Days after Moscow pulled out of a one-year deal that enabled Kyiv to export its grain across the Black Sea despite a wartime blockade, Russia warned on Wednesday that it would consider any ship sailing around Ukrainian ports a military target.
Russia’s moves have profound implications for Ukraine’s grain exports, a key commodity for its own economy and world grain markets.
Here’s a look at alternative options for Ukraine to export its grain:
What is the immediate effect of Russia’s warning?
Russia’s Defense Ministry issued a warning to ship operators and other nations on Wednesday, indicating that any attempt to bypass the blockade could be seen as an act of war. Global grain prices rose sharply after the announcement, but have fallen below prices in February 2022 when Russia launched its full-scale invasion of Ukraine. Prices stabilized on Thursday.
One reason prices haven’t risen further is that Ukraine’s grain exports under the Black Sea Grain Initiative had already slowed to a trickle before Russia pulled out of the deal on Monday, according to Saul Gilberti, head of Tukrium, a US-based investment consultancy.
How has the Russian attack on Ukrainian ports affected the situation?
Since Monday’s announcement, Russia has launched a series of nightly airstrikes on Ukrainian ports, killing and injuring civilians. On Wednesday, an attack in Chornomorsk, south of Odessa, destroyed 60,000 tons of grain waiting to be loaded onto ships. This is enough to feed more than 270,000 people for a year, according to the World Food Programme.
The airstrikes reinforced Russia’s decision to terminate the agreement and refuse to allow Ukrainian exports through the Black Sea. They raise the stakes on how possible negotiations to revive the deal could proceed.
Can Ukraine continue to export food across the Black Sea despite the Russian threat?
Ukraine’s President Volodymyr Zelenskyi spoke on Monday about establishing a deal with Turkey and the United Nations, which helped broker a deal to continue grain exports independent of Moscow. No official response has been received from any party on this matter. However, Russia’s warning on Wednesday could put off commercial shipping companies and raise the cost of any shipping insurance, which, in turn, would make Ukraine’s grain more expensive on the international market.
What does this mean for shipping?
Prospects for a resumption now depend on military, diplomatic and commercial factors.
Six nations border the Black Sea and it is the main route for Russia’s grain exports. Ukraine on Thursday warned Russian ships bound for Russian ports or ports in occupied Ukraine carrying “military cargo with all the corresponding risks”. It was too early to tell what effect this would have on Russian exports.
Can the contract be revived?
Russia said that from its perspective, the agreement was terminated rather than suspended, making any quick revival less likely. In April, Moscow offered a series of demands it wanted to meet in exchange for renewing the grain deal, including allowing its agricultural bank to reconnect to the SWIFT payment system to make it easier to sell its own grain, which it ships across the Black Sea.
United Nations Secretary-General Antonio Guterres made proposals on how to meet some of Russia’s demands, but Moscow backed off. He expressed disappointment over Russia’s decision, which he said would hurt people around the world who are facing food insecurity.
According to two analysts, Turkey and China are the biggest buyers of Ukrainian grain, and Russian President Vladimir V. Leaders of both countries have enjoyed good relations with Mr Putin since the invasion began. Mr Putin is expected to visit Turkey next month, where he will hold talks with President Recep Tayyip Erdogan, the broker of the grain deal signed last year.
What are Ukraine’s alternatives?
Ukraine can transport its grain by road and rail to neighboring European countries, including Poland, as well as by barges on the Danube to other Ukrainian ports in Izmail and Reni, as well as to the Romanian port of Constanta. Benoit Fayad, deputy executive director of Strategy Grains, an agricultural economic research company, said these routes have enough capacity to export all the country’s grains.
However, exports through these routes are more expensive and as a result, Ukrainian grain, currently the cheapest in the world, will be less competitive, according to Arif Hussain, chief economist of the World Food Programme. In order to lower prices, the amount paid to Ukrainian farmers should be reduced, which would have a negative impact on future agricultural investment, he said.
“This Black Sea deal is a lifeline for Ukrainian farmers,” he said.
Are road and rail lines still viable?
Last summer, the European Union took steps to smooth the way for Ukraine’s territorial grain exports, given Russia’s blockade of the Black Sea. However, following protests by farmers in some EU countries, the bloc allowed Bulgaria, Hungary, Poland, Romania and Slovakia to ban domestic sales of Ukrainian wheat, corn, rapeseed and sunflower seeds, although they allowed shipments of those items to be exported elsewhere. The ban is expected to end on September 15.
Ministers from those five countries called on the bloc on Wednesday to allow the ban to be extended.
“From the point of view of the agricultural sector, the war in Ukraine has had more serious effects on the agricultural market,” Poland’s Prime Minister Mateusz Morawiecki told reporters. “Such elements must be removed or replaced. That’s why we closed the borders when products flooded in from Ukraine and destabilized the agricultural market.
Monica Pronczuk Contribution report.
