Following Russia, Ukraine has issued stern warnings to ships in the Black Sea, contributing to a surge in wheat futures, which have increased by around 13% over three days.
Both Russian and Ukrainian officials have designated all ships headed to their respective ports via the Black Sea as military supply vessels, warning of the associated risks. This escalating tension restricts the possibility of renewing crucial agricultural export agreements across the Black Sea. Amid global concerns about food security, wheat futures skyrocketed by 9% on Wednesday, the largest increase since the outbreak of the Russia-Ukraine conflict.
On Thursday, July 20th, the dispute over the Black Sea grain export maritime route between Ukraine and Russia escalated further. The main contract for US wheat futures rose for a third consecutive trading day, gaining over 1% and stabilizing at a three-week high, marking a cumulative rise of about 13% over three days.
As reported by Jiemian News, the Ukrainian Ministry of Defense stated on Thursday that as of midnight on Friday, July 21st, all ships heading to Russian ports in the Black Sea will be considered as military supply vessels and must bear all associated risks.
This decision is a direct retaliation and response to a similar Russian resolution on Wednesday. Both countries' statements indicate that some sea areas in the northwest and southeast of the Black Sea's international waters have temporarily become hazardous for navigation.
On Wednesday, the Russian Ministry of Defense declared that, given the termination of the Black Sea port agricultural product export agreement and the closure of humanitarian corridors at sea, all ships navigating to Ukrainian ports in the Black Sea will be seen as potential carriers of military cargo as of midnight on Thursday, July 20th, Moscow time. The countries these vessels represent will be viewed as participants in the Ukrainian conflict.
Moreover, Xinhua News reported on Wednesday that the Russian military has continuously struck military facilities around the port city of Odessa on Ukraine's northwest Black Sea coast.
Investors and Wall Street analysts are suspecting that attacks on ports and grain infrastructure in southern Ukraine have even resulted in the destruction of 60,000 tons of grain within a single day.
This news directly led to a 9% surge in wheat prices on Wednesday, marking the biggest single-day increase since the Russia-Ukraine conflict erupted last February and threatened the global food supply chain. Milling wheat futures in Paris, Europe also rose by more than 8% at one point.
Previously, both Russia and Ukraine have repeatedly accused each other of planting mines in the Black Sea grain shipping corridor in an attempt to blockade ports. This week's escalation of geopolitical tension has led many to pessimistically forecast that a new grain export agreement won't be reached in the short term, further threatening global food security.
Jack Scoville, a broker specializing in agricultural trade at Price Futures Group, points out that it's becoming increasingly unlikely for ship owners or shipping insurance companies to take risks on the Black Sea channel for Ukrainian grain. Russia may also be unlikely to take such a risk. The chances of other regions globally obtaining wheat from either Russia, Ukraine, or both are being significantly limited.
Carlos Mera, head of agricultural markets at Rabobank, said this week that Ukraine will now be forced to export most of its grain and oilseeds through its land borders and Danube ports. This will significantly increase transportation costs and squeeze Ukrainian farmers' profits. He said: "The chain reaction of the current situation could prompt Ukrainian farmers to reduce planting next season, putting further pressure on future supply."
"In the end, this development means low-income countries in Africa and the Middle East may become more reliant on Russian wheat, which accounts for over 20% of global wheat exports."
There are also reports that Ukraine said on Wednesday that it is establishing a temporary route via one of its Black Sea neighbors, Romania, with the aim of facilitating international shipping in the northwest Black Sea.
Meanwhile, Turkey, which successfully mediated the Black Sea grain export agreement with the United Nations last year, still hopes for the agreement's resumption after renegotiation. A Turkish Ministry of Defense official said that "Turkey believes there is no alternative to the current Black Sea grain corridor," supporting the agreement's extension. The official also stated that "the whole world thinks this agreement is useful," and they will continue discussions with all parties.
On Monday, Russia said that if conditions for the resumption of the agreement are met, that is, if the country can securely export its own food and fertilizers, it could re-implement the UN-backed agreement. Russia said it would immediately resume the agreement once its demands are met.
According to the United Nations, since its signing last July, the Black Sea Grain Initiative has allowed more than 32 million tons of bulk grain commodities to be exported from three Black Sea ports in Ukraine to 45 countries worldwide, including poorer and hunger-threatened countries in Africa and the Middle East. These export activities have involved over 1,000 ships.
Before the agreement expired this week and was unable to be extended, it had been renewed three times. However, Russia repeatedly threatened to withdraw, claiming its agricultural exports were being hindered.
According to the OECD, before the Russia-Ukraine conflict broke out, Ukraine was the fifth-largest wheat exporter worldwide, accounting for 10% of total exports. However, current wheat prices are still more than 50% lower than the historic highs reached after the conflict erupted last year.