Ukraine’s Black Sea deal helps Russian economy

With much fanfare, ship after ship loaded with grain has sailed from Ukraine after being stuck in the country’s Black Sea ports for nearly six months. More quietly, a parallel wartime deal met Moscow’s demands to clear the way for its wheat to get to the world, too, boosting an industry vital to Russia’s economy that had been ensnared in wider sanctions.

While the U.S. and its European allies work to crush Russia’s finances with a web of penalties for invading Ukraine, they have avoided sanctioning its grains and other goods that feed people worldwide.

Russian and Ukrainian wheat, barley, corn and sunflower oil are important to countries in Asia, Africa and the Middle East, where millions rely on subsidized bread for survival. As the war spiked food and energy prices, millions of people have been pushed into poverty or closer to the brink of starvation.

Two deals that the U.N. and Turkey brokered last month to unblock food supplies depend on each other: one protects ships exporting Ukrainian grain through the Black Sea and the other assures Russia that its food and fertilizer won’t face sanctions, safeguarding one of the pillars of its economy and helping ease concerns from insurers and banks.

The agreement allowed a Western shipper to move two vessels of grain out of Russia in a matter of weeks. It used to take months because Western banks refused to transfer payments to Russia. Although U.S. and European Union sanctions don’t directly target Russian agriculture, Western banks have been wary of running afoul, hindering buyers’ and shippers’ access to Russian grain.

The deal mattered to Russia because it’s the world’s biggest exporter of wheat, accounting for almost a fifth of global shipments, and the country is expected to have one of its best-ever crop seasons this year. Agriculture accounts for around 4% of Russia’s gross domestic product, according to the World Bank.

Farming provides 5-6 million Russian jobs, with some regions almost entirely dependent on it for their livelihood.

Russia’s demands for the deal included public statements from the U.S. and EU that sanctions don’t target Russian food and fertilizer. It also raised issues around financial transactions to the Russian Agricultural Bank, access for Russian-flagged vessels at ports and ammonia exports needed for fertilizer production.

A week before Russia signed the agreement, the U.S. Treasury Department issued statements with such assurances. It made clear that Washington hadn’t imposed sanctions on the sale or transport of agricultural commodities or medicine from Russia.

But overall, the world is expected to produce 12.2 million tons less wheat and 19 million tons less corn for the 2022-2023 harvest compared with the previous year, International Grains Council Executive Director Arnaud Petit said. This is in part due to the war in Ukraine and drought in Europe, he said.

While a strong U.S. dollar and inflation may force some countries to ration food imports, Petit noted that some countries are imposing export controls that could impact the availability of grains in sub-Saharan Africa and the Middle East.