How the Ukraine Grain Deal Went From Boon to Burden for the Kremlin
The truth is that Moscow needs its grain deal partners far more than they need it, which makes it hard for the Kremlin to put pressure on anyone.
After several weeks of complaining and wavering, Russia has agreed once again to extend the grain deal with Ukraine—though only for sixty days, instead of another 120-day extension due to come into force automatically when the current term ends on March 18. As talks continue on allowing another 120-day extension, Moscow says that the West is not meeting its obligations under the deal, though it is making the claim less loudly and insistently than ahead of the previous extension last October.
Russia’s readiness to temper its position is understandable, since the deal has the support of a broad coalition of countries, including Turkey and China. Moscow’s dependence on the latter two has grown so much that it is not prepared to seriously clash with them over the grain deal.
Just last summer, the grain deal was hailed as a major victory for international diplomacy. Since it was agreed, Ukraine has exported 24.5 million tons of grain via some of its Black Sea ports, of which 5.3 million tons went to China. The Kremlin was pushed into the deal by the UN and Turkey. The latter was able to boost its international standing by acting as the deal’s guarantor, as well as to make money from the grain’s processing.
For Russia, the grain deal was supposed to remove obstacles to the export of its own grain and fertilizer. Officially, the loosening of Western sanctions on those sectors was not part of the deal, but Western countries issued directives excluding transactions involving Russian grain and fertilizer from sanctions.
The problems faced by Russian exporters didn’t just stem from sanctions. Western companies are anyway reluctant to work with them because of the difficulty of carrying out financial transactions, greater costs, and the fact that most major Russian grain and fertilizer producers are linked, one way or another, to the state, or have sanctioned individuals within the ranks of their management. The UN cannot influence the decisions made by Western corporations.
Still, the difficulties Moscow constantly complains of did not prevent Russia from increasing its exports of grain and grain legumes by 11.6 percent in the first half of the current agricultural year (July to December 2022). Russian exports of wheat alone grew by 12.4 percent, according to data from the Russian Grain Union.
Russia already threatened to tear up the grain deal on the eve of the previous extension last fall, citing a Ukrainian drone attack on a Russian naval base in Sevastopol, which it claimed targeted ships involved in the deal. Putin demanded written security guarantees for naval and civilian vessels operating in the vicinity of the green corridor, but in the end had to settle for verbal assurances from Turkey.
At the same time, less public economic demands were made: to release Russian fertilizer blocked in European ports, restart the Togliatti-Odesa ammonia pipeline (a vital export route for Russian ammonia), and lift sanctions against Russia’s state agricultural bank Rosselkhozbank, previously headed by Dmitry Patrushev, the current agriculture minister and son of Security Council Secretary Nikolai Patrushev.
None of those demands have been met. Ukraine’s main requirement for unblocking the ammonia pipeline is a fully inclusive prisoner exchange, to which Russia refuses to agree. Restarting ammonia exports would also give the Kremlin and businessmen close to it another source of hard currency.
As for Rosselkhozbank, the EU has said that the bank is not subject to blocking sanctions, and can therefore maintain correspondent status with EU banks—only by using email or fax rather than the SWIFT payment system. Of all the fertilizer sitting idle, so far just one shipment of 20,000 tons has been sent from the Netherlands to Malawi. The rest remains blocked in Latvian ports.
Despite its demands not having been met, Russia did agree to the previous extension of the grain deal last fall. A key role was played in that decision by Turkey, upon which Russia had become increasingly dependent. Just a few years ago, Ankara was begging Moscow to allow Turkish tomatoes back onto the Russian market. Now Turkey is Russia’s third biggest trading partner, having not even been in its top ten as recently as 2021.
Turkey is now a key logistical hub for Russian business, while Istanbul’s airports are virtually the only option for passengers travelling west. In 2022, the value of Turkish exports to Russia grew from $5.8 billion to $9.3 billion, according to Turkish statistics.
Turkey also played an important role in the latest extension of the grain deal. A few days before the 120-day period was due to end, Russian logistics companies started reporting that the transit of goods—including sanctioned goods—into Russia via Turkey had stopped. The central office in Ankara was turning down customs declarations, preventing any further movement of the cargo.
No official explanation from Turkey was forthcoming, and nor indeed could it be, since that would have amounted to an admission that Turkey is supplying Russia with sanctioned goods, despite pressure from the EU. Yet just a day after Russia announced the extension of the grain deal, the problems with Turkish customs were miraculously resolved and the goods were once again on their way.
Russia’s main partner, China, also had a vested interest in preserving the grain deal. Facilitating grain exports was number nine on China’s twelve-point peace plan for stopping the Russia-Ukraine war. In addition to the fact that China is one of the main buyers of Ukrainian grain, the deal also dovetails with Beijing’s global food security initiative, presented to the G20 last year.
Plus, Chinese leader Xi Jinping will visit Moscow next week. Moscow’s dependence on Beijing is growing, and it’s an alliance in which Russia is very much the junior partner. The Kremlin certainly didn’t want a scandal over the grain deal—or indeed anything else—marring the visit.
Ultimately, the Kremlin agreed to the grain deal when the Russian army was faring significantly better in Ukraine than it is right now, and when excess profits from selling energy resources continued to swell the Kremlin’s coffers. Back then, Moscow felt like it was in control of the situation, and was counting on being able to use the deal as another lever of influence over the West.
In reality, it has turned out to be nothing of the sort. Russia proved unable to make use of its position, having underestimated the altered balance of power. Now Moscow needs its grain deal partners far more than they need it, which makes it hard for the Kremlin to put pressure on anyone. Consequently, Russia has become a purely technical party to the agreement. Its partners could extend the deal even without Russia’s consent, making Moscow look even more feeble on the international stage.
This article was first published by Carnegie Endowment on March 17, 2023, here.