Russia pulls out of Black Sea grain deal Ship’s crew

By Megan Durisin and Aine Quinn (Bloomberg) –

Russia ended the grain export deal with Ukraine almost a year after the deal was finalized, increasing uncertainty about the world’s food supply and escalating tensions in the region.

The agreement, which was previously extended in May, will lose its validity from Tuesday, the Foreign Ministry in Moscow said in a statement opinion. Russia had repeatedly threatened to walk away from the deal, which provided a rare example of cooperation during its war in Ukraine. Closing the corridor will hit the key buyer like China, Spain and Egypt.

“Unfortunately, the Russian part of this Black Sea agreement has not yet been implemented,” Kremlin spokesman Dmitry Peskov said, according to the Russian news agency TASS. “Therefore it is ended.”

The move jeopardizes a key trade route from Ukraine, one of the world’s largest shippers of grain and vegetable oil, just as the next harvest begins. It also comes after Russia said on Monday Ukrainian drones damaged an important bridge to Crimea.

The pact, brokered by the United Nations and Turkey, has ensured the safe passage of almost all 33 million Tons of grain exports across the Black Sea since signing in July 2022, helping world food and commodity prices fall from record post-Russian invasion levels. However, it was so stuck due to issues such as slow ship inspections in recent months.

Benchmark Chicago wheat futures were initially up as much as 4.2% and corn was up as much as 2.5%. The two commodities are the top crops to be shipped under the deal.

Russia cited obstacles to its own supplies and a preference for Western interests as reasons for terminating the pact, despite the country being the world’s largest exporter of wheat. The company said it is ready to reconsider the deal once the terms are met.

According to the State Department, Moscow’s withdrawal from the deal will have a variety of implications. These include the end of maritime safety guarantees, the collapse of the Maritime Humanitarian Corridor and the liquidation of the Joint Coordination Center in Istanbul.

“Even without the Russian Federation, everything must be done so that we can use this Black Sea corridor. We are not afraid,” Volodymyr Zelenskyy said in an interview on Monday, according to his spokesman Serhiy Nykyforov.

Turkish President Recep Tayyip Erdogan said he would discuss the export deal with Russian President Vladimir Putin over the phone at their scheduled meeting in August, or perhaps sooner.

“I think Russia’s head of state, Putin, wants this humanitarian bridge to continue,” Erdogan said in television commentaries from Istanbul.

Long term risk

After repeated disruptions, the Black Sea shipping corridor is now nearly empty, mitigating the immediate disruption to global crop flows. The bigger risk, however, is longer-term, as broken and costly export logistics could prompt Ukrainian farmers to cut even further harvests already shrinking under the weight of war.

When the deal was signed, the UN agreed in parallel Improving access to Russian food and fertilizer exports. Russia has called for removing several obstacles to boost trade – including reconnecting an agricultural bank to the international payment system SWIFT.

Since the end of last month, no new ships have been approved to join the grain deal with Ukraine, but Russia has clogged one of the three open ports. The inspection times for ships have become longer and longer longerwith fewer than one cleared a day for the first half of this month.

A single ship remains in the corridor on Monday – the TQ Samsun – the left over the weekend from the port of Odessa. Ship tracking data shows it is approaching Istanbul.

Its closure will increase reliance on alternative trade routes across the Danube and Ukraine’s neighbors in the European Union, although those routes remain expensive and some countries have resisted the influx.

The routes “are associated with much higher transport costs,” said Carlos Mera, head of agricultural commodities market research at Rabobank. “This raises questions about future production from Ukraine. Most of the exports will flow, but some domestic restocking is inevitable.”

Some traders have previously signaled an interest in continuing their Black Sea shipments without the deal, although doing so would require military and government approval.

–With the support of Daryna Krasnolutska, Firat Kozok and Volodymyr Verbyany.

© 2023 Bloomberg LP

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