Monday, July 17, 2023

Ukraine Grain In The Membrane

Russia says it will let the UN-brokered grain export deal for Ukraine through Black Sea ports expire in retaliation for a Ukraine security forces attack last week on the main land bridge to Crimea.
 
The announcement appeared to be the most serious blow yet to a year-old agreement that had been a rare example of fruitful talks between the warring nations, and had helped to alleviate part of the global fallout from Russia’s full-scale invasion. Ukraine is a major producer of grain and other foodstuffs, and the United Nations had warned that some countries in the Middle East and Africa faced famine if Kyiv could not export its goods via the Black Sea.

A Kremlin spokesman, Dmitri S. Peskov, told journalists on Monday that the agreement was “suspended,” but added that the decision was not connected to the attack hours earlier on the Kerch Strait Bridge linking Russia to occupied Crimea. Russian officials blamed Ukraine for the bridge attack, but Kyiv has not taken responsibility.

Speaking about the grain agreement, Mr. Peskov said: “As soon as the Russian part is fulfilled, the Russian side will immediately return to the implementation of that deal.”

Russia has repeatedly complained about the agreement, which it considers one-sided in Ukraine’s favor. Russia’s Foreign Ministry on Monday issued a statement that emphasized its objections, including what it described as continued Ukrainian “provocations and attacks against Russian civilian and military facilities” in the Black Sea area, and said that the United Nations and Ukraine’s Western allies had not addressed Russian demands.

“Only upon receipt of concrete results, and not promises and assurances, will Russia be ready to consider restoring the ‘deal,’” the statement said.

The deal, known as the Black Sea Grain Initiative and brokered by the United Nations and Turkey, had been set to expire on Monday.

Turkey’s president, Recep Tayyip Erdogan, said he would speak to President Vladimir V. Putin of Russia about the agreement and signaled hope that he would agree to rejoin it.

“Despite the statement today, I believe the president of the Russian Federation, my friend Putin, wants the continuation of this humanitarian bridge,” Mr. Erdogan told reporters in Istanbul.

Last week, the United Nations secretary general, António Guterres, sent a letter containing proposals for Mr. Putin in an effort to meet Russia’s conditions for extending the deal. U.N. and Turkish negotiators spent the weekend awaiting a response from Moscow as the clock ticked down. Grain exports from Ukraine’s ports had dwindled almost to zero in the days before the deal expired.

The deal successfully eased shortages that resulted from blockades in the first months of the war, which caused global wheat prices to soar. It allowed Ukraine to restart the export of millions of tons of grain that had languished for months, and it has been renewed multiple times, most recently in May.

But Moscow has argued that while the deal has benefited Ukraine, Western sanctions have restricted the sale of Russia’s agricultural products. In an effort to address Russia’s demands, Mr. Guterres sent Mr. Putin proposals that he said would “remove hurdles affecting financial transactions” through Russia’s agricultural bank while allowing the Ukrainian grain shipments to continue.

In addition to its hope for smoother financial transactions, Russia has sought guarantees that would facilitate exports of its own grain and fertilizers, and the reopening of an ammonia pipeline that crosses Ukraine.

Ukraine has exported 32.8 million tons of grain and other food since the initiative began, according to U.N. data. Under the agreement, ships are permitted to pass by Russian naval vessels that in effect have blockaded Ukraine’s ports since the start of Russia’s full-scale invasion in February 2022. The ships are inspected off the coast of Istanbul, in part to ensure they are not carrying weapons.
 

Wheat prices were up by more than 3% in the Chicago commodities market after the announcement. Grain prices are nowhere near where they were in Spring of 2022 when the Russian invasion of Ukraine triggered a massive rise in wheat and grain prices worldwide, but if this agreement is suspended for too long things could get very bad, very quickly.

We'll see what happens with Turkey mediating.

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