17-7-2023 (MOSCOW) The pact that facilitated the safe export of grain from Ukraine via the Black Sea for the past year is set to expire at the end of Monday as Russia announced its decision to suspend its participation.
The agreement, brokered by the United Nations and Turkey in July last year, aimed to address a global food crisis by allowing Ukrainian grain, which had been blocked due to the Russia-Ukraine conflict, to be exported safely.
The last ship to leave Ukraine under the deal departed on Sunday. Russia’s invasion and blockade of Ukraine’s Black Sea ports in February 2022 had caused a sharp increase in global grain prices. Ukraine and Russia are prominent grain exporters globally.
Under the arrangement, Ukraine has exported nearly 33 million metric tonnes of corn, wheat, and other grains.
Russia formally informed Ukraine, through the Russian embassy in Minsk, about the suspension of its participation in the Black Sea grain deal. Kremlin spokesperson Dmitry Peskov stated on Monday that the Black Sea agreements were no longer valid.
“Unfortunately, the part of these Black Sea agreements concerning Russia has not been implemented so far, so its effect is terminated,” he said.
Peskov clarified that the decision not to renew the deal was unrelated to the overnight attack on the bridge between Russia and Crimea, which he referred to as a “terrorist act” and blamed Ukraine for it.
While the Ukrainian military suggested that the attack could be a provocation by Russia itself, Ukrainian media cited unidentified sources claiming that Ukraine’s Security Service was behind the incident.
Russia had threatened to withdraw from the pact, citing unmet demands to improve its own grain and fertilizer exports. Russia also expressed dissatisfaction with the insufficient amount of grain reaching poorer nations. The United Nations argued that the arrangement had benefited those countries by contributing to a global decrease of over 20% in food prices.
“As soon as the Russian part of the agreements is fulfilled, the Russian side will return to the implementation of this deal, immediately,” added Peskov.
European Commission President Ursula von der Leyen criticized Russia’s decision to suspend the Black Sea grain export deal, calling it a “cynical move.” She emphasized that the EU would continue working towards ensuring food security for impoverished nations.
Turkish President Tayyip Erdogan expressed his belief that Russian President Vladimir Putin desires the continuation of the deal. Erdogan stated that he plans to discuss the matter with Putin when they meet in person in August.
Denys Marchuk, deputy head of the Ukrainian Agrarian Council, the main agribusiness organization in Ukraine, acknowledged that alternative routes such as river ports are more expensive in terms of transportation costs. However, he expressed optimism about finding a solution.
“As an option, why don’t we assess the possibility of the continuation of the grain deal without Russia? We had experience of this already in November 2022,” he suggested.
The reaction in the grains market was relatively moderate, with US wheat futures seeing a rise of around 3% and European futures increasing by about 2%, according to a German grains trader.
“I think there is market belief that Russia and the EU have large supplies of wheat which can meet world demand in the coming months, with harvests arriving,” the trader added.
However, Hasnain Malik, Head of Equity Research at Tellimer Research, warned, “Suspension of the Black Sea deal is not unexpected and may bring to an end the recent softening of commodity grain prices. That’s bad news for smaller and poorer importers in emerging markets such as Egypt.”
One of Russia’s key demands is for the Russian Agricultural Bank (Rosselkhozbank) to be reconnected to the SWIFT international payments system. The bank was disconnected from SWIFT by the European Union in June 2022 following Russia’s invasion.
Sources revealed that UN Secretary-General Antonio Guterres made a final effort on Tuesday to convince Russian President Vladimir Putin to extend the grain deal for several months in exchange for the EU reconnecting a subsidiary of Rosselkhozbank to SWIFT for grain and fertilizer transactions.