What alternatives can be applied to unblock shipping to Ukrainian Black Sea ports?
Once again, russia is resorting to manipulation and blackmail, threatening to withdraw from the grain agreement. Since June 26, the Russian Federation has stopped registering new fleets entering Ukrainian sea ports, while 29 vessel supposed to export 1.4 million metric tons of food to Asia and Africa got stuck in Turkish territorial waters.
The extended Grain Initiative expired on July 17, 2023, while russia put forward a list of conditions for its continuation. Moreover, only one of them can directly depend on Ukraine, namely restoration of transit along the Tolyatti-Odesa ammonia pipeline, which is questionable not only from the point of view of economic feasibility, but also with regard to the safety of transportation along the pipeline damaged as a result of military operations. Other demands, such as reconnection of Rosselhozbank to the SWIFT international payment system, resumption of import of agricultural machinery and spare parts, unfreezing of assets of russian companies, and permission to establish transport logistics and insurance, depend on international partners and are more reminiscent of ordinary blackmail than a desire for negotiations. “Under such conditions, obviously there are no grounds for further extension of the Black Sea Initiative which expires on July 17, 2023”, the russian Ministry of Foreign Affairs said in a statement published on the agency’s website on July 4, 2023.
“Every time before the extension of the Black Sea Grain Agreement, russia plays on the edge of what is allowed in the matter of providing food to all the people worldwide. I am not sure, whether it will be extended. I don’t know if this is part of russian plans, but I know that both the UN and the UK will do all the best”, says Barbara Woodward, the permanent representative of the UK to the UN.
This tactic of russia is not new, and the work of the grain corridor has always left much to be desired due to constant sabotage and delays by russian inspectors. While negotiations are underway at the highest political levels regarding the new extension, Ukraine is preparing for all possible scenarios. In particular, a solution is being developed in case when russia is withdrawn from the Grain Agreement.
The Black Sea Grain Initiative, announced on July 22, 2022, for the purpose of facilitating safe corridor for the export of agricultural products from Ukraine with the UN and Turkey involved, has a ghostly chance of surviving its first anniversary: today, not only farmers but also diplomats are talking about it. As for Grain Corridor, they believe in 99.9% chance that russia will leave it in July. Two main factors, in my opinion, are the following: first, Erdoğan successfully won the election; second, Mazepin (responsible for ammonia, fertilizers and so on) reported to Putin that the terminal for the export of ammonia from russia is almost completed, which means that “Togliatti-Odesa ammonia pipeline is no longer so important”, as noted by Olga Trofimtseva, the ambassador of the Ministry of Foreign Affairs on special assignments, coordinator of the Council of Exporters and Investors, in her Telegram channel.
Abstracting from the pessimistic forecasts, we can state that the Grain Corridor fulfilled its main task, namely to remove cargo remaining at warehouses for the previous periods. As of July 4, 2023, 32.7 million metric tons of goods were exported through the Greater Odessa ports, while in general, grain exports in 2022-2023 exceeded indicators of the previous period and amounted to ca. 49 million metric tons.
Today, a new task is on the agenda is to facilitate stable and predictable export of all types of goods, which will not depend on whims and blackmail of russia. For this purpose, Ukraine should use all options, including capacities of Black Sea deep-sea ports. If previously safety of the vessel passage was guaranteed by the Grain Agreement, now, a new mechanism is necessary following its expiry. So, what are the opportunities for export?
The Danube is just a partial solution
For the last year, the indicators of the ports of the Danube region have increased significantly. USPA reported on record values. “Regarding the Danube, we already have quite impressive indicators. In 2022, the ports handled 16 million metric tons of cargo, while for the first five months 2023, a new cargo handling record of 11.5 million metric tons was already updated”, USPA Chairman Yurii Lytvyn said. Almost USD 100 million was involved in the port infrastructure development in 2022 and in the first quarter 2023.
Today’s task is to increase their bandwidth. For this purpose, it is proposed to continue the dredging of the mouth of Bystre. The Ministry of Community Development, Territories and Infrastructure notes that the keystone is the agreement on the ESPO convention, which the Romanians blocked many years ago. Second task is 24/7 vessel passage through Sulina channel (Romania). But the main initiative is raid transshipment in Romanian territorial waters without handling at port terminals. “We see a great prospect of increasing our loading capacity across the Danube. We can double the volumes if we solve the issue with the Moldovan Railway on transit, which will increase the carrying capacity of the port of Reni, and with raid transshipment. All this will give us 3-3.5 million metric tons of cargo per month in the region”, President of Ukrzaliznytsia Mykola Gorbachov noted.
All three issues serve as grounds for negotiations with Romania. Deputy Minister Yurii Vaskov notes that now there is no answer, but as soon as an agreement is entered into, organization will not take much time.
