The Grain Deal

The Grain Deal,” Econospeak

by Barkley Rosser

Finally we have something sort of hopeful happen in the war in Ukraine that might help alleviate problems it has generated for much of the world.  A deal has been struck to allow Ukrainian grain to be exported from Odesa and two smaller ports near it across the Black Sea and out into the Mediterranean to world markets.  With something like 20 tons of grain, mostly wheat, sitting there for some time, with Ukraine responsible for something like 10% of world wheat exports, this has been a major problem, pushing up the price of wheat and fertilizer and sunflower oil, with this hitting especially hard several nations in the Middle East such as Egypt and in East Africa, such as Somalia. This holds the potential indeed to more generally ease global inflationary pressure in the food sector.

This is a very curious deal, with it in fact being two deals. One is between Ukraine, the UN, and Turkey while the other is between Russia, the UN, and Turkey. But they fit together. It seems the key people pulling it off are Turkish President Erdogan and UN Secretary General Guterres. They must be applauded for this. Crucial to it is how commercial ships will be allowed into and out of the ports involved and how they will skirt mines in the Black Sea that will apparently not be fully removed. Curiously a key part of the negotiation involved getting insurance companies to agree that it could be pulled off so they would be willing to insure the ships involved. 

While this is a hopeful development, there are some mysteries about it and some reasons to be concerned it will not really get fulfilled. Obviously Ukraine will gain from it.  Erdogan gains much prestige and Turkey will play a central role as all ships involved must pass through Turkish-controlled Sea of Bosporus, where apparently they will be inspected by both Ukrainians and Russians as well as Turks to make sure no arms are smuggled in. I gather Turkey will also get some financial compensation.

The mystery to me is what does Putin or Russia more broadly get from this and why was he willing to go along with it? A probable key event was Putin’s recent visit to Tehran, his first outside of the former Soviet Union since the invasion of Ukraine started on Feb. 24. President Erdogan also visited Tehran at the same time, and he and Putin met there at that time. I am sure that this discussion must have played a crucial role in sealing the deal, which makes me think there are parts of this that have not been made public. After all, Ukraine gains a lot, but Russia is already able to sell its grain, and the price for it may fall with the Ukrainian grain getting out into world markets.  I really am unclear why Putin agreed.

And indeed, the lack of obvious clear gains, aside from perhaps publicity to look not so bad in a situation where he and Russia have been sharply criticized, may lead to a lack of enthusiasm about following through on it fully and some sandbagging of it in practice. One sign of this is that Russia has hit Odesa with cruise missiles since the agreement was signed, reportedly a grain storage facility in particular. That certainly is not in the spirit of things. It has also been suggested that Russian inspectors in Istanbul may act to slow and delay the ships coming through with Ukrainian grain, if they do not actually outright break the agreement by sabotaging the ships while still in the Black Sea.

So, this is a deal that provides some hope. But it also looks to face some serious possibilities of not really being properly fulfilled.

Barkley Rosser