New Delhi: On Monday, Russia suspended its participation from the United Nations and Turkey-brokered Black Sea grain deal — a pact that allowed Ukraine to safely export grain, oil, and fertiliser through its ports along the Black Sea.
At a press briefing, Kremlin spokesperson Dmitry Peskov said that Moscow will only renew its participation in the initiative once Russia’s demands are met. Among its demands is the lifting of western sanctions against Russian fertiliser companies and restrictions on maritime insurance, which has been an obstacle for exports.
“The Black Sea agreements ceased to be valid today. Unfortunately, the part of these Black Sea agreements concerning Russia has not been implemented so far. So, its effect is terminated,” Peskov said.
Moscow has already notified Ukraine, Turkey and the UN that it was against the extension of the grain deal, according to Russian reports.
Ukraine, often referred to as the ‘breadbasket of Europe’, is the biggest exporter of seed oils and a major exporter of grains such as maize, wheat and barley, as well as fertilisers. In 2022, Ukraine accounted for 70 per cent of India’s annual sunflower oil imports of 25 lakh tonnes. Of the remaining 30 per cent, 20 per cent comes from Russia and 10 per cent from Argentina.
In another development Monday, Moscow accused Kyiv of attacking the Kerch Bridge connecting the Crimean peninsula to Russia after explosions killed two people and injured a child. However, Russian spokesperson Peskov claimed that the attack had no bearing on The Kremlin’s decision to suspend the Black Sea Grain Initiative (BSGI).
Speaking to ThePrint, Sanjay Kumar Pandey, a professor with the Centre for Russian and Central Asian Studies at Jawaharlal Nehru University, explained the Russian perspective in this scenario.
“Russians want something in return in the deal, a quid pro quo. While dissociating from the deal, the Kremlin did give certain hints on its willingness to return to it once the demands are met,” Pandey said.
Russia is one of the world’s biggest grain exporters globally, producing 18 per cent of international exports.
ThePrint explains the deal and what is at stake for Russia, Ukraine, India and the rest of the world.
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What is the Black Sea Grain deal?
The Initiative on the Safe Transportation of Grain and Foodstuffs from Ukrainian Ports — also called the Black Sea Grain Initiative — is an agreement signed between Russia and Ukraine with Turkey and the UN in July last year. While the deal is supposed to be extended for 120 days at a time, in March and May 2023, Russia said it would only give 60-day extensions.
The deal was an essential initiative after Russian naval vessels blockaded Ukraine’s ports, trapping roughly 20 million tonnes of grain at the onset of the 2022 Russian invasion of Ukraine and causing a global food crisis, with grain and oil prices soaring to record levels. Since signing the deal, prices for wheat have fallen about 17 per cent, while corn is down about 26 per cent.
The deal guaranteed ships safe passage from three Ukrainian ports — Odesa, Chornomorsk, and Pivdenny/Yuzhny. According to Reuters, more than 32 million tonnes of grains — mostly corn and wheat — have been exported by Ukraine under the arrangement.
Why did Russia suspend the deal?
This is not the first time Russia has withdrawn from the BSGI. Moscow temporarily withdrew in October last year over Kyiv’s alleged drone attack on a fleet in Crimea from vessels in the Black sea.
Nevertheless, it later rejoined the initiative after Ukraine submitted written guarantees to the Joint Coordination Centre (JCC), which runs the BSGI, on not using the humanitarian corridor for military operations.
However, this time Moscow seems adamant that its interests and demands are met within the deal.
“Only upon receipt of concrete results, and not promises and assurances, will Russia be ready to consider restoring the deal,” Russian spokesperson Peskov said.
Earlier this month, Russian President Vladimir Putin said in a TV interview to Russia 24 that the country showed “goodwill” and extended the deal earlier despite Moscow’s interests not being met. Putin reiterated Russia’s demands — among them are the resumption of ammonia exports through a pipeline leading from Russia to the Ukrainian port of Odesa and relief from Western sanctions on payments, logistics and shipping insurance.
Another key demand was the Russian agricultural bank Rosselkhozbank be reconnected to the SWIFT international payment network after it was cut off by the European Union following the invasion. While reports suggest that UN Secretary-General Antonio Guterres had proposed that a subsidiary of Rosselkhozbank be reconnected in exchange for the deal, the Kremlin rejected the compromise.
Experts told ThePrint that the resumption of the initiative is possible but not likely for the next few months.
A renewed deal is beneficial for both Russia and Ukraine as Moscow does not want to be seen as undermining countries such as China and South Africa, among others, that have not spoken out against the Russian invasion of Ukraine, JNU professor Pandey said. “Russia wants to be seen as a concerned and responsible international player. They want to show they are concerned about global issues like food and energy security.”
Where does this leave Ukraine?
While this decision is a significant blow for Ukraine, experts note that the country was expecting this result as grains shipped along this route have been decreasing.
Over the past few months, food commodities exported along the Black Sea route had declined from 4.2 million metric tonnes in October last year to 1.3 million metric tonnes in May this year. Ukraine has accused Russia of using inspections of grain ships to delay exports.
As a result, Kyiv has prepared alternatives, including making the Danube river route the main one for exports. The route has become a major export route, channelling 190,000 tonnes of grain per month since February 2022.
Over the past two years, Ukraine’s grain production has nearly halved, with forecasts of 25 million metric tons of corn and 17.5 million metric tons of wheat for 2023-2024, compared to the 42 million metric tons of corn and 33 million metric tons of wheat in 2021-2022, according to a recent report from the US Department of Agriculture.
Pandey explained that the Danube river route is cheaper and can be used to ship grains to Europe. “However, a majority of Ukraine’s exports goes to countries such as China, Yemen, Egypt, and Afghanistan, among others, where it is neither feasible nor cost effective to use this route,” he said.
Significantly, the war had cut off importers like Egypt and Libya from a major supply of grains last year. It had an impact on other countries too, with global food prices surging.
However, as the number of shipments on the Black Sea had already been on the decline, the suspension of this deal would not have the same severe effect as in 2022, according to experts.
Impact on India
The suspension of the Black Sea Grain deal is expected to impact India, which imports 70 per cent of its sunflower oil from Ukraine.
After the Russian invasion of Ukraine, sunflower oil saw the highest price rise and fall over the past year. According to the Indian Express, refined sunflower oil cost about Rs 120 per kg in March 2023 as compared to Rs 200 per kg in April 2022.
Import prices skyrocketed from $1,475/tonne in January 2022 to $2,155/tonne in April 2022.
However, this year, the situation is different so far. In January, India’s sunflower oil imports surged to a record high of 473,000 tonnes — almost triple the average monthly imports, as both Russia and Ukraine were reducing stockpiles.
It’s too soon to tell whether India will be affected by the suspension of the BSGI, Biswajit Nag, associate professor at the Indian Institute of Foreign Trade (IIFT), told ThePrint.
However, in a conversation with ThePrint, Siraj Hussain, former Union agriculture secretary, noted that the breakdown of this deal would not impact prices of food commodities in India.
Speaking at a business conference in Kampala, Uganda in April this year, Foreign Minister S. Jaishankar had stated that India had been looking for other sources of edible oils.
“The pressure on us to find compensatory resources actually took Indian importers well beyond their traditional sources, a lot of those sources were in the ASEAN. It actually took them to Latin America,” Jaishankar said, adding that the country’s trade with Latin America had increased over the past few months with a major part of it being edible oil.
This is an updated version of the article.
(Edited by Uttara Ramaswamy)
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