Grains are the headline story, but oil is really the key factor in Russia’s repeated decisions to renew the agreement.
Russia will likely extend the Black Sea grain export corridor again, and that’s no surprise. Russian exports of wheat, oil, fertilizer, and other products are all heavily dependent on an open Black Sea corridor, which means Russia would be crippling its own export business by not renewing the deal that expires this coming Monday, July 17th.
By now most people know that Russia is the world’s largest exporter of wheat, and that Russia exports about four times more wheat than Ukraine, which means renewing the deal helps Russia more than anyone. In fact, some private analysts believe weekly levels of Russian wheat exports will be at record levels this month, so Russia has good reason to extend the deal.
But Russia is also the world’s second largest oil exporter with almost half of its crude oil exports dependent upon seaborne exports through the Black Sea. And while wheat exports are important, oil revenues are even more important to the Russian economy. Any disruption in the Black Sea Grain Initiative could theoretically have repercussions on all seaborne exports out of the Black Sea, and Russia can’t risk that happening.
Putin is shrewd; he knows the world needs Russian food and energy, and he wants restrictions on his economy lifted, so he uses each grain deal expiration date as a window of opportunity. He’ll renew the deal again because it’s in Russia’s best interest to do so. It’s also in Russia’s best interest to renew the deal for short time periods, thus allowing more room for bargaining to get what Putin wants, in this case he’s pushing to have the Russian Agriculture Bank (Rosselkhozbank) reauthorized to do business with the international payment network known as SWIFT.
Considering the above mentioned record weekly Russian wheat exports, Russia’s grain exporters seem to be doing just fine without access to the SWIFT system, but Putin’s ultimate goal is to have all Russian banks and exporters reconnected to SWIFT. Lack of such access has to be one of the most punitive elements of Western sanctions against Russia, and Putin is wise to use each expiry of the Black Sea Grain export deal as an opportunity to threaten global food and energy markets.
But the probability of the Black Sea export deal being broken this time around is truly remote; it will be renewed again, and Russia will immediately begin posturing ahead of the next expiration deadline. At some point this cycle will break, with either a resolution of the Black Sea conflict or with a major escalation across the Black Sea region; for now it’s a safe bet the current deal will be renewed.
Read the full article here
