Despite calls from quarters as diverse as the West and China, and mediation efforts by Turkey and the UN, the chances to renew the grain deal between Russia and Ukraine are realistically very slim. Quite simply, neither Moscow nor Kyiv has sufficient incentive to reanimate the agreement facilitating Ukrainian grain exports via the country’s Black Sea ports, following Russia’s withdrawal from the deal back in July. Far more likely are further escalation in the Black Sea and growing global grain prices, which had until recently dropped sharply.
Hopes that Turkish President Recep Tayyip Erdogan’s September 4 meeting with his Russian counterpart Vladimir Putin might bring about Moscow’s return to the deal came to nothing. Following that meeting, new UN proposals aimed at bringing Russia back into the agreement were leaked to the media. In them, UN Secretary-General Antonio Guterres offered an expedited application process for connecting a Russian Agricultural Bank subsidiary to the SWIFT international payment system (the parent bank was cut off from SWIFT following Russia’s invasion of Ukraine last February). The UN also offered to create an insurance platform for Russian agricultural exports, to help unfreeze the European assets of Russian fertilizer producers, and to explore ways to unblock Russian vessels carrying fertilizers stuck in EU ports.
Russia’s Foreign Ministry responded to the proposals with an unimpressed statement, while Ukrainian Foreign Minister Dmytro Kuleba said that any measures negating the effect of sanctions against Russia would only encourage Moscow to “bomb more ports and start blackmailing the world with new demands.”
Neither Moscow nor Kyiv, then, is in any hurry to adjust its position, because there is no real reason for them to do so. Since the collapse of the gain deal, Ukraine has continued to export grain through ports on the Danube River and overland to European consumers, or to EU ports for onward transport. In July and August, Ukraine exported about 5 million tons of grain, comparable to last year’s levels when the deal was in place. It seems likely that the country will realize all or nearly all of its export potential, even if its Black Sea grain terminals remain out of action.
Moscow insists it is prepared to return to the grain deal once the West “fulfills its obligations”: a reference to the memorandum of understanding “on promoting Russian food products and fertilizers to the world markets” signed by Russia and the UN in July 2022 as part of the grain deal negotiations. But Moscow interprets “Western obligations” under the deal very liberally, and there is only one person who can decide whether or not the West is fulfilling them. That’s Vladimir Putin, and he seems to have developed a strong personal dislike of the agreement.
Moreover, the grain deal has no direct impact on Russian exports. Following an excellent harvest, Russia exported a record 59 million tons of grain in the 2022–2023 agricultural year, and this year that figure may grow even further. Exports of Russian fertilizer fell by 15 percent last year, but are also forecast to bounce back this year.
The global market, too, is managing just fine without the grain deal. Food prices have been falling for several months now. The price of wheat—the most sensitive to news from the Black Sea—soared after the grain deal collapsed, but then quickly began to fall, and is now lower than at the beginning of July, when the deal was still in place.
For now, then, Black Sea grain is still reaching the global market, prices are falling, and fears of an imminent global famine appear unfounded. But the situation could change rapidly.
Firstly, global wheat prices are starting to fall below their fundamental value because of widespread short selling by speculative funds. This strategy has proved very lucrative since last May, hence the reluctance to abandon it, but this self-fulfilling prophecy is pushing prices lower and lower.
Secondly, the lack of progress on the grain deal increases the risk of further escalation in the Black Sea. Following the bombing of terminals in Ukraine’s Odesa region, Russia started using drones to attack ports on the Danube. The intensity of the attacks is constantly growing. So far, the traffic of vessels carrying grain from Ukrainian ports hasn’t noticeably decreased, though the cost of freight is on the rise. But the situation could change if the attacks continue at their current rate, or if a vessel is damaged.
Another factor that could have a negative impact are the possible seizure of vessels by Russian ships. Moscow has repeatedly said that vessels heading for Ukrainian ports are legitimate military targets.
Kyiv has responded by warning that Russian ports are also at risk. A Ukrainian missile reportedly reached the Russian port city of Taganrog, while Rostov-on-Don—a key transport hub for Russian grain on the Azov Sea—has been the target of drone attacks.
Meanwhile, attacks and attempted attacks on the Crimea bridge linking the annexed peninsula to the Russian mainland have become a regular occurrence, which could force the closure of shipping in the Kerch Strait, through which about 30 percent of Russian grain exports pass. Sea drones were also used to attack a Russian naval vessel just a few kilometers from Novorossiysk, Russia’s biggest grain-processing port. And August saw the first attack on a non-naval vessel, the Russian tanker Sig, which almost sank near the Kerch Strait.
There is no shortage, therefore, of risk factors. And if Kyiv can impact navigation in the Azov-Black Sea basin, that will create problems for Russian exports. Unlike Ukraine, Russia does not really have any alternative routes for exporting its grain.
Another unknown variable in the equation is the possibility of the Kremlin itself deliberately restricting its exports of grain for its own tactical reasons.
If any one of these scenarios materializes, the fallout will be serious. This grain season, Russia is due to supply the world market with 80 percent more grain than Ukraine is, including more than four times as much wheat. Russia is expected to account for more than 20 percent of the world’s wheat trade, which is notoriously inflexible.
Both Moscow and Kyiv are counting on being able to use the grain market to inflict damage on the enemy without sustaining any losses themselves. It’s still too early to declare the grain deal dead and buried, but in this situation, its resurrection is a far less likely outcome than escalation.
In the event of serious problems with exports from the region, we will likely see an explosion in prices caused by a reduction in the supply of grain and the mass closing out of short positions by speculative funds. Indeed, the world could be just one drone attack away from such a scenario becoming reality.
