The Istanbul grain deal. Will Putin let Ukraine earn $10 billion?

Russia agreed to open corridors for the export of Ukrainian grain on July 22. And less than 24 hours later, it tried to destroy port granaries with missiles. What’s going on?

On July 22, in Istanbul, four parties – Russia, Ukraine, the UN, and Turkey – signed an agreement on the provision of the so-called grain corridor. This should unblock the export of food products and grain from three Ukrainian Black Sea ports.

Ukraine had negotiated the lifting of port blockade for several months. Negotiations in Turkey went on the entire week. Russia tried to bargain for an easing of sanctions and more favorable terms. And after signing the agreement, it attacked the port of Odesa with Kalibr cruise missiles on July 23. They clearly targeted the granary, but missed.

We analyzed what the Istanbul agreement provides, who will guarantee the safety of ships in the “grain corridors” and whether demining the sea will increase military risks for Ukraine.

Unblocking of ports, partial demining. What was signed in Istanbul

The full text of the quadripartite agreement in English was made public by Deputy Head of the Office of the President Andrii Sybiha after the signing.

“There are no other closed appendices, protocols, documents, and pieces of paper under the table. At the same time, there is not a single signature of the Ukrainian side next to the signature of the occupiers,” Deputy Minister of Infrastructure Mustafa Nayyem stressed after the signing.

The Ukrainian representative – Minister of Infrastructure Oleksandr Kubrakov – signed the document with representatives of Turkey and the UN. A similar document was signed by the Russian representative – Minister of Defense of the Russian Federation Sergei Shoigu.

“Such things in diplomacy are considered a humiliation: when Ukraine sends (as a negotiator – ed.) to the long-term ‘formidable’ Russian minister a civilian government official who has been working for a little more than a year,” Andriy Klymenko, project manager of the Black Sea Institute of Strategic Studies and editor-in-chief of the BlackSeaNews portal tells LIGA.net.

What the agreement provides:

– Three Ukrainian ports – Odesa, Chornomorsk and Pivdennyi – should be unblocked for the passage of civilian vessels.

– For general supervision and coordination, a Joint Coordination Center (JCC) will be created in Istanbul under the auspices of the UN. It will include representatives of Ukraine, Russia, the UN, and Turkey.

– Vessels will enter the ports of Ukraine pending an examination (according to the approved schedule) by inspection groups consisting of representatives of all parties. The inspection will check the vessels for the absence of unauthorized cargo and personnel. The joint inspection should protect Ukrainian ports from the entry of “Trojan horses” under the guise of civilian vessels, Kubrakov is convinced.

– All activities in Ukrainian territorial waters are under the responsibility and responsibility of Ukraine.

– The parties undertake not to attack civilian vessels passing through the special corridor, as well as the three mentioned ports. No warships, aircraft, or drones may approach this corridor closer than the distance approved by the JCC. According to maritime international law, the navigationally safe distance is 20 cables (3,704 meters), Mykhailo Samus, director of the New Geopolitics Research Network, explains to LIGA.net.

– If necessary, Ukraine can partially de-mine fairways for the passage of ships. This can be done by a minesweeper of another country if necessary.

– The contract will be valid for 120 days from the date of signing and will be automatically renewed if neither party notifies that they want to terminate it.

Plus $1 billion per month. What Ukraine gets from the agreement

For the Ukrainian economy, the document, if the agreements are implemented, will be of enormous importance, the head of the KSE Center for Food and Land Use Research Oleg Nivievsky tells LIGA.net:

“Before the war, a fifth of our economy depended on the export of agricultural products, and 40% of the foreign exchange revenue was provided by it.”

Despite the fact that after the blockade of the sea, Ukraine increased its exports through the western borders – by rail, trucks, and river transport via the Danube – this is not enough to export the entire harvest, according to the director general of the Ukrainian Agribusiness Club, Roman Slaston.

Before the blockade, more than 80% of our exports went by sea, Slastyon tells LIGA.net: “Without sea ports, during the five months of the war, we managed to reach the export mark of only 2-2.5 million tons per month.” For comparison, last year up to 6 million tons of grain and up to 500,000-700,000 tons of oil went through sea ports from Ukraine every month.

Now, logistics costs for farmers have increased three to five times and make up two-thirds of the price of agricultural products, Slaston points out.

As a result, now Ukraine does not have enough time to send last year’s harvest abroad before it rots in storage. According to Nivievsky from KSE, Ukraine still has 18-20 million tons left from last year’s harvest. And soon we will have to gather in a new one – 65-70 million tons.

The inability to sell grain deprives farmers of the ability to finance future cropping cycles. And this means higher prices for them next year.

Unblocking the ports within the framework of the agreement will give Ukraine the opportunity to export all of last year’s harvest and part of this year’s, Iryna Kosse, senior research fellow at the Institute for Economic Research and Policy Consulting, tells LIGA.net.

“The agreement unblocks three of the five largest ports of Ukraine. So, in roughly four months, we will be able to export the stocks we have,” Serhiy Vovk, director of the Center for Transport Strategies, said in a comment to LIGA.net.

If the ports are unblocked, farmers’ costs for logistics will be reduced, and domestic prices should rise by about $100 per ton, which will give them more certainty about future harvests.

