Threat of blockade or blackmail by Russia: what is happening around the grain deal

The Black Sea grain deal is once again under attack: Russia threatens to block it after May 18.

Even at the beginning of the full-scale war, Russia blockaded Ukrainian ports on the Black Sea. As Ukraine is one of the largest grain exporters in the world, the blockade could spell disaster for the poorest countries due to food shortages and a sharp rise in food prices. For example, in March 2022, export prices for wheat and corn increased by 22% and 20%, respectively.

The UN warned of the threat of a global food crisis and even famine for tens of millions of people.

But the Black Sea Grain Initiative, signed on July 22, 2022 in Istanbul, ended the five-month blockade of Ukrainian ports.

Why Moscow has resumed grain blackmail and what the consequences are – read more in the article.

How the grain agreement works

The agreement was signed by Ukraine, the UN, and Turkey for a period of 120 days with the possibility of extension. It allowed for the creation of a maritime corridor for the safe export of Ukrainian grain and other products. A similar separate agreement was concluded between Turkey, the UN and the Russian Federation.

The Humanitarian Grain Corridor in the Black Sea was launched on August 1, 2022.

According to the UN, more than 29 million tons of products have already been exported: 50% is corn, 28% is wheat, 5% is sunflower meal, 5% is sunflower oil, and 12% is other types of goods.

???????? #Ukraine has exported over 24 million metric tons of grain and food products to 45 countries through the Black Sea Grain Initiative since August 2022. Check out our latest animation of vessel movements across the globe.

Explore the data on #HDX: https://t.co/I3ut2j53Eb pic.twitter.com/Nb141hBLTf

— OCHA Centre for Humanitarian Data (@humdata) March 15, 2023

To implement the agreement, a Joint Coordination Center (JCC) was established in Istanbul, consisting of representatives of Ukraine, Turkey, the UN, and the Russian Federation.

According to the procedure, ships are inspected near Istanbul (in the Bosphorus Strait) on their way to/from Ukrainian ports. The ships are protected by a buffer zone, and their movement is monitored around the clock by JCC representatives. The ships are inspected by joint inspection teams.

•  Where the grain comes from and where it goes

Grain is exported through three Ukrainian ports: Odesa, Chornomorsk and Pivdennyi (all in Odesa region). The ships head to Istanbul (Turkey), where they continue their journey to their destination after inspection.

The largest shipments from Ukraine were delivered to China (6.7 million tons), Spain (5.1 million), Turkey (2.97 million), Italy (2 million), the Netherlands (1.7 million), and Egypt (1.2 million tons).

As of March 2023, the UN reported that wheat exports were mainly to developing and least developed countries (65% of the total). Ukrainian corn is almost equally exported to developed countries (51%) and developing countries (49%).

According to the Ministry of Foreign Affairs of Ukraine, as of the end of March, 11.6% of agricultural products were exported to Africa, 48.2% to Asia, and 40.2% to Europe. The Ministry emphasized that part of the Ukrainian grain purchased by European countries is sent as humanitarian re-export to Africa and Asia.

As part of the grain corridor, humanitarian food aid is delivered to Afghanistan, African countries and Yemen by ships chartered by the UN World Food Program (WFP). As of mid-March 2023, the WFP has shipped more than 481 thousand tons of wheat in this way.

The Grain from Ukraine food initiative, launched by Ukraine, is also in place. Its essence is to allow donor countries to purchase agricultural products from Ukrainian producers and supply them to countries in Africa and Asia that are on the verge of famine. Ukraine is implementing it in partnership with WFP.

•  Benefits for Ukraine

Back when the grain corridor was launched, the Cabinet of Ministers predicted that the de-blockade of ports would generate at least $1 billion in foreign exchange earnings for the Ukrainian economy every month.

At the same time, the agricultural sector will be able to plan next year’s sowing season.

• Global impact of the agreement

The UN notes that the unblocking of exports from Ukraine has helped stabilize markets and limit price increases.

According to the Food and Agriculture Organization of the United Nations (FAO), global food prices have been falling for 12 months in a row and have already dropped by 20.5% compared to the historical high in March 2022. In particular, the cereal price index fell by 18.6% over the year.

The reason is clear: after the blockade of Ukrainian ports was lifted, the amount of food on the world market increased, which contributed to its price reduction.

In addition, the grain deal has had an impact on the fight against hunger in North and East Africa, Asia, and the Middle East, Bernard Lehmann, chairman of the UN Group of Experts on Food Security and Nutrition, explained to DW. According to him, without it, “there would be a shortage of grain for import to these regions and prices would rise even more.”

Russia’s sabotage: why grain exports are under threat

The Ukrainian side proposed to make the grain agreement indefinite with an automatic 120-day extension. Kyiv would also like to expand the geography of ports to Mykolaiv region and increase the range of goods for export.

