide the ships in and out of the ports and through the mined waters. The ships will follow a prescribed route out of Ukrainian waters. They will then transit the Bosphorus to a Turkish port. There they will again be inspected before heading for the Mediterranean and grain-hungry world markets.
In addition to the agreement for inspections to ensure that vessels are not being used to transport military equipment, Russian has also demanded an easing of the limits on its shipping in the region. Russia wanted guarantees that would permit movements of its foodstuffs and fertilizer, accompanied by guarantees that its ships would also have free passage. The UN said that that a second, separate agreement was being signed to address these points.
IMO Secretary-General Kitack Lim said during the signing ceremony in Istanbul that “the safety of ships and seafarers remains my top priority. IMO instruments, including the International Ship and Port Facilities Securite, underpin this agreement for safe and secure shipping through the Black Sea”.
Historically Ukraine and Russia have exported about three-quarters of the grain grown in the region, with 90% of that moving by ship. News that a deal had been signed was sufficient to suppress the global price of wheat by 2%.
However, S&P Global Market Intelligence warned that it could still take a few weeks to months to resolve concerns for the Black Sea routes to resume. “Danube River ports will likely remain a safe and attractive option for grain exports in the near term,” said Daejin Lee, Lead Shipping Analyst at S&P Global Market Intelligence. In the early stage, Lee predicted that small domestic vessels would operate increasing capacity. It was the need for larger bulk carriers that would slow matters down.
The initial agreement lasts 120 days but is renewable. The UN said it did not anticipate it would stop any time soon.
Ukrainian President Volodymyr Zelenskiy dismissed hopes that the agreement might be sign of the whole conflict being resolved. In an interview with the Wall Street Journal he said that Ukraine saw no need for an early ceasefire. “Freezing the conflict with the Russian Federation means a pause that gives the Russian Federation a break for rest,” the newspaper reported Zelenskiy as saying.
Russia had consistently denied responsibility for the grain crisis, claiming that the real causes were sanctions on its own food and fertilizer exports and Ukraine for mining the approaches to its Black Sea ports.
Russian Defence Minister Sergei Shoigu said Moscow would not seek to take advantage of the de-mining of Ukraine’s ports. “Russia has taken on the obligations that are clearly spelled out in this document. We will not take advantage of the fact that the ports will be cleared and opened,” Shoigu said on the Rossiya-24 state TV channel.
Ukraine’s infrastructure minister Oleksandr Kubrakov also said that Kyiv does not see a risk of Russian ships attacking through the ports as they would be vulnerable to Ukrainian missile strikes.
When fully operational grain shipments from the three reopened ports were hope to reach pre-war levels of 5m tonnes a month.
The deal, signed in a “mirror” form, without representatives from Ukraine and Russia sitting at the same table, manages to create what should be a de facto ceasefire, but without mentioning the word ceasefire anywhere in the document.
Ukraine has mined nearby offshore areas as part of its defences, which was why Ukrainian pilots would guide ships along safe channels in its territorial waters, they said.