Russia butting heads over Ukraine grain deal

Ukraine grows enough grain to feed 400 million people, and the shock of the Russian invasion – with the threat of that food source being suddenly cut-off – was enough to send global food prices skyrocketing. It also engendered a food shortage panic that hasn’t quite subsided to this day, and with good reason: the agreements that have kept Ukrainian grain flowing since 2022 have been tenuous at best.

And now Russia is in a mood.

Russia’s envoy to the United Nations in Geneva said there were no grounds to maintain the “status quo” of the Black Sea grain deal that is set to expire on July 18, the Russian news outlet Izvestia reported on Monday.

In a wide ranging interview, envoy Gennady Gatilov told the outlet that the implementation of Russia’s conditions for the extensions of the agreement was “stalling.” Those conditions included, among others, the reconnection of the Russian Agricultural Bank (Rosselkhozbank) to the SWIFT banking payment system.

“Russia has repeatedly extended the deal in the hope of positive changes,” Gatilov told Izvestia. “However, what we are seeing now does not give us grounds to agree to maintaining the status quo.”

The deal that was brokered last year between Ukraine and Russia by the U.N. and Turkey made it possible for grain to be shipped out of Black Sea ports “safely.”

…The agreement regulates grain exports from the Ukrainian-controlled Black Sea ports of Odesa, Chornomorsk and Pivdenny. Ships must cross the Black Sea along an agreed humanitarian sea corridor towards Istanbul. Ships en route to and from Ukrainian ports are checked at a Turkish-controlled base by a special team of Russian, Turkish, Ukrainian and UN inspectors.

Two UN task forces ensure that Ukrainian grain can be shipped across the Black Sea, and they also facilitate the export of Russian food and fertilizer products.

How successful was the agreement?

The Black Sea Grain Initiative and EU solidarity corridors to support Ukrainian exports have helped food prices fall and stabilize. More than 30 million tons of grain and other food products have been exported up to May 2023 thanks to the agreement.

The Russians had blockaded the Black Sea at the beginning of hostilities, and any shipping traffic traversing the waters were in danger without having the express permission of the Russians to do so, ergo this guarantee of safe passage is an absolute for any sort of cargo movement.

…Food prices had already risen before the start of the Ukraine war, but the Russian invasion made them skyrocket worldwide. In addition, the Russian blockade of the Black Sea meant that millions of tons of grain were stuck in Ukrainian silos, in danger of rotting. According to the European Union “maintaining Ukrainian grain supplies remains critical to global food security.”

Even with it, in the intervening year, thanks to the hostilities the cost of insuring the cargo vessels was becoming untenable and, now, without it? Probably impossible. It also appears to concerned parties as if the Russians are slow-walking or just not processing registrations for the vessels who have applications pending for the shipments. All strong arm tactics in order to have Russian demands met rather than letting the deal expire.

…The United Nations on Friday said it was concerned no new ships had been registered under the Black Sea deal since June 26 – despite applications being made by 29 vessels – and called on all parties to “to commit to the continuation and effective implementation of the agreement without further delay.”

U.N. spokesperson Farhan Haq said there are currently only 13 ships either loading in Ukrainian ports or travelling to and from Istanbul.

“The parties must ensure that additional vessels are allowed to sail the maritime humanitarian corridor in the Black Sea, which serves as a global lifeline for food security,” Haq said. “The commencement of the harvest season underscores the urgency.”

The Russians are saying they’ll still ship grain to developing countries “free of charge,” big softies that they are, but they won’t let anything else get through the Black Sea until certain specific demands are met. The most important being that one of their banks currently under sanction be allowed to reconnect to the Society for Worldwide Interbank Financial Telecommunication or SWIFT.

The Society for Worldwide Interbank Financial Telecommunications (SWIFT) system powers most international money and security transfers. SWIFT is a vast messaging network used by financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions.

Naturally, they want back into that, as the premier global financial messaging system was closed to Russian banks when the country invaded Ukraine last year. They have a laundry list of other demands besides.

…Russia’s specific demands are that Russian Agricultural Bank (Rosselkhozbank) be reconnected to the SWIFT payment system, that supplies of agricultural machinery and parts to Russia be resumed, and that restrictions on insurance and reinsurance are lifted.

Other demands include the resumption of the Togliatti-Odesa ammonia pipeline that lets Russia pump the chemical to Ukraine’s main Black Sea port, and the unblocking of assets and accounts of Russian companies involved in food and fertiliser exports.

And the European Union is already looking at ways around the sanctions to crack the SWIFT portion of them – even to the point of coming up with a totally new “subsidiary” of a Russian bank – which would TOTALLY make a not-a-Russian-bank – to connect.

The European Union is considering a proposal to allow a Russian bank under sanctions to carve-out a subsidiary that would reconnect to the global financial network, as a sop to Moscow, the Financial Times reported on Monday.

Weasels.

Starting this spring, the pace of exports has slowly been strangled by Russian interference, most probably signaling this announcement was coming.

…Poorer countries, in particular, have benefited: Around 64% of wheat went to developing countries, while corn was exported almost equally to developed and developing countries. In March, though, several media outlets reported that less and less grain was being shipped from Ukraine.

Overall food exports made possible by the agreement fell by about three-quarters in May compared with October last year, as more shipping companies shied away from sending ships on the dangerous route. But strict regulations also make it difficult for ships to pass through quickly.

“The UN secretary-general is disappointed by the slowing pace of inspections and the exclusion of the port of Yuzhny/Pivdennyi from the Black Sea Initiative,” Guterres’ deputy spokesperson, Farhan Haq, said in a statement on Tuesday.

Latvia released seized Russian fertilizer and sent it off to Kenya in April in an effort to placate the Russians. Worked for a bit, but they always come pushing back to the table.

So far, the overseas commodities markets aren’t reacting. However, U.S. experts are warning of a spike in wheat prices if the Black Sea deal remains in jeopardy, because we don’t have enough “stocks among the exporters to fufill that gap that…left by Russia and Ukraine if they were to drop out.”

Two weeks to go to see if Bidenomics gets another shot in the arm.