At the same time, before each extension of the Black Sea Grain Initiative, Russia looks for reasons to withdraw from it, using food as a weapon.

Since November 2022, Russian representatives have sabotaged and artificially delayed ship inspections in the Bosphorus, creating a queue of dozens of ships. According to the Cabinet of Ministers of Ukraine, this has led to a reduction in exports of Ukrainian agricultural products by 15-18 million tons.

And in March of this year, the aggressor resorted to blackmail, saying that it agreed to extend the initiative for only 60 days.

Nevertheless, the grain deal was extended on March 18. Deputy Prime Minister Oleksandr Kubrakov said that the document had been extended for 120 days.

The UN did not specify the timeframe. Earlier, however, UN Secretary-General’s spokesperson Stephane Dujarric confirmed that the terms of the grain initiative provided for a 120-day extension.

At the same time, the Russian Federation claims that the agreement will be valid for only 60 days, until May 18.

On April 24, the Russian Defense Ministry accused Ukraine of allegedly violating the guarantees under the grain deal because of another “cotton” in the occupied Crimea. Russia claimed that this allegedly jeopardized the extension of the grain deal after May 18.

On April 26, the Russian side once again blocked the Black Sea grain corridor. As a result, four ships were unable to leave the ports of Chornomorsk, Odesa, and Pivdennyi. Among them was the AKDENIZ-M, chartered by the UN World Food Program to deliver wheat to Ethiopia. Another vessel was waiting to enter the port of Odesa.

Despite calls from the international community (e.g., the G7 countries) to continue and expand Ukrainian grain exports, Russia continues its policy of blackmail and bargaining.

Recently, during a visit to the UN, Russian Foreign Minister Sergei Lavrov said that the situation seems to have “reached a dead end.” To continue the agreement, Moscow demands that the West remove obstacles to the export of grain and fertilizers from Russia.

According to the BBC, the export of agricultural products from the Russian Federation has not been directly sanctioned by the West. However, Moscow argues that secondary sanctions on insurance and logistics make it much more difficult.

Other demands of the Russian Federation include: returning Rosselkhozbank to the SWIFT global payment system; resuming the supply of agricultural machinery to Russia and its maintenance; lifting restrictions on insurance and port access for Russian ships and cargo; and restoring the Togliatti-Odesa ammonia pipeline.

– Of course, these demands cannot be fully met, and the Russians know it. They are again trying to use food to get all possible concessions,” Professor Stephen Flynn, founding director of the Institute for Global Sustainability at Northeastern University in Boston, told Voice of America.

Politico writes that Russia has sent a letter to the Joint Coordination Center of the Grain Initiative, in which it announced that the registration of ships will last only until May 18.

– “This will avoid commercial losses and prevent possible security risks,” the aggressor’s letter, quoted by Politico, reads.

The publication notes that it looked “like a hidden threat that the Russian military could start attacking commercial vessels in the Black Sea” after May 18.

Politico suggests that the West is unlikely to give in to Russia’s demands: The European Union and the United States insist that their sanctions do not prevent Russian exports of food or fertilizers.

Real threat or blackmail: can Russia withdraw from the grain deal?

Political scientist, head of political and legal programs at the Ukrainian Center for Social Development Ihor Reiterovych said in a commentary to Fakty ICTV that Russia could theoretically withdraw from the agreement, but it is unlikely to do so. The grain initiative is important for Moscow in two ways:

1. First, it is an instrument of pressure and, at the same time, communication with the Western civilized world.

– As long as this agreement is in place, they will be listened to at least somewhere, and they may even try to lobby for some of their interests under the sauce of this agreement. This is what they are basically doing. They are not very successful, but this option remains,” the political scientist explained.

2. Second, for Russia, the agreement is an element of pressure on Ukraine. The aggressor believes that this way it will be able to influence the economic development of our country, disrupt the sowing campaign, grain trade and “from time to time arrange certain man-made crises” (which it is doing now).

According to Reuterovych, Ukraine’s partners in the grain blackmail situation can put information and sanctions pressure on Russia.

– They can exert informational pressure by linking all the food problems that will arise to the activities of the Russian Federation. Secondly, additional sanctions, including on products that are extremely important for Russia. For example, mineral fertilizers.

And the third point is that the Russian Federation will simply lose a dialog platform: if they withdraw from the agreement, the West will stop talking to them about many other issues,” the political scientist said.

Ilya Kusa, an analyst at the Ukrainian Institute for the Future, does not rule out the possibility that Russia may block the grain deal for several months.

– “Perhaps even for several months in order to get more concessions on sanctions from the European Union,” the expert explained in a commentary to Fakty ICTV.

