EU considers Russian bank concession to safeguard Black Sea grain deal

The EU is considering a proposal to allow a Russian bank under sanctions to carve-out a subsidiary that would reconnect to the global financial network, as a sop to Moscow aimed at safeguarding the threatened Black Sea grain deal that allows Ukraine to export food to global markets.

The plan, which was proposed by Moscow through negotiations brokered by the UN, would allow Russian Agricultural Bank to create a subsidiary to handle payments related to grain exports, according to five people with knowledge of the discussions.

The new entity would be permitted to use the global Swift financial messaging system, which was closed to the largest Russian banks following the Ukraine invasion last year. Russia’s war in Ukraine put a stranglehold on the vast amounts of agricultural products that are exported across the Black Sea, sparking fears of a global food crisis.

A UN-brokered deal to restart shipping routes was first signed last July and has been extended multiple times since, despite threats by Moscow to terminate the agreement. Russia claims western countries have not implemented their side of the deal, namely a pledge to ensure Russian food exports are unaffected by western sanctions.

The bank carve-out was discussed by EU leaders at a summit in Brussels last week, as a potential means to convince Moscow to extend the Black Sea agreement beyond its July 17 expiry date. The idea was seen by its supporters as “the least worst option” to secure Vladimir Putin’s support for an extension, two of the people said.

Officials say Russia’s threats to end the deal appeared more serious this time than during previous extension negotiations. It underscores the extent to which western governments are desperate to preserve the grain export agreement, which is also a financial lifeline for Ukraine given its vast agricultural sector.

Russian foreign minister Sergei Lavrov said last week that Moscow saw no reason to agree to an extension due to what he said was western countries’ “outrageous” behaviour regarding their obligations. The carve-out proposal is being assessed by EU officials as to its legality and feasibility, three of the people said.

Complicating the issue is that Russian Agricultural Bank is fully owned by the Kremlin. Its former chief executive, Dmitry Patrushev, is the current agriculture minister and the son of Nikolai Patrushev, a Putin aide and secretary of Russia’s security council who has been instrumental in pushing the war against Ukraine.

The EU has struggled to agree on measures to grant sanction relief to particular Russian companies or permit them to export certain goods through the bloc for humanitarian reasons or to supply countries in the third world. This is partly because of opposition from eastern states that say such moves will help the Kremlin earn more money and sustain its war.

The Kremlin declined to comment on the EU proposal. The European Commission also declined to comment. However EU officials stressed that European sanctions did not target trade in agricultural and food products, including cereals and fertilisers, between third countries and Russia.

Tags: EU, Global Markets, food, negotiations, Black Sea grain deal, Russian Agricultural Bank, Ukraine, Russia, export, grain