Ukraine, geo-economy: Black Sea "grain corridor" dead in the water, Jul 2022

Black Sea “grain corridor” agreement looks shaky after Russia bombs Odesa port

Towards the end of July, a deal to resume Ukrainian grain exports through the Black Sea, following a five-month naval blockade by Russia, was brokered with Ukraine and Russia by Turkey, backed by the UN.

According to the deal, Ukrainian vessels are to guide cargo ships of its grain through the protective mines laid around Ukrainian ports; Russia is to refrain from attacking ports and ships storing and carrying grain; and Turkey will check cargo ships to allay Russia’s concerns that they might be carrying weapons. To oversee the process, two co-ordination centres are to be established, attended by representatives of all four parties to the deal.

Ukraine, like Russia, is a major grain supplier, with some countries in Africa and the Middle East highly reliant on imports of Ukrainian wheat in particular, according to the UN. Normally, up to four-fifths of Ukraine’s grain exports reach global markets through its ports. This year, however, amid full-scale war, despite some success in rerouting supplies by road, rail and river through Romania and Poland, Ukraine’s total grain exports in June in at just over one-quarter of their usual monthly total. As a result, between 18m and 22m tonnes of grain have accumulated in Ukrainian storage facilities, threatening food shortages and contributing to food price inflation around the world. Should the “grain corridor” deal succeed, therefore, it would help to stabilise global food markets. On wind of it, the price of wheat on futures markets quickly returned to the pre-invasion level.

For Ukraine, such a deal, if workable, could not come soon enough. This is because, with its storage facilities full of existing grain, there is insufficient space to store output from the latest harvest, which is under way. The timely export of existing stocks would thus help to reduce the risk of ruination of both crops. Moreover, export earnings from the sale of the stored grain will be needed by farmers to pay for inputs for the next planting season, without which, future output is likely to fall. In turn, the boost to export earnings would have a multiplier effect in the domestic economy, since new spending on harvest storage and fresh sowing forms other people’s income, the bulk of which, in current straitened circumstances, is likely to be spent. Lastly, along with a recently announced postponement of Ukraine’s debt repayments until the end of 2023, agreed with the country’s creditors, a modest boost to domestic economic activity from grain sales could also aid public finances through a boost to (still-lowered) wartime tax returns. Even if the deal holds, it is likely to take time to clear stocks.

Based on their experience of recent years, however, the Ukrainian authorities already harboured grave concerns as to whether Russia intends to stick to its part of the bargain and, on the morning after the signing of the deal was announced and hailed as a major diplomatic breakthrough by António Guterres, the UN secretary-general, Russia launched a series of cruise missiles at the Ukrainian port of Odesa, seeming to target its grain-storage facilities.

The UN quickly condemned Russia’s missile attack, but may yet try to save the "grain corridor" deal—on which the short- and probably medium-term food security of many millions around the world depends—even though challenging the structures of the existing global order, which the UN represents, to assert its regional hegemony may be seen as one of the purposes behind Russia's war on Ukraine. Not only is this deal unlikely to be the harbinger of a wider peace in the ongoing Russo-Ukrainian war, therefore, but viability of the grain export plan itself must be in considerable doubt.