Russia back on board in the grain deal
On Saturday, 29 October Russia announced a withdrawal from the Black Sea grain corridor agreement, alleging attacks by Kyiv on its Black Sea naval fleet. The July agreement was brokered by the UN and Turkey in order to end Russia’s blockade of grain, food and fertiliser exports via Ukraine ports; it had allowed more than 9 million tonnes of Ukrainian agricultural products to reach international markets, helping to forestall a global food crisis. Despite Russian withdrawal, Vessels carrying grain reportedly continued to leave Ukrainian ports on 31 October and 1 November (although it was feared that insurers would cease to write new contracts, bringing activity to a halt).
Turkey has now announced that as of Wednesday 2 November, Ukrainian grain export has resumed, with Russia back on board. It seems that the terms of the deal remain unchanged (Kyiv continuing to guarantee not to use Ukraine’s grain ports or the Black Sea corridor for military operations against Russia). Priority will be given to shipments to poor African nations such as Somalia, Sudan and Djibouti, countries particularly vulnerable to soaring grain prices.
Russia’s decision to rejoin the scheme has already caused grain prices and futures to fall. Commentators believe that further price declines may happen in the longer term if Russia manages to export more of its own agricultural products, which are also part of the agreement. Whilst Russian fertiliser and grain are broadly not subject to sanctions, the international shipping and insurance community is slow to embrace the opportunity.
The recent events demonstrate the fragility and unpredictability of the grain agreement despite the pressure of the international community to cut down grain prices and the participation in the deal of the UN and Turkey. Given the unstable situation in the region, all trading in the Black Sea are advised to review safe port, war risks and, if applicable, force majeure clauses to ensure that charterparties provide, insofar as possible, for such contingencies in a clear and consistent manner.
Reuters, Financial Times, BBC