Ukraine bets on Britain to help ship grain to the world

Kyiv is banking on the British government to calm sea captains’ fears about navigating the heavily-mined waters of the Black Sea, as efforts get underway to implement a deal to assuage a global food crisis.

Under the deal brokered Friday with the United Nations and Turkey, Moscow committed not to attack merchant vessels exporting grain from Ukrainian ports like Odesa that have been blockaded since Russia’s invasion began. The five-month assault has trapped millions of tons of staple grains like wheat and corn inside the country, as global food prices shot up because Ukraine is a major world exporter of grains to many import-reliant countries in Africa and the Middle East.

But Russia’s missile attack on Odesa mere hours after the deal was inked has underlined just how dangerous it will be to navigate the Black Sea amid the continuing war, and has raised fears that major traders will think twice about setting sail for Ukraine because of the high cost of insuring their vessels. (Moscow has claimed the Odesa strikes were aimed at military targets while Ukraine says grain exporting infrastructure was damaged.)

Ukraine’s Infrastructure Minister Oleksandr Kubrakov, who signed the deal last week, told POLITICO in an interview that he is holding talks with the British government to provide those guarantees and soothe traders’ concerns.

“We started these discussions, but for now, this is only on our side. We will start several discussions with [the] U.K. also, with some international financial institutions,” Kubrakov said.

U.K. Foreign Secretary and prime minister hopeful Liz Truss had gone a step further on Monday, claiming during a televised debate with her leadership rival Rishi Sunak that “an agreement has been reached” with Kyiv on maritime insurance for getting grain out of Odesa. London is a global hub for the maritime insurance industry, home to major players like Lloyd’s.

A U.K. Foreign Office spokesperson later wrote in an email: “We are in close touch with the insurance industry to secure commercial maritime guarantees that support the UN initiative to allow grain to be shipped out of Ukraine.”

Contrary to what Truss said, Kubrakov said in the interview on Wednesday that no such deal has yet been finalized but he hopes one will come “soon.” He added: “The idea is not only to subsidize, the idea is to provide additional guarantees.”

Kubrakov said Ukraine also wants to start talks with the World Bank to use their “insurance mechanism” and with the London-based European Bank for Reconstruction and Development, though a spokesperson for the EBRD played down the prospect of such talks.

Analysts see seafarers’ confidence as the next stumbling block facing the deal and shipping insurance is therefore a crucial factor in making sure it holds.

“The big question will be how many ships go into the port — that’s going to be the litmus test,” said Mike Lee, the director of London-based Green Square Agro, a consultancy focusing on Black Sea crop forecasting.

“It doesn’t matter what agreement is arrived at, if the ship owners and insurance companies can’t make the numbers stack up, then nobody is going to take ships into harm’s way,” Lee added.

Kubrakov said the extra insurance guarantees would help lower the cost of logistics and increase the margins that Ukraine’s cash-poor farmers are currently getting for their crops.

Larysa Bilozir, an independent Ukrainian MP, said the high cost of shipping insurance could stop the Black Sea grain deal from reaching its full potential. “Freight before the war cost $30 a ton, probably now it will be $200,” she said in an interview. “I’m sure it will be like five, six times more expensive because of the insurance and because of the great risk.”

On Wednesday, Turkey’s Defense Minister Hulusi Akar officially opened a so-called joint coordination center in Istanbul, where under the terms of the deal, officials from the U.N., Turkey, Ukraine and Russia will remotely monitor and organize the movement of ships to and from the ports around Odesa and through the Turkish straits.

Kubrakov said he hopes the first ships can start to carry grain away from the ports this week, and will likely leave from either Odesa or Chornomorsk. Private ships will form a snaking convoy with one vessel from the Ukrainian infrastructure ministry at the head to lead them safely past sea mines.

On Tuesday, Ukrainian media reported that Russia rained missiles down on the port infrastructure of Mykolaiv, Ukraine’s second-biggest port for grain after Odesa, but which is not covered by the U.N. deal.

“These attacks are increasing the risks for sure,” Oleksiy Goncharenko, a Ukrainian MP representing Odesa, told POLITICO.

Infrastructure Minister Kubrakov said that once the U.N. plan is fully underway, Russia would be crossing a de facto red line if it were to bomb grain ships or silos at the ports.

Although Ukraine would not “ever” pull out of the agreement, the deal would simply stop functioning under this scenario because such an attack by Russia would scare off traders for good, Kubrakov said.

Ukraine’s government has vowed to push on with the agreement despite Russia’s attack on Odesa, underlining just how crucial restarting grain exports is to its war-ravaged economy.

If the fragile U.N. agreement is fully implemented, between 15 million and 20 million tons of grain could be shipped out, 90 percent of which is neither already on ships nor being stored at the ports, Kubrakov said.

Time is of the essence to get the scheme fully up and running because 6.5 million tons of grain from the summer harvest have already come in, with as much as 60 million tons expected on top of that.

Kubrakov said that ports such as Mykolaiv, which is close to the front line, and the occupied Azov Sea ports of Berdyansk and Mariupol, could one day be included in the scope of the deal, which will automatically roll over in November, unless any of the four sides pull out.

“For us — and I think for all participants, for the United Nations, for all countries — it’s important that this initiative will work longer than four months,” he said.

Tags: ports, Odesa, Ukraine, Russia, Turkey, export, grain, Black Sea, U.K., United Nations, cost