Ukraine Grain-Export Deal Collapses As Russia Terminates It

(Bloomberg) -- The Ukraine grain-export deal has ended almost a year into its run after Russia terminated the pact, heightening uncertainty over global food supplies and escalating tensions in the region. 

Moscow had repeatedly threatened to leave the deal but last agreed to a two-month extension in May, which ran to July 17. The corridor's shutdown will hit key buyers like China, Spain and Egypt.

The “arrangements have ceased to be in force today,” a Kremlin spokesman said, according to Russian news agency Tass. “Unfortunately, the part concerning Russia in this Black Sea agreement has not been fulfilled so far. Therefore, it is terminated.” 

The move jeopardizes a key trade route from Ukraine, one of the world's top grain and vegetable oil shippers, just as its next harvest kicks off. It also comes after Russia on Monday said Ukrainian drones damaged a key bridge to Crimea.

Russia has notified Turkey and the United Nations — which had brokered the pact — it won't extend the deal, Interfax reported. Moscow has said it will return to the agreement once its conditions are met.

A UN spokesperson for the Black Sea Grain Initiative did not immediately have a comment. Ukraine's presidential office didn't immediately comment.

Benchmark Chicago wheat futures rose as much as 4.2%.

The pact has ensured the safe passage of almost 33 million tons of crop exports via the Black Sea since it was signed in July 2022, helping world food-commodity prices ease from the record levels reached after Russia's invasion.

However, the corridor has faced repeated disruption in recent months and is nearly empty, tempering the immediate interruption to world crop flows. The bigger risk lies longer-term, as fractured and costly export logistics could spur Ukrainian farmers to further cut harvests already shrinking under the weight of the war.

No new vessels have been approved to join the grain deal since late last month and Russia has blocked one of the three open ports. Ship inspection times have progressively grown longer, with fewer than one cleared per day in the first half of this month.

Read more: As Ukraine Grain Deadline Approaches, Pact Is Already Broken

The closure will heighten reliance on alternate trade routes via the Danube River and Ukraine's European Union neighbors, although the routes remain expensive and some countries have pushed back against the inflow. Some traders have signaled interest in continuing Black Sea shipments even if the deal collapses, although that would require military and government approval.

(Updates with details throughout.)

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