Some Implications of the UN’s Ukraine Grain and Russia Fertilizer/Food Agreements
Since the battlefield action in Ukraine has slowed down a tad as Russia has been rotating troops and allegedly moving in more materiel, the big news story has been the UN success in consummating two deals. The one much talked about is coming up with a process for getting grain supposedly stuck in the Ukraine ports shipped out. The text for “Initiative for the Safe Transportation of Grain and Food Products from Ukrainian Ports” is embedded at the end of this post.
The second agreement, which has gotten very little attention, is that of the UN committing to “facilitate the unimpeded exports to world markets of Russian food and fertilizer.” This goes well beyond the process established for transport of grain out of Ukraine. To work, several elements of the current sanctions against Russia and Belarus would need to be unwound. Since as we will explain, we doubt this will happen to the degree needed. If so, Russia will have succeeded in firmly establishing that blame for hunger resulting from reduced shipments of its fertilizer and food will lay squarely with the so-called Collective West.
More generally, these two agreements illustrate the fix that the US, Europe, and their Asian allies have gotten themselves into, by throwing massive economic sanctions at a country that is a major player in way too many commodities they can’t live without, from oil and gas to aluminum, titanium, neon, wheat…to nitrogen, phosphorus, and potassium fertilizers. They believed they could break Russia’s economy and use the resulting chaos to resume 1990s-style looting, either by splitting up the country or installing Yeltsin 2.0.
Instead, Russia is recovering from the sanctions body blow, although some sectors like auto parts are still in a great deal of pain, while the difficulties the West is experiencing, particularly politically destabilizing inflation in food and fuel, and potentially even shortages, are set to get worse.
So far, the sanctions bosses have been unwilling to roll back their programs, no matter how clear it becomes that they are hurting the US and its allies more than Russia. Instead, the West remains firmly committed to trying to increase the Russia punishments, even when they’ve run out of measures that have any teeth, as the EU’s new, seventh round of sanctions shows.
And the sanctions cheating they’ve allowed hasn’t done much to mitigate the damage. For instance, Europe playing along with Poland’s posturing that it isn’t buying Russian gas has just hurt Europe. Poland is buying Russian gas, laundered through Germany, backflowed through the Yamal-Europe pipeline. But Russia reduced Europe’s supply to reflect Poland no longer making direct purchases, so Europe is having to make do with less gas. Similarly, who is kidding whom with Russia selling discounted oil to India, which then makes its way back to buyers in Europe that pretend they are on a Russian oil fast?
One of the big issues is that the US and its allies have made the anti-Russia programming so loud and pervasive that they are now caught in their own narrative. They would perceive it as too much of a loss of face to roll back sanctions, even counterproductive ones. And they’ve made companies correctly afraid of being seen as giving succor to the enemy. They worry that they are exposed not just to secondary sanctions but also to reputational damage. That is why, for instance, so many Western companies pulled out of Russia right after the special military operation started even though most weren’t required by sanctions to do so.
Ukraine Grain and Odessa
Ukraine may have outfoxed itself on its “dastardly Russians are starving the world by blockading Ukraine ports” falsehood. As we reminded readers repeatedly, Russia was never blockading Ukraine ports. It had established humanitarian corridors. But those did not extend into Ukraine territorial waters, particularly the ports, so ships could not leave. Ukraine had mined the ports, and badly, so that some mines had broken free and floated into Turkish waters. More detail from Moon of Alabama in May (emphasis original):
The International Maritime Organization (IMO) has published reports about the Maritime Security and Safety in the Black Sea and Sea of Azov:
…The Russian Federation has informed IMO that it had established a humanitarian corridor, to provide for the safe evacuation of ships once outside the territorial waters of the Ukraine. Despite this initiative, there remain many safety and security issues which hamper access to the corridor and the ability for ships to depart from their berth in Ukrainian ports.Ukraine’s ports are at MARSEC (maritime security) level 3 and remain closed for entry and exit. Sea mines have been laid in port approaches and some port exits are blocked by sunken barges and cranes. Many ships no longer have sufficient crew onboard to sail.
Ukraine also provided their preconditions for the safe evacuation of ships from their ports. These include an end to hostilities, the withdrawal of troops and ensuring the freedom of navigation in the Black Sea and Sea of Azov, including carrying out mine-sweeping activities with the involvement of Black Sea littoral states.
The MARSEC level of a port is determined by the local authorities. Ukraine is simply prohibiting ships from entering or leaving the ports it controls. It has taken these hostage and makes unreasonable demands for their release.
So this blockade was Ukrainian blockade. Ukraine kept insisting it didn’t want the ports demined since Russia could then attack Odessa by sea.
However, as Putin repeatedly pointed out, the Ukraine grain could easily have been shipped out by rail (Putin listed the avenues) and in any event, it was not a hugely consequential amount in world terms. However, and predictably, the New York Times told a bunch of howlers, such as greatly exaggerating the amount of grain at issue, as Moon of Alabama described in a post over the weekend.