However, even under the most favorable scenario, the Danube ports, which currently handle only 25% of grain exports, will be able to take on only part of the cargo flow. And the issue here is not only capacity of port and railway infrastructure or competition with other types of cargo. Shallow depths and, accordingly, scope of shipping batches significantly weakens the position of domestic exporters, closing several promising sales markets in Southeast Asia and other regions. And raid transshipment to concentrate cargo flow and increase shipping lots raises the already high cost to an uncompetitive level. Therefore, neither agricultural traders nor cargo owners of industrial cargo can do without deep water in sea exports, whose opportunities are artificially limited by the throughput and small depths of the ports of the Danube region.
Sailing to sea
There was already a precedent for work without russia engaged. Last autumn, russia suspended its participation in the grain agreement for several days. However, vessels still passed the Bosphorus, both entering and leaving Ukrainian sea ports. Moreover, it was noted that without russian representatives, the commission, on the contrary, worked better and faster.
The business is seriously considering such an option. In particular, Yevhen Osypov, head of the largest agricultural products exporting company, CEO of Kernel, notes that the company is ready to participate in grain export through the Greater Odessa ports without effect of the Grain Agreement, since there is actually no alternative to the sea route of export. However, he adds, how it will happen and in what format – all this will depend on the Ministry of Reconstruction and our Armed Forces.
Of course, there are risks of provocations and shelling from russia, and companies may refuse to insure vessels. Ukraine has resolved the issue of insurance: for 2023, UAH 20 billion has been set aside in a special fund to guarantee payments to foreign shipowners in case of damage to the ship or goods. “If this option will work, it is very good. And even in Brussels they said that they can support and guarantee, in case of damage to the ship or goods, insurance, and Ukraine will already guarantee these payments to the EU”, Mykola Gorbachov noted.
However, farmers are not chartering vessels yet, since they are waiting for the government’s position. “For some reason, the authorities focused on increasing the capacity of the Danube ports and the western borders, but I do not see much sense in this. Meantime, they say that there is Plan B, which provides for operation of the corridor without russia”, says the owner of Risoil Shota Khadzhishvili. He notes, there is already a separate queue of ten vessels that will be offered separate insurance, and the corridor will continue to operate. This Plan B will make it possible to fully restore the operation of the ports, i.e. to work not only for exports, but also to accept import cargo and to expand the range of cargos.
The ministry is considering two main possible options for the so-called Plan B. First is to restore civil shipping for all types of cargo without the consent of russia, but in partnership with Turkey. The algorithm for such work has already been proposed and now the partners are leading in game. Second is to restore shipping independently. The goal of the specialized ministry is not to conduct one or two vessels, but to make the operation of the corridor permanent and stable; therefore, the security component is important. Now it is at the testing stage.
“Such an opportunity really exists, but it should be carefully worked out, since there are not only commercial and logistical issues, but also security issues, because the country is in a state of war. When and how it will be possible to work according to an alternative scenario – we will say when all the structures involved in this process will be ready”, Yurii Vaskov noted.
Advantage from the Armed Forces
When and under what conditions will the permission for the full restoration of shipping from Ukrainian ports be obtained from the military – that is question No. 1 now. Natalya Gumenyuk, the spokeswoman for the OC Pivden, says that “the port service gives the permission for ships to leave, and the military is useless here”. However, it is the military that can now provide protection for convoys of civilian vessels and mine safety.
Andrii Klymenko, head of the Monitoring Group of the Institute of Black Sea Strategic Studies, says that partners, in particular, Turkey, can protect civilian vessels. One of the options, in his opinion, is involvement of Turkish shipowners as much as possible in operations with Ukrainian export and import of ships, which russia will not dare to strike by missiles. The second option is to create two permanent Black Sea naval groups from the vessels of Bulgaria, Romania, Turkey and Ukraine. “The first is a group of patrol or escort ships to protect freedom of navigation in the sector from the Bosphorus to Odessa. The second is a group of anti-mine ships, minesweepers, to combat the thousands of sea mines that were laid by both Russia and Ukraine in 2022”, he says.
In parallel with military reinforcement, the work on the diplomatic front is intensifying. In particular, the Ministry of Reconstruction will initiate the July session of the International Maritime Organization regarding the safety of shipping in the Black Sea. This was previously agreed with Denmark, Ukrainian ambassadors in maritime states were also involved. It is aimed to collectively initiate such a meeting before the Secretary General of the IMO to publicly call on russia above all that civilian vessels are not military targets and navigation should be free and accordingly all infringements of this fundamental principle of international maritime law will be treated as piracy with appropriate military and diplomatic consequences for the aggressor state.