The agreement, which allowed Ukraine to export grain from its ports in the Black Sea, expired on 17 July 2023. Russia does not want to renew the Grain Corridor agreement mediated by Turkey and the United Nations in July 2022 because it states that Western countries have not kept their word. So why is this deal important?
As is known, with the Russia-Ukraine war that started in February 2022 activities in many Ukrainian ports were stopped, and there were very important purchases in the grain supply required for world markets. The interruption of grain exports due to the war caused a record increase in food prices worldwide. Ukraine is one of the major grain and oilseed producers in the world. Infact, the nickname of the country is breadbasket of the world.
With the grain corridor agreement that entered into force in July 2022, the three main ports in Ukraine regained their function and provided a grain shipment of approximately 33 million tons to the world in just one year. With the regularisation of shipments, food prices in the world have reached nominal levels in a short time. However, at the last point reached, Russia did not extend the agreement and stated that it would stay away from the agreement until its demands are met.
So what are Russia’s expectations?
- Return to the international money transfer system SWIFT.
- Lifting the embargo imposed by Western countries on Russian fertilisers and food products.
- Opening the way for resale of agricultural machinery from Western countries to Russia.
- Unblocking the ammonia pipeline between Togliatti and Odessa.
If these conditions are not met, it seems that Russia will not return to the agreement. So, what are the global problems that could result if the deal is completely broken?
First of all, we can expect exorbitant increases in food prices again. Although it may seem that there is no problem at first for Europe, America and countries with high income levels, alarm bells may sound in the near future, especially for African, Asian and some South American countries. Since I conduct my commercial activities in the African continent, I can state that breaking such a grain supply chain will be the beginning of a serious bottleneck, especially for sub-Saharan Africa. The exorbitant rise in the prices of food and raw materials coming to these countries, whose economies are largely based on imports, will create significant crises in the markets.
Could the corridor operate without Russia’s approval? Before the agreement, Ukraine’s ports were blocked by Russia. It is unclear whether grain shipments from the ports will be possible if Russia withdraws from the agreement. If the agreement is not renewed, additional war risk insurance payments will increase when entering the Black Sea region. Shipowners may be reluctant to allow their ships to enter the war zone without Russia’s approval. Insurance industry sources say that although conditions can change rapidly, there is no change in coverage regulations for now.
War risk insurance policies for ships costing thousands of dollars must be renewed every seven days. If we take a look at the global commodity markets, we know that there has been a 30-35 percent recovery in wheat prices since last year. This price decrease has also given a serious breath to the African continent. With the relaxation in wheat prices, the consumption of products such as pasta and flour, which are basic necessities, has reached normal levels.
Our hope is that a mutual agreement will be reached by the parties as soon as possible and the agreement will be put into effect again. In an environment of peace, the world’s food needs will be met at reasonable prices and with regular stocks.
