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Russia Suspends Black Sea Grain Export Agreement, Expiration Imminent

 Russia Suspends Black Sea Grain Export Agreement, Expiration Imminent

Russia Suspends Black Sea Grain Export Agreement
Russia Suspends Black Sea Grain Export Agreement(Image-Getty)

An important agreement facilitating the safe export of grain from Ukraine via the Black Sea is nearing its expiration as Russia has announced its decision to suspend its participation. The deal, brokered by the United Nations and Turkey in the previous year, aimed to address a global food crisis by enabling the secure export of Ukrainian grain, which had been impeded by the ongoing Russia-Ukraine conflict.

The final shipment under the agreement departed from Ukraine on Sunday. Following Russia's invasion and blockade of Ukraine's Black Sea ports in February 2022, global grain prices experienced a sharp surge. Both Ukraine and Russia hold prominent positions as grain exporters on the global stage. Throughout the duration of the agreement, Ukraine managed to export nearly 33 million metric tons of corn, wheat, and other grains.

Russia officially notified Ukraine of its decision to suspend its participation in the Black Sea grain deal through its embassy in Minsk. Kremlin spokesperson Dmitry Peskov clarified on Monday that the Black Sea agreements were no longer valid. He emphasized that the decision not to renew the deal was unrelated to a recent attack on the bridge between Russia and Crimea, which Russia condemned as a "terrorist act" and blamed on Ukraine. While the Ukrainian military suggested that the attack might have been a provocation by Russia, Ukrainian media cited unidentified sources claiming that Ukraine's Security Service was responsible.

Russia had previously issued threats to withdraw from the agreement, citing unfulfilled demands to improve its own grain and fertilizer exports. Additionally, Russia expressed dissatisfaction with the insufficient amount of grain reaching impoverished nations. However, the United Nations argued that the arrangement had significantly benefited those countries by reducing global food prices by over 20%.

Peskov emphasized that once Russia's conditions are met, they would promptly resume the implementation of the deal. European Union Commission President Ursula von der Leyen criticized Russia's decision to suspend the Black Sea grain export deal, describing it as a "cynical move." She reaffirmed the EU's commitment to continuing efforts to ensure food security for impoverished nations. Turkish President Tayyip Erdogan expressed belief in Russian President Vladimir Putin's desire to continue the deal and expressed intentions to discuss the matter during their upcoming meeting scheduled for August.

Denys Marchuk, deputy head of the Ukrainian Agrarian Council, the primary agribusiness organization in Ukraine, acknowledged that alternative routes such as river ports would incur higher transportation costs. Nevertheless, he maintained optimism and suggested the possibility of continuing the grain deal without Russia, citing a previous experience in November 2022.

The response within the grain market was relatively subdued, with U.S. wheat futures increasing by around 3% and European futures rising by about 2%, according to a German grains trader. The trader added that the market appeared to have confidence in both Russia and the EU having substantial wheat supplies capable of meeting global demand in the coming months, considering the arrival of harvests.

However, Hasnain Malik, head of equity research at Tellimer Research, cautioned that the suspension of the Black Sea deal was not surprising and could mark the end of the recent decline in commodity grain prices. He viewed this as detrimental news for smaller and economically challenged importers in emerging markets like Egypt.

Among Russia's key demands is the reestablishment of the Russian Agricultural Bank (Rosselkhozbank) within the SWIFT international payments system. The bank was disconnected from SWIFT by the European Union in June 2022 due to Russia's invasion. Sources indicate that U.N. Secretary-General Antonio Guterres made a final attempt on Tuesday to persuade Russian President Vladimir Putin to extend the grain deal for several months, offering to reconnect a subsidiary of Rosselkhozbank to SWIFT for grain and fertilizer transactions as part of the agreement.

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