Monday, November 28, 2022

Explainer: What’s up with the ‘grain deal’ and Russia?

by Oleg SukhovNovember 2, 2022 8:50 pm
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Explainer: What’s up with the ‘grain deal’ and Russia?Ships, including those carrying grain from Ukraine and awaiting inspections, are seen anchored off the Istanbul coastline on Nov. 2 in Istanbul.

On Nov. 2, Russia announced it would continue its participation in the deal that allows grain shipments from Ukraine via the Black Sea, ending several days of turmoil when the vital deal was hanging by a thread.

The grain exports crisis started with Russia’s full-scale invasion of Ukraine, which began on Feb. 24 and led to a halt in grain shipments via the Black Sea.  

In July, Ukraine, Russia, Turkey, and the UN struck a deal to unblock grain exports, called the Black Sea Grain Initiative. 

For three months, the deal worked uninterrupted, and ships were transporting Ukrainian grain from the Black Sea ports. 

The disruption came on Oct. 29, when Russia said it was suspending its participation in the grain deal due to a drone attack on Russian warships in the occupied port of Sevastopol. Russia accuses Ukraine of the attack, while Ukraine has not commented on whether it was responsible for the attack. 

However, on Nov. 2 Russia made a U-turn and said it was staying in the deal. 

The short-term crisis highlighted the fragility of the grain deal that has a decisive role in global food security. The deal is scheduled to run out in three weeks, on Nov. 19, unless it’s prolonged.

Here’s a quick explainer on the state of the deal and its importance:

Why was the deal concluded? 

One of Russia’s reasons for unblocking grain exports was its desire to lift sanctions against its fertilizers, Ukrainian political analyst Volodymyr Fesenko told the Kyiv Independent. 

To alleviate the global food crisis, the Black Sea Grain Initiative envisaged facilitating the unimpeded export of Russian fertilizers and food. 

European restrictions on Russian fertilizers have been lifted. However, Russia has exacerbated the crisis itself by restricting its own fertilizer exports with the stated goal of protecting its domestic market. 

Meanwhile, Russia’s own grain exports continue unobstructed, and Russia is also stealing Ukrainian grain in occupied territories and exporting it as well. 

By concluding the grain export deal, Putin also sought to increase Russia’s influence in developing countries, according to Fesenko. 

He also sought to strengthen his relations with Turkish President Recep Tayyip Erdogan, who has played the role of an arbiter and enabled Russia to offset Western sanctions by trading with Turkey, Fesenko said.

Another reason is that Putin intended to send a signal that he was ready to negotiate with the West about Ukraine and other issues.

“He wants a broad compromise with the West,” Fesenko said. “...He's mired in the war. He's interested in a way out.”

Ukraine is unlikely to recognize the illegal annexation of Ukrainian territories but Russia may want to conclude a ceasefire deal without Ukraine recognizing them, according to Fesenko. 

Why did Russia suspend its participation in the deal on Oct. 29?

Russia has been gradually losing interest in the grain deal. 

After successful Ukrainian counter-offensives in September and October, Russia dramatically escalated the war by announcing a mobilization of conscripts for the war, illegally annexing four Ukrainian regions and launching regular strikes on energy infrastructure. 

The escalation coincided with Russia starting to block Ukrainian grain exports. In the weeks preceding Russia’s formal withdrawal from the grain deal, Russian representatives constantly delayed inspections of grain ships, according to executives cited by Forbes Ukraine. 

One of Putin’s aims in disrupting the deal may be to raise prices and thus help Russia’s own agricultural exports, Fesenko said.

Volodymyr Dubrovsky, chief economist at think-tank CASE Ukraine, argued that it is part of Russia’s strategy of damaging and “smothering” Ukraine’s economy. 

What risks does Russia’s withdrawal pose? 

Even during the four days between Russia’s withdrawal from the deal and its return to it, ships continued to transport grain from Ukraine. 

However, Russia’s Defense Ministry said on Oct. 31 that it cannot guarantee the safety of the grain corridor, prompting speculation that Russia may deliberately carry out attacks to disrupt the exports. 

Fesenko believes Russia is unlikely to attack ships with grain, which would be grounds for a new round of sanctions and would hurt Russia’s relations with Turkey. However, “any stupid or evil action can be expected from Putin” nonetheless, he added. 

Fesenko said that Russia may hit Ukrainian ports or stage some provocations to block grain exports. 

Since Ukraine was one of the world’s leading grain exporters, the reduced grain supply resulted in soaring food prices globally and prompted fears of a major famine in developing countries. 

But Dubrovsky said that a global famine is unlikely because Ukraine’s share of the world’s grain supply is not big enough. 

How important is the deal for the Ukrainian economy? 

Since the grain deal was concluded, Ukraine has exported 12.9 million tonnes of grain, according to Ukraine’s Agricultural Policy and Food Ministry. Ukraine’s grain exports are worth about $1 billion a month, Dubrovsky said. 

Ukraine is unlikely to export a significant amount of grain in any other way. There is little capacity to transport grain by rail or road, Dubrovsky said. 

Fesenko added that grain exports are very important for Ukraine because they are “the main source of foreign currency” for the country.

But Dubrovsky said they are “important but not vital.”

Ukraine's budget deficit is $4-5 billion per month, and foreign partners cover about $3-4 billion of this amount and may be persuaded to cover more, according to Dubrovsky.

“(The disruption of the deal) will not kill the Ukrainian economy,” he said.

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Note from the author:

Hello! My name is Oleg Sukhov, the guy who wrote this piece for you.

I was born in Russia and moved to Ukraine in 2014 because I couldn't stand the suffocating atmosphere of that totalitarian country. I used to think it might be possible to transform Russia into a liberal Western-oriented country. Now it's clear that it's a lost cause. But at least I can atone for the crimes of my homeland by exposing its barbaric aggression against Ukraine and providing objective and independent coverage of what is going on there. I'm also trying to contribute to Ukraine's transformation into a full-fledged Western liberal democracy strong enough to defeat Russia. 

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Oleg Sukhov
Oleg Sukhov
Political reporter

Oleg Sukhov is a political reporter at the Kyiv Independent. He is a former editor and reporter at the Moscow Times. He has a master's degree in history from the Moscow State University. He moved to Ukraine in 2014 due to the crackdown on independent media in Russia and covered war, corruption, reforms and law enforcement for the Kyiv Post.

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