So if Ukraine wanted to feed the world and keep the Odessa port mined, it should have arranged to transport the wheat by rail. But Ukraine preferred to keep harping on about the phony Russian blockade. So now the ports (Odessa, Chernomorsk, and Yuzhny) will be cleared sufficiently so that commercial ships can operate safely. Ukraine may have won the PR battle but at the cost of having these ports at least partly demined…with a deal that is on only 120 days, albeit subject to renewal. Since military ships, aircraft, and drones are all required to stay a certain distance away from the shipping corridors, Ukraine won’t have time to remine at the end of the 120 days, if Russia decides to let the pact expire, without risking a port battle.
Moreover, Russia took Mariupol, which also had a mined port and the supposedly most hardened Ukrainian fighters, the Azov Battalion, holed up in what so far has been Ukraine’s most formidable bunker, the Azovstal steel works. So while Russia would no doubt like maximum flexibility in how it decided to take Odessa, the Mariupol precedent suggests Russia does not need to land forces from the sea to prevail.
As you can see below, the ships will be checked for “unauthorized cargoes and personnel”. I have to confess it had not occurred to me that the vessels could serve to smuggle Right Sector goons out or CIA/NATO operatives in.
The Western media had another round of aghastitude Sunday morning when Russia shelled Odessa, as if it had immediately violated the pact. Russia said it hit military targets, including a cache of Harpoon missiles.1 And this is entirely kosher. From the first page of the text, under C:
The Parties will not undertake any attacks against merchant vessels and other civilian vessels and port facilities engaged in this Initiative.
The Russian Navy’s strike on the port in Odessa destroyed a docked Ukrainian warship, as well as a warehouse where naval Harpoon missiles, supplied by the US, were stored, the Russian Defense Ministry stated.
The ministry added that ship-based long-range precision missiles were used to strike these targets, Sputnik reported.
In addition to destroying the unspecified military vessel and the warehouse, the Russian strike destroyed a plant located at the port, which Ukraine used to modify and repair its warships, the Russian Defense Ministry said.
While the Defense Ministry did not elaborate on the type of warship that had been destroyed by the strike, Russian Foreign Ministry Spokeswoman Maria Zakharova specified that it was a fast attack craft.
The Harpoon missiles stored in the warehouse levelled by the Russian strike are manufactured by the US defense industry giant Boeing, and were supplied by Washington along with other weaponry.
Maritime sites point out that continued shelling in the Odessa port may make it difficult to get insurance coverage. The net effect may be that the ~70 ships in the Odessa port leave but no new ones come in.
In the meantime, what does the grain deal mean for the future of the war? I suspect less than many assume. First, Ukraine may be itching for an excuse to cancel the deal and not have the Odessa port demined. So despite Russia so far sticking to the letter of the deal, it making clear that it won’t allow Ukraine war operations to hide behind it may be more than the US will countenance.
Second, some speculated that Russia will wait until after the 120 days of the grain deal before it attacks Odessa. It looks instead like Russia will make its assault when Russia is ready. Russia first has to clear Donbass. Most commentators think it will take a big push to clear first the Izyum-Bahmut areas, and then Slaviansk and Kramatorsk. Russia will also need to rout the areas where the Ukraine operations that are shelling Donetsk (the city) are located, if they are still in place after Donetsk (the oblast) is cleared.
After that, to the east, there are no major fortified positions till the Dnieper. The Military Summary channel and other have reported that Russia has formed an “Odessa battalion” of Ukraine nationals from Kherson and other Russian-occupied territory. Yesterday, Military Summary claimed (see starting at 2:54) that 16 additional volunteer battalions are in the process of being formed, and trained to work with Iranian drones. The last detail seems odd and potentially diversionary.
It appears that the point of these units is to blunt the appearance that Russia is an occupying force. Presumably, Russia would screen for anyone with military or police experience, and use them in a more advanced capacity than raw recruits. The last thing Russia would want to do is treat these men the way Ukraine has its Territorial Defense forces, as cannon fodder. Thus I am not sure, contrary to the implicit assumption in Military Summary’s talk, that they would serve as front line fighters. There are plenty of important roles in the military, such as logistics and medics, that don’t entail using a gun.
So for the next phase of the war, it seems reasonable to assume Russia will put off dealing with Kiev as long as possible. It’s a big sprawling city. Better to wait and see if the government collapses as Russia takes more of the east and secures the Black Sea coast.2
As far as Odessa is concerned, there’s no reason to think this pact would stop Russia from starting its operations against the city if it were otherwise ready. Russia would simply need to hold back from the grain-related operations and docks.
Getting Russian Fertilizer and Food to Market
The UN commitment to Russia to help resume deliveries of its fertilizers and food, particularly to the Global South, has the potential to cause trouble for the US and EU, since they will need to loosen their sanctions to facilitate this trade. Of course, the Western press is likely to under-report any such failure, but it would solidify the emerging Russia-China-India-Global South alliance versus the developed North.
An agreement was also reached with the Russian Federation on the scope of engagement of the United Nations to facilitate the unimpeded exports to world markets of Russian food and fertilizer – including the raw materials required to produce fertilizers. This agreement is based on the principle that measures imposed on the Russian Federation do not apply to these products.
