‘Panic’ in ports as Russia slams shut grain deal after Crimea drone attack

Russian authorities have said they have pulled out of the grain corridor deal negotiated back in July in a move that could slam the door shut on grain exports from three deep-water Ukrainian ports.

The move follows Russian reports of an attack by drones on ports in the disputed Crimean region that appears to have damaged Russian warships in the port of Sebastopol.

A statement attributed to the Russian Foreign Ministry and widely shared through media outlets stated that “massive air and sea strikes” on the Russian Black Sea Fleet had occurred via air and seaborne drones.

In response, the ministry warned, “the Russian side cannot guarantee the safety of civilian dry cargo ships participating in the ‘Black Sea Initiative,’ and suspends its implementation from today [October 29] for an indefinite period.”

The statement seemingly signals the end of an agreement that had guaranteed safe passage for grain vessels from the deep water Ukrainian ports of Pivdennyi, Odesa and Chornomorsk (POC) that had been negotiated by Turkey and the UN between Russia and Ukraine.

The corridor was opened amid surging prices of staples and has been a huge success in alleviating the high prices by re-coupling Ukrainian grain supply to the world market.

Trade responses focused on the immediate nature of the cutoff, which could leave vessels currently in any of the POC ports stranded.

“I really hope this is not officially approved, and vessels already inside POC ports do not get stuck,” one trade source told Fastmarkets Agriculture, describing the situation as “panic in the ports [as] vessels want to sail out.”

A second source echoed the sentiment but also questioned whether Russia – which has already suffered losses among its Black Sea fleet as well as expending a substantial part of its guided missile stocks – now had the capacity to enforce an embargo on vessels moving out of Ukrainian ports.

“It’s now a question of whether Russia can attack cargo ships approaching and leaving Ukraine. If nothing changes and ships continue to sail as usual, it will be a huge win for Ukraine and the world,” a freight broker said.

Grain prices likely to soar further

However, growing concerns over the potential viability of the grain corridor deal has already raised doubts in shipowners’ minds, with freight rates pushing higher and signs that the flow of exports has already started to slow down.

International prices of key commodities – particularly those associated with the Black Sea, like wheat and sunflower oil – spiked in the aftermath of Russia’s invasion of Ukraine and raised fears of starvation in developing nations as the supply of key staples was choked off.

Russian forces closed access to all of Ukraine’s Azov Sea coast while naval forces cut off the deep water ports that handled the bulk of the country’s export capacity, forcing exporters to rely on smaller ports along the Danube in the very south of the country, or rail connections into the European Union.

Russia’s agriculture minister, Dmitry Patrushev, has reportedly offered 500,000 tonnes of grains over the next four months to developing world nations for free in a bid to alleviate concerns over potentially higher prices and restricted supply, likely to hit the global market on the morning of October 31st.

However, the volume is likely to be insignificant versus Ukraine’s exports, which have reached as much as a million tonnes a week recently, with most of that volume exported as corn – versus Russia’s predominance in the wheat market.

Furthermore, trade sources also pointed out that the 500,000 tonnes of grain Russia promised for free pales compared to the estimated 5 million tonnes of Ukrainian agricultural products that Russian forces have taken during the occupation.

For more information on the grain market and trends visit our dedicated page for grain prices.