Putin’s blockade in the Black Sea affects the whole world

2023-07-17 08:44:07

Alexander Zein started harvesting later than usual. Spring was wet and cold. But now the wheat is golden yellow on 1100 hectares, waiting to be mowed, threshed and brought in. Farmer Zein does not only produce wheat. Sunflowers grow on 1,800 hectares, maize on 2,400 hectares and rapeseed on 800 hectares.

Andreas Mihm

Business correspondent for Austria, Central and Eastern Europe and Turkey based in Vienna.

The farm run by Zein is located east of Kiev. Like most farmers in Ukraine, he produces for export. With corn, wheat, rye and oilseeds such as rapeseed, sunflowers and soya, Ukraine is one of the largest agricultural exporters. But as the harvest season begins, Russia under President Vladimir Putin is threatening to shut down the main export route, the one through the Black Sea. On Sunday, the Russian President reiterated his threat. “If Putin gets serious, then we’ll have a problem,” says Zein on the phone.

The world experienced what that means in 2022. Russia invaded Ukraine and its Black Sea ports were closed. There, the silos were overflowing, and prices on the stock exchanges shot up to unprecedented heights. They only dropped when the EU opened its borders and the Black Sea Grains Initiative was signed. It took until the end of July for the United Nations and Turkey to reach an agreement in which Russia allowed exports of Ukrainian grain from Chornomorsk, Odessa and Pivdenny.

Export of Russian Ammonia

Since then, according to UN data, 32.9 million tons of grain have been exported, 725,000 tons of which by the World Food Program (WFP) for underdeveloped countries such as Ethiopia, Somalia and Yemen. That was more than half of the grain shipped by the WFP in 2022 – and makes the importance of the corridor immediately clear. The 1,004 freighters, sailing under the protection of the Grains Initiative as of Sunday, transported 17 million tons of corn, 9 million tons of wheat and 4 million tons of oilseeds. Since May, Putin’s inspectors on the Bosphorus have allowed fewer ships to enter and reduced Ukraine’s grain exports. From Monday they could dry up completely, then the contract expires.

Putin blames the West for his blockade. If he keeps his promises, “we will rejoin this deal immediately”. Moscow is demanding an easing of economic sanctions. The export of food and fertilizers is not included. But the sanctions are making payment, logistics and insurance for Russian exports more difficult.

The Grains Initiative allows the export of Russian ammonia, a component of nitrate fertilizers. But the export that was once processed via the Ukrainian port of Piwdennyj is idle. It is unclear whether this is due to Ukraine’s destructive attitude, the pipeline destroyed by the war, or because Russia is preparing another export route. Only Russian fertilizers stored in the Baltic ports were reluctantly released.

Moscow is even more annoyed that the Agricultural Bank (Rosselkhozbank) is cut off from the SWIFT payment system, which makes money transfers more difficult. Most recently, the EU had made offers, but these were not enough for Moscow.