Simultaneously, the Russian Federation has committed to facilitate the unimpeded export of food, sunflower oil and fertilizers from Ukrainian controlled Black Sea ports…
And to assist in reversing the turmoil in the global fertilizer market that is now threatening next season’s crops – including rice, the most widely consumed staple in the world.
The comprehensive agreements secured today in Istanbul are a big step forward in tackling the global food crisis now gripping the world.
They will provide much-needed relief to the most vulnerable people and countries.
The big problem, as far as the US and EU are concerned, is that their sanctions on Russian banks and ships have thrown a spanner in the works of Russian fertilizer and food trade. As All About Feed reported in June, after reciting how the sanctions prevented the fertilizer industry from importig equipment they needed to increase capacity:
Western restrictions have severely hampered the Russian and Belarusian fertilisers export, [Andrey] Guryev [head of the Russian Fertilizer Producers Association] said, suggesting that fertilisers must be recognised as humanitarian goods in order to mitigate a global food crisis.
“The problems that we, fertiliser producers in Russia, have faced are actually [come from] sectoral sanctions. The 4 largest companies operating in Russia, plus [Belarus fertilisers producer] Belaruskali, cannot fully supply their products to developing countries,” Guryev said, explaining that among other things Russian exporters experience problems with collecting payments for delivered goods stemming from the sanctions against the Russian banking sector.
If Russian and Belarussian fertilisers do not reach their customers, the 2022/23 grain harvest is likely to be in trouble, Guriev said. This would spark a tremendous food crisis, he added.
The lack of Russian fertilisers on the global market has not only caused a spike in prices but has also resulted in their shortage in some places around the world. Guriev estimated that sanctions have nearly halved Russian fertilisers export….
Russian fertiliser producers have been struggling to rebuild logistics, re-directing trade to the railway and small ships, as large sea cargo carriers have suspended calling the Russian sea ports.
In an early June meeting with Putin, African Union Chairperson, President of Senegal Macky Sall cited the sanctions against Russia as wreaking havoc with food and fertilizer imports:
I have arrived today to say that the countries that are so far away from the hotbed of the conflict are still experiencing its consequences.
Anti-Russia sanctions have made this situation worse and now we do not have access to grain from Russia, primarily to wheat. And, most importantly, we do not have access to fertiliser. The situation was bad and now it has become worse, creating a threat to food security in Africa.
Foreign Minister Sergey Lavrov, in a speech before the Arab League over the weekend, discussed how sanctions had restricted Russia’s food and fertilizer exports:
One fake story, which I would like to mention here, which is important to this region is the so-called world food crisis, which is being blamed bluntly unconditionally on Russia as if the food crisis started on the day when we launched our special military operation in Ukraine. If anybody wants to be objective, they could read statistics from the World Food Program, from the Food and Agriculture Organization, which describes the difficulties in the food market beginning with coronavirus pandemic…
And yes, the crisis was aggravated by the illegal Western sanctions against the Russian Federation. They were trying to pretend that sanctions do not cover grain food and fertilizers. If you just take a look at the list of sanctions, you will see that, yes, food was exempted, but what was not exempted was the possibility for the Russian ships to call on the Mediterranean ports as well as the possibility of foreign ships to call on the Russian ports to take grain and other food cargos. What was not exempted, either, was the insurance of the Russian supplies of grain and what was not exempted was the payment mechanisms, which were under sanctions. And this lie has been repeated again and gain only to culminate in a deal which was eventually signed in Istanbul on the 22nd of July. It obliged the Secretary General of the United Nations, who initiated the process, to persuade and to get the decision from the Western countries to lift all those limitations, which I listed, and to stop preventing the Russian grain from being delivered to the buyers.
The Treasury issued a fact sheet dated July 14, OFAC Food Security Fact Sheet: Russia Sanctions and Agricultural Trade. I read it as consistent with Lavrov’s contention that all the US has done is handwave. The US and EU have refused to lift sanctions on any sanctioned Russian bank to engage in food, fertilizer, or medical trade. The US claims it has not barred insurance on the transport of agricultural commodities, but that language applies to the cargoes, not the ships (Lavrov may also be stating that Russian growers now have trouble buying commodities hedges for their crops….).
Regardless, as we stated early on, the intense and persistent demonization of Russia means that pretty much no commercial operator is going to take a chance with what the sanctions do or do not mean. They got the message: “Russia bad, very very bad!”
The only exceptions are likely to be businesses substantially dependent on Russia, so they have to make it work, or one that find dealing with Russia in their niche has become so lucrative that they are willing to risk getting in trouble.
Treasury merely saying, “Oh, no, you can trade with Russia in these categories” is going to change very few minds. The US would need to roll back sanctions, most visibly on Russian banks for the purpose of food-related trade, to start freeing up Russian fertilizer and food exports. I wouldn’t bet on that happening any time soon.
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1 Turkey’s Defense Minister Hulusi Akar initially said Russia denied the attack, when Russia had not made any statement. So did Russia tell a big fib, did Turkey make a bad assumption, or was something lost in translation?
2 Moon of Alabama pointed out that Russia will want to secure the Kryvyi Rih, a mineral-heavy area in the south and west of the Dnieper.