According to Kusa, if this really happens, it will affect the price of grain on the world market in the direction of growth and will hit those countries that buy it. That is, they will be forced to buy grain at a higher price.

– This will affect us in the sense that we will not be able to receive foreign currency for grain exports. If it lasts for a long time, it could, for example, lead to a shortage of foreign currency in a certain segment of our economy. But this is only in case of a very long blockade.

I think that Russia will not block for a long time. They may block for a few months, until August, try to get some new preferences from the West and then return to the grain deal,” the expert emphasized.

In his opinion, Western partners can increase pressure on Russia through those countries that depend on Ukrainian grain exports. These are the countries of Africa and Southeast Asia (for example, China and India).

Do not anger Turkey and China

ICTV’s interlocutors agree that Russia is unlikely to want to conflict with Turkey, which is a party to the grain deal.

Ilya Kusa believes that Moscow is waiting for the results of the presidential elections in Turkey, which are due in May, and much depends on them. For example, if the current Turkish leader Recep Tayyip Erdogan is re-elected, Russia will not undermine the grain deal.

If an opposition leader wins, everything will depend on his actions.

– If he takes an outright anti-Russian stance, for example, Russia will have nothing to hold it politically and can either abandon the grain deal or initiate a renegotiation. For example, to allow other countries to enter it or on some new terms. That is, they will raise rates,” the analyst said.

Igor Reiterovich, on the other hand, is convinced that Turkey will be in favor of prolonging the grain initiative regardless of who wins the election. Therefore, Ankara will react “extremely negatively and radically aggressively” to any attempts by Russia to withdraw from the agreement. The political scientist is convinced that Moscow can blackmail with this issue, wrest additional preferences for itself, but will not risk political and economic relations with Turkey.

In a telethon on April 27, economist and investment banker Serhiy Fursa reminded about the factor of China, for which Ukraine is an important trading partner “in terms of food security.”

– Perhaps it was China’s influence that persuaded Russia to sign the grain deal. Because Ukrainian corn is important to China,” the expert said.

Pavlo Martyshev, an analyst at the Center for Food and Land Use Research at the Kyiv School of Economics (KSE), also drew attention to China’s issue in a commentary to ICTV Fakty. He explained that Beijing now wants to get rid of its dependence on the United States in the field of corn supplies. That’s why the Chinese are interested in keeping the grain corridor operational. Guaranteeing grain exports is one of the points of the so-called peace plan presented by the Chinese Foreign Ministry.

– They do not like these inspections on the Bosporus, when Russians check Chinese ships. So it seems to me that China is also a figure in the grain deal. There is a clause in China’s peace plan that the grain deal should work,” the KSE analyst emphasized.

Russian grain blackmail: how will it affect Ukraine and what are the alternatives?

Pavlo Martyshev pointed out that Russia has stepped up its grain threats amid problems with the export of Ukrainian agricultural products across the western borders to the EU. Currently, Ukraine’s neighboring countries (such as Poland, Slovakia, and Hungary) have blocked food imports.

According to Martyshev, the Russians took advantage of this situation and put forward a number of demands to prolong the grain initiative.

The KSE analyst said that an alternative to the sea route is the railroad and road route through Europe. In addition, exports via the Danube estuary, which was unblocked after the liberation of Zmeinyi Island, remain.

However, the blocking of the grain corridor, combined with problems on the western border, could lead to billions of dollars in losses for Ukraine’s economy.

– “These are billions of dollars (in losses – Ed.), because we have corn and wheat that go mainly by sea. It is not very profitable to export it through the western borders (due to transportation costs – Ed.). In general, this is a collapse of exports. We will only have the Danube and some partial transit through Romania and Poland.

In July, we will have a winter crop harvesting campaign. There will already be a problem of where to send it. And we have not yet exported a large share of corn. Therefore, this is a very bad scenario, it is better not to even consider it,” Martyshev emphasized.

The expert added that agrarian exports have become an important source of foreign currency for Ukraine in the context of a full-scale war. This helps to maintain the stability of the hryvnia. Therefore, problems with exports may have a negative impact on the national currency.

In addition, we should not forget about Ukrainian farmers who receive funds from exports for the same sowing campaign.

Mr. Martyshev clarified that prices on the global food market continue to decline despite Russia’s grain threats. This shows that grain traders are quite skeptical of Moscow’s blackmail.

– I would say that the market does not trust that Russia will withdraw from the grain deal. If the market was “scared,” prices would be rising by now. That is, grain traders think that Russia is just bluffing and will remain in the grain deal after May 18,” the analyst said.

Sergiy Fursa, in turn, predicts that even if there are problems within the grain deal due to the political situation in Turkey and greater pressure from Russia, a few months “will not be critical for Ukrainian farmers.” The main thing, he said, is the understanding that “somewhere in September” the grain corridor will be fully operational again.