LONDON- Russia’s lack of ships and Western grain traders’ shrinking appetite for business with Moscow are adding to rising costs of moving Russian wheat, at a time when the war in Ukraine has spilled perilously close to vital Black Sea supply routes.
President Vladimir Putin promised to replace Ukrainian grain with Russian shipments to Africa after Moscow in July ended an arrangement that gave Ukraine’s food cargo safe passage in the Black Sea, imposing a de-facto blockade on its neighbor and attacking storage facilities, in an escalation of the war.
Ukraine’s response, sea-drone attacks on a Russian oil tanker and a warship at its Novorossiysk naval base, next door to a major grain and oil port, has added to these new dangers for transport in the Black Sea.
Eduard Zernin, head of Russia’s Union of Grain Exporters, cited a potential aggravation of what he called “hidden sanctions” that “may lead to an increase in freight and insurance costs” for Russia.
This “will be reflected in the price level of wheat and other grains on the world market”, Zernin told Reuters.
Even though agriculture exports are not subject to direct European and US sanctions imposed after Russia invaded Ukraine last year, Moscow says restrictions placed on banking and Russian individuals are “hidden sanctions” on the food trade.
The financial and security risks associated with trading with Russia – compounded by the Black Sea corridor collapse – are driving up costs of freight for Moscow and pushing it toward older and smaller vessels run by less established shipping operators, Reuters reporting based on conversations with 10 marine insurers, traders and shipping companies showed.
The situation is raising doubts about whether Russia can keep up a record pace of exports and if not resolved could push global wheat prices higher, the sources said.
Already, prior to the expiry of the deal, grain carriers and commodity houses had reduced exposure to Russia.
Global commodity houses are no longer helping Russia with the mechanics of trading its grain. Cargill, Louis Dreyfus and Viterra stopped such work on July 1, adding more pressure on Moscow to handle all aspects of grain deals including transport.
Cargill has said it would continue to ship grain from Russia’s ports. It declined further comment.
Dreyfus, Viterra and ADM declined to comment, while another major international group, Bunge, did not respond to a request for comment.
“It is not going to be easy for them (Russia),” said one industry executive with knowledge of grains exports.
