The Big Diplomatic Jig-Saw Puzzle– Grains, Oil, Refined Products

The “Russian grain deal”, an arrangement where shipments of agricultural products out of the Ukraine are facilitated- in spite of ongoing hostilities, seems to have received a do-over. The deal, brokered by the United Nations, with great facilitation by Turkey (where vessels coming out of the Black Sea will be inspected), was agreed in late Summer, and was set up with a four month timeframe. In late October, shortly before the agreement was due to expire, Russia backed away from it- following an  attack by Ukraine, at Sevastopol, on Russian naval vessels docked there. A few days later, Russia indicated that it was back “in”, with a lot of grumbling about this and that- but was mum on prospects for extending the deal beyond its mid November expiry date (Nov 19th to be precise).

As always, impacts on the gigantic jig-saw puzzle of drybulk freight cannot be looked at in a vacuum, but grain flowing is good for demand (and for human welfare!!!), while stoppage is not. Of course, when you factor in vessels that might be stuck in the Sea of Azov or Black Sea, supply is reduced slightly but  then it gets more complicated- and readers can see why I stepped back from trying to sort out all the puzzle pieces. Like other crises of the past year and a half, notably the Evergreen vessel that was stuck in the Suez Canal in March 2021, and that flock of liner vessels that had been anchored off U.S. ports, the grain deal contributed to shipping being in the public’s mindset. I think that’s a positive- but there is a lot more going on in the background.

The attention to shipping matters is not limited to mainstream media and news purveyors; the think tanks (a different form of “influencers”, with real clout at highest levels of government) have also been watching closely. The Center for Strategic and International Studies (CSIS), in looking at where we’ve been, and at the situation looking ahead, stressed that Russia needs the continued support of various countries who had looked favorably on its participation in the arrangement to safely move grain from Ukraine out past the Bosporus, noting the salutary impacts- lower grain prices and more mouths being fed. The Carnegie Endowment for International Peace also took a look at developments surrounding the deal, including the diplomatic dynamic where the grain deal is an important  lever that Russia can use in the face of strained relationships with other countries, and where Turkey (instrumental in prodding Russia to sign the deal and then playing a lead role in actual implementation) has grown in influence.

Though diplomacy is far too nuanced for me to make good sense of, I do keep a weather eye on international relations; obviously- it has powerful impacts on shipping. The upcoming European Union sanctions on Russian crude oil, and then, a few months down the river, on refined products, are on my mind, and presumably on those of anyone in the business. As I write this, the fortunes of tanker companies in crude, products and gas, are flying high- a good part of this dynamic is tied to a sense that more tanker demand will be created as longer voyages will be the norm. Existing and newly created shipowning entities that will serve Russian oil moves are also expected to drive the sale-purchase market higher; bring on those lofty NAVs!!!

In the Carnegie article- they get way into some subleties- specifically they stress that, over the past eight months, have seen “…Russia’s cooperation with several non-Western states <has broadened> dramatically. Compared with the previous five years, Russia’s average monthly trade volumes this year have quadrupled with India, doubled with Turkey, and increased by more than 60 percent with China.” As I think about this, I would say that my jigsaw puzzle got multi-dimensional. Implicitly, the grain deal is also tied with the new flows of oil- with India and China being big takers, and refiners- putting refinery output back on the markets. But we’ll save that for another article on diplomacy.