Insurance companies are unlikely to risk covering vessels transiting the Black Sea following Russia’s 17 July withdrawal from the Black Sea Grain Initiative (BSGI) facilitating Ukrainian grain and oilseed exports, according to a 21 July AgriCensus report.
“Now that the Russian authorities have declared that any vessel sailing to Ukrainian ports will be treated as a military threat, it is unlikely that underwriters will want to cover that risk,” a spokesperson at the International Union of Marine Insurance (IUMI) said in an e-mailed statement. “Similarly, it is unlikely that owners/charterers will be willing to put their vessels and crew in danger.”
Russia’s Ministry of Defence issued a statement on its website that effective midnight Moscow time on the morning of 20 July, any shipping identified as heading towards a Ukrainian port would be regarded as “potential carriers of military cargo” and considered as “on the side of the Kyiv regime.”
“Areas in the north-western and south-eastern parts of the international waters of the Black Sea” would be “temporarily dangerous for navigation,” the statement added.
The statement triggered cancellations among shippers that had been waiting to enter the Black Sea to pick up Ukrainian agricultural exports from the ports of Pivdennyi, Odessa and Chornomorsk, AgriCensus wrote.
These ports had come under attack since the Russian withdrawal from the BSGI, with damage to grain terminals and port infrastructure that would take at least a year to fully repair, according to Ukraine Minister of Agrarian Policy and Food Mykola Solskyi.
A significant portion of the infrastructure at the Port of Chornomorsk had been knocked out and 60,000 tonnes of grain also destroyed, World Grain reported the minister as saying.
The grain infrastructure of international and Ukrainian traders and carriers such as Kernel, Viterra and CMA CGM Group had also been damaged, according to the 19 July World Grain report.
“The world’s food security is once again in danger,” Solskyi said. “If we cannot export food, the population of the poorest countries will be on the edge of survival. The price of grain will rise, and not all countries will be able to afford the purchase of agricultural product.”
US wheat futures jumped 8.5% on 19 July, the biggest single-day rise since the early days of Russia’s invasion, World Grain wrote on 20 July.
Meanwhile, Ukraine’s Ministry of Defence retaliated, saying that from midnight local time on 21 July, all vessels in the Black Sea heading to Russia and to Ukrainian ports in territories currently occupied by Russia would be treated as potentially carrying military cargo, with all the associated risks, AgriCensus reported on 20 July.
A ministry note said navigation in the northeastern part of the Black Sea and the Kerch-Yenikal Strait of Ukraine would be prohibited as it was considered dangerous.
“By openly threatening civilian ships transporting food from Ukrainian ports, launching missile and drone attacks on civilian infrastructure and deliberately creating a military threat on trade routes, the Kremlin has turned the Black Sea into a danger zone,” the note said. “The responsibility for all risks lies entirely with the Russian leadership,” it added.
The BSGI signed in July 2022 had become increasingly ineffective in the past months, with Russian authorities accused of deliberately slowing down the rate of inspections of in- and outbound vessels, AgriCensus wrote.
The United Nations (UN) and Turkey brokered-deal had resulted in the safe passage of some 33M tonnes of grain and other foodstuffs from the Ukrainian ports of Pivdennyi, Odessa and Chornomorsk.
During negotiations to convince Russia to agree to the BSGI, a three-year deal was struck under which UN officials agreed to help Russia export its food and fertilisers.
While these exports have not been subject to Western sanctions imposed after Russia invaded Ukraine last February, Moscow said restrictions on payments, logistics and insurance had amounted to a barrier to its shipments and it is demanding that obstacles be removed before it will re-join the BSGI.
While Ukraine has said that it is setting up an alternative export route via the waters of Romania, it also faces grain import restrictions imposed by five EU member states – Bulgaria, Hungary, Poland, Romania and Slovakia - to protect producers in those countries from increased Ukrainian imports.
Poland said it would maintain the restrictions to protect its own farmers, The Guardian newspaper wrote on 18 July.