The agreement on grain exports from the ports of Greater Odesa, signed on 22 July 2022 in Istanbul, has reached the end of its regular 120-day reporting period. On 18 March, the agreement is due to be reset or extended. Although the last time, in November, the agreement was renegotiated in a much more dramatic manner – with russia slamming the door – and now there is a relative calm around the grain issue, tensions have reached their climax. And export prospects remain vague.
It is enough for the agreement to be extended if neither side raises any objections. However, just like last autumn, russia took the floor.
On 1 March, russia's Foreign Ministry announced that Kyiv intends to "accuse the armed forces of the russian federation of allegedly carrying out indiscriminate strikes on radiation-hazardous facilities that could result in the leakage of radioactive materials and contamination of the area" and for this purpose allegedly delivered ingredients for a bomb to the ports of Greater Odesa.
The visit of UN Secretary-General Antonio Guterres to Kyiv on 8 March only served to underline that the parties are far from an agreed position. That is why the intervention of international institutions is needed again.
Since the start of the grain corridor – de facto since September 2022 – Ukraine has exported almost 23 million tonnes of grain. Almost half of this volume was corn. This sales channel remains critically important and has no alternative for the agricultural sector.
Mind looked into why the tensions around the Istanbul agreement have reached a peak again and what are the chances of its continuation.
Why does russia have claims, apart from the obvious motive of weakening Ukraine's economy? Indeed, Ukraine's apparently successful international trade, which helps to maintain the stability of the national currency, can hardly be a source of joy for the aggressor.
However, it is also true that as a result of the grain deal, russia's interests were not realised, even though it was promised.
Simultaneously with the grain agreement, a bilateral document was signed between russia and the UN, according to which the latter pledged to facilitate the supply of russian agricultural products – primarily fertilisers – to foreign markets.
Although the grain part of the agreement is being successfully implemented, progress on the russia-UN memorandum on boosting russian agricultural exports and fertiliser supplies is close to zero.
Most likely, it is not a matter of deliberate sabotage by the UN, which may want to implement this part of the agreement. However, the receiving buyers, no matter how many times they are assured that the food part of russian goods is not subject to restrictions, prefer to play it safe and resort to self-sanctions. As a result, transactions with the russian federation are subject to restrictions on bank payments, insurance and higher freight rates for ports, etc.
"The export of russian agricultural products is being outrightly obstructed all over the world, no matter how much the EU representatives convince everyone otherwise," said russian foreign Minister Sergey Lavrov in a speech in New Delhi on 2 March.
The russian Foreign Ministry issued a statement reiterating that russia "sees no point in preserving the agreement if it does not respect russian interests."
What does the rf want to achieve in exchange for the extension of the Istanbul agreement? There is no official information on this.
According to sideline insights, moscow's number one demand is to reconnect Rosselkhozbank, which is an intermediary in financing agricultural transactions, to the SWIFT international payment system. The European Commission said a few months ago that it would consider this possibility, but it is in no hurry to do so.
The issue of resuming russian ammonia exports via the Togliatti–Odesa ammonia pipeline, which has been out of service since 24 February 2022, also remains relevant. Today, the parties do not understand how to guarantee the safety of such pumping – any mistake could lead to an environmental disaster in Odesa region. moscow may demand that these points be officially spelled out in the agreement.
What does Ukraine need? First and foremost, it needs to continue exporting grain. This is especially important in the run-up to the spring sowing season to give farmers a signal that they can plan their activities and guarantee sales of the future harvest.
The Black Sea ports, through which 90% of agricultural products were transshipped to foreign markets until 24 February 2022, remain the only alternative sales channels – the railway, despite all efforts and modernisation, is not able to replace them.
At most, the goal is to extend the planning horizon from 120 days to a year, and to include the port of Mykolaiv, which handled a third of all grain exports before the full-scale invasion, in the list of ports from which exports can be made.
It is worth noting that even Odesa ports remain underutilised due to the current delays in the inspection phase in the Bosphorus. By the way, shipments from Mykolaiv are not possible until the Kinburn Spit is liberated due to the continuing military risks.
What is the UN's position? As one of the signatories to the agreement, the organisation is expected to insist on its prolongation.
During his visit to Kyiv, UN Secretary-General Antonio Guterres emphasised the need to extend the agreement, using the phrase "critically important".
"I want to underline the critical importance of prolonging the Black Sea Grain Initiative on 18 March and working to create the conditions for the maximum possible use of the Black Sea transport infrastructure in line with the initiative's objective," Guterres said at a press conference in Kyiv. "Exports of Ukrainian as well as russian food and fertilisers are essential for global food security and food prices.
What is Turkey's position as a guarantor of the agreement? Turkish Foreign Minister Mevlüt Çavuşoğlu said that Ankara is working diligently to continue the initiative.
However, as the Turkish government is primarily focused on dealing with the aftermath of the devastating earthquake, the focus on other issues, including the grain initiative, has been shifted.
Will they prolong it or not? A 90% probability is that the Black Sea Grain Initiative will be prolonged. But neither party will get 100% of what it wants.
Most likely, the 120-day deadline will remain in place, and russia will not receive definite guarantees for the export of its goods. But it will retain leverage over the intensity of trade by delaying inspections by Ukrainian courts.
The global attention to the functioning of the grain corridor is too great – the G7 countries and even China insist on its continuation.