Moscow wants to leverage the upcoming renewal of a deal that is crucial to allow the export of Ukrainian grain to world markets to reconnect the Russian Agricultural Bank to the Swift banking system, analysts have told The National.
If this fails, Russia’s willingness to continue hampering the agreement, called the Black Sea Grain Initiative, depends on whether it wants to risk its relations with its largest purchasers of grain and fertilisers in Asia and Africa.
Russia this week said it would agree to renewing the deal for 60 days instead of 120 as stipulated, blaming the West for not collaborating with the UN in implementing a separate agreement to facilitate its food and fertiliser exports to world markets.
The UN, which brokered the grain deal in July with Turkey, on Thursday said it called for a 120-day rollover, a position also taken by Turkey and Ukraine. Ukraine has exported nearly 25 million tonnes of mainly corn and wheat under the deal, the UN says.
The deal is set to expire on Saturday. The uncertainty surrounding Russia’s position raises the spectre of a rise in the prices of grain and fertiliser on world markets similar to last year’s.
The UN this week said that “some obstacles remain, notably with regard to payment systems”.
The UN did not respond to a request for clarification from The National, but by “payment systems”, the international body was likely referring to Moscow’s frequent requests to relink the Russian Agricultural Bank to the international Swift payment system, said Bilal Muftuoglu, agricultural markets editor at Argus Media.
The EU, the US and other western partners cut off a number of Russian banks from Swift shortly after the invasion of Ukraine last year. This restricted the country’s access to financial markets across the world.
Russia brought the issue to the table when the grain deal was renewed in November, but ultimately approved the 120-day rollover, saying it had received reassurance that its concerns would be addressed. Neither the UN nor western countries made such promises publicly.
“Russia is basically saying that the reassurances that it was given back in November have not been fulfilled,” said Mr Muftuoglu.
The West, including the EU, says it has implemented its part of the deal by exempting Russian grain and fertiliser exports from sanctions.
Russia argues that keeping the Russian Agricultural Bank, or Rosselkhozbank, outside the Swift system slows down payments, though figures show there has not been a significant drop in its exports. Wheat exports even increased in 2022. Though Russia lost some clients, it gained others, with India buying seven times more diammonium phosphate than in 2021, analysts previously told The National.
Russia is probably trying to leverage its importance in the deal to ease pressure on its banks, but the West is unlikely to give in to its demands and relink its banking system to Swift, which would be seen as a major win for Moscow, said Mr Muftuoglu.
Pushing too hard and endangering the Black Sea corridor would be ultimately counter-productive, he added. Russia has found new markets which it might not want to lose.
“It would go against all its diplomatic efforts in Africa in the past months. Countries like Kenya and Tanzania are switching to Russian wheat," Mr Muftuoglu told The National.
UN figures show that pre-war, countries such as Mongolia, Ghana, and Peru were highly reliant on Russian fertiliser imports. Eritrea, Somalia, and Turkey were important importers of Russian wheat.
Russia stopped publishing figures after the war and analysts rely on trade partners’ data for post-war figures. Russia and Ukraine are two of the world’s top fertiliser and grain producers.
Ultimately, Moscow wants to remain involved in the Black Sea corridor, but at the same time hamper Ukrainian exports.
Bringing down the agreement to 60 days would slow trade because buyers, who sometimes purchase months in advance, would be unsure whether the corridor would still be open when their purchases are expected to be loaded, said Mr Muftuoglu.
“Russia does not want to be blame for stopping Ukrainian exports, but in the meantime, it wants to make sure that Ukraine cannot export as much as it ideally could,” he said.
