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Global economic outlook 2023

Russia seeks permanent exit from Black Sea grain deal

On July 17th Russia said that it would not renew the Black Sea grain deal, which had expired the day before. Russia had repeatedly threatened to terminate the deal unless the EU provided Russia with sanctions relief. Russia’s demands centre around the access of the Russian Agricultural Bank (Rosselkhozbank) to the SWIFT payments messaging system. Russia’s demands do not stand up to scrutiny, as any other Russian bank still connected to SWIFT may process agricultural transactions.

Why does it matter?

The Black Sea grain deal enabled Ukraine to export almost 33m metric tonnes of grain since August 2022, ensuring stability on global food markets and providing a lifeline for the country’s agricultural sector. Without access to the Black Sea corridor, Ukraine will be forced to rely on other more costly and less efficient routes to ship its agricultural exports, including via the Danube river and its EU neighbours. However, growing Ukrainian grain exports to east European countries have fuelled tensions with those countries.

Even if Russia were to re-enter the deal under Turkish pressure or after receiving some sanctions concessions, we believe that it would still exit the deal permanently in the coming months. Russia has been rapidly boosting its agricultural production capacity and is looking to replace Ukrainian grain in markets in the Middle East and Africa. This strategy would support the Russian economy and also advance Russia’s influence in the global south. Ukraine will remain committed to exporting its grain from Black Sea ports; however, this would be difficult under a Russian naval blockade and frequent attacks on Ukraine’s port infrastructure (on July 18th there were reports of drone attacks along Ukraine’s coastline).

Regardless of when or whether Russia exits the deal, rising uncertainty surrounding Ukrainian shipments will put upward pressure on prices for grains and oilseeds, which have been falling steadily since mid-2022. Food security concerns will also increase, especially for those Middle Eastern and African countries that are heavily dependent on Black Sea shipments.

What next?

We believe that Russia will permanently exit the grain deal by end-2023. Export volumes of Ukrainian grains will decline as sharp rises in insurance premiums make it economically unfeasible for shipping companies to service Black Sea ports. Alternative transportation routes by land will be unable to make up the difference. We expect price declines for wheat, maize and oilseeds to abate or come to an end, especially in 2024. Russia will continue to ramp up disinformation to falsely claim that sanctions are fuelling food insecurity. Even if Russia were to renew the deal now for a short period, ship inspection times would progressively grow longer as Russia sought to apply economic pressure on Ukraine.

The analysis and forecasts featured in this piece can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the economic, political and policy outlook for nearly 200 countries, enabling government departments to direct foreign policy.