(Bloomberg) -- Russia agreed to resume a deal allowing safe passage of Ukrainian crop exports, abruptly reversing course after Turkey and the United Nations pushed ahead with the shipments over Moscow’s objections. Wheat prices dropped on the news.
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The Kremlin’s pullout from the agreement on Saturday and Russian warnings over the safety of ships in the Black Sea corridor had sowed chaos through agricultural markets and sent prices soaring. But as the shipments continued this week - with a one-day interruption Wednesday - despite Russian warnings they could be in danger, Moscow’s leverage appeared limited.
President Vladimir Putin said Russia was resuming participation in the deal because it had received “written guarantees” from Ukraine that the safe-passage corridor wouldn’t be used for military purposes. Ukraine has long said it wouldn’t use it for such operations.
Chicago wheat futures were down 6.7% as of 2:10 p.m. London time, the most since March, after surging in the first two days of the week. Grain prices have been volatile over the past few months amid speculation over the fate of the deal which is set to expire Nov. 19.
In televised comments, Putin warned that Russia reserved the right to pull out of the agreement again if Ukraine violates it. The Foreign Ministry said that the issue of the extension of the pact would be discussed separately and it would decide by the deadline, according to Tass.
The UN welcomed Russia’s move. The sudden return to the deal came after days of intense diplomacy by Turkey’s President Recep Tayyip Erdogan, who spoke by phone with Putin earlier in the week.
“Putin wants to compel the West to negotiate with him as soon as possible to freeze the conflict, his direct proposals did not work, so he is resorting to other strategies like talking about Ukrainian dirty bomb, threatening nuclear escalation or pulling out from the grain deal…all to get them around the table with him,” said Oksana Antonenko, director at Control Risks in London. “So far it did not work and I think will not work, at least in the near future.”
While the move will be welcomed by shippers and grain traders, Russia’s threats had led to deliveries of Ukrainian crops to ports grinding to a halt, and made shippers wary of sending their vessels into the corridor. Deals had already slowed in anticipation of the agreement expiring in November.
Some vessels continued to depart from Ukraine on Monday and Tuesday, but the UN announced late yesterday that there were no shipments planned on Wednesday. Russian officials had issued several warnings that Moscow couldn’t guarantee the safety of ships traveling the corridor without its participation. Those warnings also spurred underwriters to suspend a major insurance program for Ukraine’s food cargoes, but they reinstated it after Russia’s announcement Wednesday.
A total of 9.7 million tons of grains and other foodstuffs have been shipped since the deal was agreed, according to the UN. A spokesperson for the UN’s joint coordination center, which monitors vessels moving through the corridor and oversees inspections, said that it did not expect ship movements on Wednesday, but would issue an update on ship movements for Thursday. Ships are only authorized to move during daylight hours, it said.
--With assistance from Megan Durisin.
(Updates with Putin, Foreign Ministry comments from third paragraph)
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