With the onset of the Ukrainian war, Russia's “special operation” has led to a blockade of Ukrainian ports on the Black Sea, causing significant disruptions to global food supplies. Indeed, Ukraine is a key player in world global food exports, particularly in wheat (5th in 2021), corn (3rd in 2021), and seed oils (1st in 2021).
The effects of the blockade were initially mitigated by an agreement in July 2022 between Russia, Ukraine, the UN, and Turkey, who acted as a mediator. This agreement, known as the Black Sea Grain Deal, was intended to ensure the safe passage of Ukrainian food exports via the Black Sea.
Between July 2022 and July 2023, the agreement enabled the uninterrupted export of Ukrainian food:
Sources: Statista, Black Sea Grain Initiative
On July 17, 2023, Russia terminated the deal in the aftermath of the bombing of the Crimean bridge. However, this decision likely has little connection to the bombing, which seems to be used as a pretext. Indeed, Russia had threatened to end the deal in recent weeks, demanding the removal of several sanctions affecting the Russian economy as a condition for its continuation.
By terminating the deal, Russia impacts the imports of some of its strategic partners, China being the most significant. Despite the deepening ties since the war's onset, Moscow cannot afford to antagonize Beijing for an extended period, as it has much to lose. The termination of the deal also affects Western countries such as Italy and the Netherlands.
Sources: Statista, Black Sea Grain Initiative
Putin's decision can be interpreted as a strategic move to pressure the West and facilitate negotiations on key issues, such as the lifting of certain sanctions, particularly those imposed on Russian banks like Rosselkhozbank. Putin demanded the removal of sanctions affecting this institution last week in exchange for extending the deal, a proposition already under review by the UN.
Rosselkhozbank, the Russian Agriculture Bank, is a state-owned entity focusing on the Russian agribusiness sector, and it has been severely hit by sanctions. The removal of these sanctions, especially the reinstatement of the bank in the SWIFT system, would allow the resumption of trade in Russian food products and fertilizers, and would also attract foreign currencies into the Russian financial system.
Such an influx of foreign currencies would help support the Ruble, which has depreciated by approximately 20% since the beginning of the year against the dollar.
In conclusion, Putin’s decision to end the Black Sea Grain Deal should be viewed as a potential strategy to influence ongoing negotiations and serve as leverage to compel the West to accept his terms concerning the removal of certain sanctions. Should this strategy be successful, it would represent another setback for the strategy pursued by the West.
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