Russia and Ukraine close in on grain deal extension

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Russia and Ukraine are close to agreeing to extend a deal securing Kyiv’s grain exports via its Black Sea ports despite the war, a crucial step to alleviating a global food crisis triggered by the conflict.

Negotiators are confident the warring sides will agree to extend the agreement before it expires on Saturday after reaching a compromise with Russia on payments for its own agricultural exports and reopening a pipeline carrying ammonia that passes through Ukraine, according to four people familiar with the matter.

The deal, first struck with the UN and Turkey’s mediation in July, is automatically renewed unless one of the parties objects.

The extension is being negotiated by the UN, a process that involved bilateral meetings on the sidelines of the G20 in Bali, where UN secretary-general António Guterres held talks with Russian foreign minister Sergei Lavrov.

Under the revised agreement, Russia would be able to use the same Black Sea route transporting the bulk of Ukraine’s agricultural exports that is offering Kyiv an economic lifeline during the war.

In exchange for extending the deal, Russia will be able to use a pipeline that transports ammonia through Ukrainian-controlled territory before reaching a port near Odesa.

The pipeline, which carried about 2.3mn tonnes of ammonia before the invasion, could give Moscow an additional $2.4bn in export revenue at a time when western sanctions have hampered its ability to sell its own grain and fertiliser.

Moscow had demanded the US and EU remove sanctions that barred the state-owned Russian Agricultural Bank, the main conduit for payments for Russia’s agricultural exports, from the Swift financial payments system, the people said.

The US is likely to help secure correspondent relationships for the Russian lender at US banks instead of reinstating it to Swift, two of the people added.

Lavrov told reporters that Guterres had given him written assurances of the US and EU’s “good intentions”, which would remove obstacles to exporting Russia’s grain and fertiliser.

He said the UN had passed on promises that “all the economic operators that participate in Russian fertiliser, grain and supply chains” would not face sanctions for trading in Russian grain. That would allow Russian ships to visit European ports, foreign ships to visit Russian ports, for the Russian agricultural bank to “work fully”, and enable “decent insurance rates”, Lavrov said.

Ismini Palla, UN spokesperson for the Black Sea Grain Initiative, said: “Discussions on the continuation of the Black Sea Grain Initiative with all parties are ongoing at various levels. We do not have something to announce at this stage.”

She said the Russian exports “are a separate agreement” and that the
UN and Russia had signed a distinct memorandum of understanding in
July to facilitate the export of food and fertiliser originating from
Russia.

“Preliminary discussions continue . . . The UN, Ukraine, Turkey and Russia
are continuing their contacts at different levels,” said a Turkish
official with knowledge of the talks.

Renewing the agreement ensures Ukraine retains an economic lifeline during the war without fully acceding to Russia’s demands.

“In the end Russia blinked,” one person familiar with the talks said. “They moaned and bitched about banking arrangements, but in the end what they really wanted was the ammonia.”

But opening the ammonia pipeline is politically sensitive in Ukraine, which is mindful of allowing Russia to make billions from its fertiliser sales while Kyiv pockets only about $100mn annually in transit revenue from the pipeline.

Ukraine and Russia are currently discussing a major new exchange of several hundred prisoners, two of the people said, though any swap would not necessarily be contingent on agreeing the ammonia deal or linked to it.

Russia briefly pulled out of the grain deal in late October before rejoining it days later, underscoring Turkey’s increasing leverage over Russia and Moscow’s lack of ability to torpedo the agreement.

Russian president Vladimir Putin has complained the sanctions are hindering buyers’ ability to pay for his country’s agricultural exports, even though they are not directly affected by western sanctions and Russia has increased its exports since the war began.

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