Russia has finally followed through on its long-running threat to suspend its participation in the Ukraine grain deal. Right up until the morning of the current deal’s expiration on July 17, it seemed that it would be extended once again, but that all changed when the bridge built by Russia to annexed Crimea was attacked for the second time, killing two people. The deal looks set to be on hold for at least the next two weeks, until the Russia-Africa summit due to take place in St. Petersburg on July 27–28, and possibly until the Russian and Turkish presidents meet in August.

The markets are apparently unconvinced that the interruption will be a lengthy one: Moscow has threatened to pull out of the deal so many times before that no one takes it seriously. In any case, the Kremlin is too dependent on its partners to simply abandon the deal.

The grain deal between Russia and Ukraine was agreed a year ago in Istanbul and brokered by the UN and Türkiye with the aim of releasing much-needed Ukrainian grain onto the global market and stopping the rise of food prices. Under the first part of the agreement, Moscow promised not to attack cargo ships carrying Ukrainian grain out of Black Sea ports, while Türkiye and the UN undertook to inspect the ships’ cargoes. The second part of the deal exempted Russian agricultural and fertilizer exports from U.S. and EU sanctions. 

Since then, about 32 million tons of grain worth $8–9 billion has left Ukraine for countries including China, Spain, and Türkiye. The deal has caused global food prices to fall by 11.6 percent, according to the UN Food Price Index. For Kyiv, meanwhile, the agreement isn’t just a key source of hard currency revenues; it also frees up Ukrainian grain silos for the new harvest, preventing domestic prices from increasing.

Within six weeks of the agreement being reached—just as Ukraine launched its successful counteroffensive in September 2022—the Kremlin already appeared to be having second thoughts, and complained that the terms of the deal were not being upheld. 

Officially, Russia’s objections were that the grain was not reaching the poorest countries, though the destinations for the exports had never been part of the deal. The Kremlin’s real priority was to remove barriers to the export of Russian grain and fertilizer. Yet despite the EU and United States introducing sanctions exemptions for Russian agricultural exporters, Western companies have proved reluctant to return to business as usual with their Russian counterparts.

There are many reasons for this, including difficulties in conducting financial transactions, increased costs, and the risk of new sanctions being introduced. Most major Russian grain and fertilizer producers are in some way linked to the state or have sanctioned individuals on their management boards. If Russian companies are considered toxic by Western corporations and financial systems, there is nothing the UN can do about it.

Russia is also unhappy that its demand for the state-owned Russian Agricultural Bank to be reconnected to the international SWIFT payment system has not been met. Instead, the UN has proposed a compromise: to connect a subsidiary of the bank to the system. 

Despite these obstacles, Russia still managed to supply 60 million tons of grain to foreign markets this agricultural year (July 2022–June 2023) and earn over $41 billion from doing so. Forecasts for the new crop and export earnings from it are no less optimistic: the country still has record grain stocks, and exporters have adapted to the restrictions. Grain is also actively being exported from the territories Russia has annexed from Ukraine.

Following Russia’s initial threats to withdraw from the deal last September, the deal was briefly suspended in November, but was brought back on track after just two days and one phone call from Turkish President Recep Tayyip Erdogan to his Russian counterpart Vladimir Putin. When the agreement came up for extension in March, that coincided with a visit to Russia by Chinese leader Xi Jinping, while another extension in May coincided with the Turkish elections, which were won by Erdogan.

In agreeing to the grain deal, the Kremlin underestimated how much Russia’s dependence on China and Türkiye has grown. As the main recipient of grain exported under the agreement, China even included the deal as a separate item in its peace plan for Ukraine. Moscow does not want to sour relations with a key partner that has become the largest buyer of Russian hydrocarbons and the biggest seller of sanctioned goods to the Russian market.

Trade with Türkiye has also skyrocketed: Turkish exports to Russia in the first half of the year doubled year on year to almost $5 billion, while Russia supplied Türkiye with goods worth $27.7 billion. For Moscow, Ankara is not only an important logistics hub, but also “one of the few countries that maintains dialogue at a high level,” as the Kremlin recently admitted

The existence of this channel is so important that Moscow has effectively turned a blind eye to the unexpected return by Türkiye of five Ukrainian commanders captured by Russian forces to Ukraine, increased cooperation between Kyiv and Ankara in drone production, and other pro-Ukrainian gestures by the Turkish leadership.

Putin previously promised that if the grain deal fell through, Moscow would supply grain free of charge to African countries in need of it. Most likely, he was referring to the volumes that Africa receives under the UN food program: about 1 million tons. Given the record harvest and exports, that is a small amount for Russia.
Judging by how calmly the usually volatile wheat prices reacted to the news of the deal’s suspension, the market does not yet believe that Ukrainian grain will be left stranded inside the country. Warnings by the Russian authorities that the northwestern Black Sea was once again a “temporarily dangerous area” have not yet been reflected in global prices.

In any case, Ukraine had been preparing for the deal to be stopped, and had independently contacted carriers and insurers, offering its own guarantees for the safety of the cargoes. Kyiv has created an insurance fund especially for this purpose worth about $547 million. Still, if Russia does not return to the deal in the near future, prices will rise.

One key issue that is still outstanding is the safety of Ukrainian port infrastructure. One year ago—the day after the signing of the deal in Istanbul—Russia launched a missile attack on the port of Odesa. Moscow is unlikely to progress to direct attacks on grain carriers right now, but it may begin to consider Ukrainian ports legitimate targets.

During the year that the grain deal has been in place, Russia has been unable to turn it to its advantage, having underestimated the changed balance of power. Putin initially saw it as providing Russia with additional leverage over Ukraine and the West, but instead Moscow has become a purely formal partner: the Russian leader is taken into account because he is unpredictable, but his threats are not taken seriously. Erdogan is expecting a visit from Putin as early as next month to discuss the deal, among other issues. The Turkish leader has plenty of leverage himself to convince Russia to return to the implementation of the grain deal—if the leaders of African countries have not already done so. 

  • Alexandra Prokopenko