Unblocking three ports for Ukraine may mean additional exports of up to $1 billion per month, a positive impact on the trade balance and the stability of the national currency in the coming months, concludes Hlib Vyshlinsky, executive director of the Center for Economic Strategy, in a comment to LIGA.net. He estimates the positive impact of the agreement on the economy at the level of 5% of GDP.

We now have approximately $10 billion worth of grain, President Volodymyr Zelenskyy said in his comments on the signing of the agreement in Istanbul.

What did Russia trade in exchange for unlocked ports? According to the signed documents, nothing. However, on the eve of the signing of the “grain” agreement, the U.S. did remove anti-dumping duties on Russian fertilizers and medicines, and the EU, in the seventh package of sanctions against the Russian Federation, did not limit banking operations necessary for the import or transportation of agricultural and food products.

In the future, the agreement will allow Turkey to become one of the global centers that determine the prices of food products in the world, according to the president of the Istanbul Cereals, Pulses, Oilseeds and Products Exporters’ Association, Kazim Tayci.

Why the corridor may not work out: risks

Despite the positive expectations for the deal, there are several things that experts see difficulties with, writes Bloomberg. In particular:

– clearing mined waters;

– attracting a sufficient number of ships;

– provision of the necessary cargo insurance, given the serious security risks;

– mistrust of the Russian Federation, which has pledged not to obstruct supplies, but often does not honor its agreements.

If a ship trips a mine in Ukrainian territorial waters, it will be Ukraine’s sole responsibility. But no one has the right to specify what and where to de-mine, explains Samus in a comment to LIGA.net.

The head of the Main Intelligence Directorate of the Ministry of Defense Kyrylo Budanov stresses that the “grain corridor” does not pose any military risks for Ukraine due to the demining of waters.

“If someone thinks that Russia will be able to land an amphibious assault under the pretext of the functioning of this corridor, then it is completely unrealistic. In addition, the coast is already protected by coastal missile systems,” said Budanov.

All responsibility for the possible attacks on ships by the Russian Federation was assumed by Turkey, says Samus:

Along with the responsibility for the protection of ships with grain, Turkey also takes on responsibility for the fact that Russia can attack its ships. And therefore, also for the fact that it will destroy them, if necessary, together with the Navy of Ukraine.

Samus points out that according to the Montreux Convention (1936) only Turkey can now have naval forces in the Black Sea.

And what about insurance, because no cargo ship will enter our waters without guarantees from insurance companies? “Actually, the UN and Turkey have taken on the duties of maritime managers, organizers of the process, who will be directly involved with the search for ships and the possibilities of their insurance,” Klymenko from the Black Sea Institute of Strategic Studies believes.

Risks for insurance companies are reducing – they will be more confident about the safety of shipping in the region than they were in February, KSE’s Nivievsky tells LIGA.net. What’s more, it’s profitable: for every ton of cargo exported from Odesa, charterers set a surcharge of $30-40, compared to the port of Constanta (Romania).

“There is a choice: take to Constanta and pay $100-120 per ton more – or pay $30 per ton and take it through Odesa. The economy is obvious,” says Nivievsky.

Will the Russian Federation fulfill the agreement? Not a given

Ukraine’s Infrastructure Ministry expects that all three ports will be operational within two weeks – first Chornomorsk, then Odesa and Pivdennyi, Deputy Minister of Infrastructure Yuriy Vaskov told Forbes. “The first ships will be dispatched within four days,” he expects.

Experts interviewed by LIGA.net are skeptical about such short deadlines. “There are too many details that need to be agreed, explains Iryna Kosse from the Institute for Economic Research and Policy Consulting.

“I think the first grain will go in a month or two,” KSE’s Nivievsky considers two to three months to be a realistic term.

There is another risk: that the grain corridor will not work at all.

Nothing from this Istanbul scheme has yet materialized, and it may never happen, Klymenko says.

The British Foreign Minister, Liz Truss, and the US representative to the UN, Linda Thomas-Greenfield, said that their countries will closely monitor how Russia implements the agreement on unblocking the ports of Ukraine.

Less than a day after signing the agreement, the Russian Federation attacked Odesa with Kalibr missiles. In particular, the port in which the grain was stored that was to be sent abroad in the next two days, as the Ministry of Agrarian Policy reported.

“The Russian missile is Vladimir Putin’s spit in the face of UN Secretary General António Guterres and President of Turkey Recep Tayyip Erdoğan,” said the spokesman of the Ministry of Foreign Affairs Oleg Nikolenko.

In response, Guterres “unreservedly condemned” the Russian missile attack. The reaction of the President of Turkey Erdoğan and Ankara had not been voiced at the time of publication.

In response to the missile attack on the port of Odesa, the Ministry of Infrastructure announced that it would demand the fulfillment of the terms of the agreement from its partners – Turkey and the UN.

“We will not back down from our goal – to unblock sea ports,” said the Ukrainian Infrastructure Minister Oleksandr Kubrakov. “We are continuing technical preparation for the launch of the export of agricultural products.”

Authors: Ulyana Bukatyuk, Yuriy Smirnov

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