These are the consequences of Russia’s withdrawal from the ‘grain deal’

Russia has announced the end of the “grain deal”. Moscow accuses Ukraine and the West of not complying with some of the agreements. What did the deal bring and what does its end mean?

The so-called grain deal between Russia, Ukraine and Turkey lasted for almost a year except for five days. On Monday, July 17, a few hours before the agreements officially expired, Russian President Putin’s spokesman, Dmitry Peskov, announced the end of the grain deal.

“In fact, the Black Sea agreements are no longer valid today. As the President of the Russian Federation previously said, the deadline is July 17. Unfortunately, the part of these Black Sea agreements that affects Russia has not yet been implemented. Therefore, its validity will be terminated,” said Peskow.

According to him, Moscow will immediately return to the “grain deal” as soon as the agreements with Russia are implemented.

What you need to know about the “grain deal”.

The need for an agreement arose due to the Russian invasion of Ukraine in February 2022, the Russian occupation of Ukrainian ports in the Sea of ​​Azov and the blockade of Black Sea ports.

This has deprived Ukraine, one of the world’s leading producers of agricultural products, of the opportunity to export by sea. The result has been a sharp rise in food prices around the world, affecting poor countries the most.

Although the contracts were concluded in one place, they are different documents with different parties and validity periods. Russia is now withdrawing from the Black Sea Grains Initiative agreed in Istanbul on July 22, 2022.

Signatories include Russia, Ukraine and Turkey, with the support of the UN Secretary-General. No joint agreement was concluded between Russia and Ukraine, but each of the parties signed a separate document with Turkey and the United Nations.

This agreement provides for the “export of grain, related foodstuffs and fertilizers, including ammonia” from the three Ukrainian ports of Odessa, Chornomorsk and Pivdenny. To this end, a joint coordination center was set up in Istanbul, which deals with the registration and inspection of ships and their cargo. The agreement should be valid for 120 days, with the possibility of an extension. But Russia had recently only extended it for 60 days.

The second document – a memorandum of understanding on the export of Russian agricultural products – was signed by Russia and the UN Secretariat on the same day, also in Istanbul. The term is three years. Russia apparently does not want to withdraw from this memorandum. Among other things, the text states that the UN Secretariat will “continue efforts to promote a transparent and unhindered supply of food and fertilizers, including raw materials for their production (including ammonia) to world markets from the Russian Federation”. It is clarified that it is “support to remove obstacles that may arise in the areas of finance, insurance and logistics”.

What Russia accuses of Ukraine and the West

Russia requires five conditions to be met, one of which is the commissioning of the Togliatti-Odessa ammonia export pipeline. She was stopped at the beginning of the Russian invasion of Ukraine. In June, an explosion at this pipeline was reported in the Kharkiv region and Russia accused Ukraine of sabotage.

The other Russian demands relate to the western sanctions imposed because of the war and above all to the memorandum with the UN.

According to the Russian Foreign Ministry, these include reconnecting Rosselkhozbank to the SWIFT international payment system, resuming deliveries of spare parts and equipment, transport logistics and insurance, and unblocking the “frozen” assets of Russian companies.

What did the “grain deal” achieve?

The “grain deal” allowed Ukraine to resume exporting agricultural products by sea. According to the United Nations, Ukraine exported 32.8 million tons of grain and oilseeds, mainly corn and wheat, under the deal.

That’s more than half of last season’s total agricultural exports (58 million tons). The main customer was China with a share of almost one third. Almost half (44 percent) were exported to “high-income” countries, most of them in Europe, led by Spain, Italy and the Netherlands.

Exports to “upper-middle-income countries,” which the UN includes China, exported were less but about the same amount, with Turkey second. The five poorest countries, Afghanistan, Ethiopia, Somalia, Sudan and Yemen, accounted for 2.5 percent. This figure is often repeated by Russian President Vladimir Putin. According to him, in the event of an exit from the “grain deal”, Russia is ready to supply them with grain for free.

Russia also benefited from the “grain deal” and the memorandum with the United Nations. Exceptions to Western sanctions have been made for parts of the Russian agricultural sector.

The Consequences of the End of the “Grain Deal”

Russia had already suspended the grain agreement for several days in late autumn 2022 and accused Ukraine of using the transport corridor for the use of sea drones against the Ukrainian peninsula of Crimea, which was annexed by Russia. The deal was reinstated after Moscow allegedly received assurances from Kiev that it would not happen again.

Ukraine, in turn, accuses Russia of deliberately delaying the procedure for handling cargo in the center in Istanbul, which has already led to a sharp drop in cargo flows. Ukrainian observers believe that Russia can now afford to pull out of the deal, in part because construction of its own ammonia pipeline to the port of Taman on the Russian side of the Kerch Strait between the Azov and Black Seas will soon be completed, and new export routes for ammonia develop its crops, also via Iran.

Ukraine is also working on alternative routes along the Danube and overland, but they cannot completely replace the sea route. This is due to the limited transport capacities in the European Union, especially by rail. Ukrainian sources estimate that 12 million tons can be transported annually via the EU, while Ukraine can ship up to 7 million tons in a month.

This season, Ukraine’s export potential is estimated at over 40 million tons, some estimates are even more optimistic. And this without taking into account the remains of the last harvest, which Ukraine has not yet been able to transport. One of the reasons is restrictions on exports from Ukraine by five EU countries, including Hungary and Poland.

Farmers in these countries are protesting the fall in the price of their products against the backdrop of cheaper grain from Ukraine. The end of the “grain agreement” is a tangible blow to the Ukrainian economy and may lead to a rise in world prices, which in turn will affect poorer countries.

Hank Peter

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