In negotiations to extend the grain deal between Russia, Ukraine and the West, the Kremlin has used fertilizer exports as leverage. Ammonia exports have come to a partial standstill since the start of the war. An important pipeline – which runs through Ukrainian territory – is still out of use. Russia desperately needs export income.
With the assistance of Turkey and the UN, Ukraine and Russia are negotiating to extend the agreements made in July to free up a corridor in the Black Sea. This allows safe exports from Ukraine, which is vital for grains, oilseeds and other agricultural products. 11 million tons of product have now been exported via the corridor.
Grain deal delayed
The current appointment ends on Saturday, November 19. That is why government leaders are working hard to extend the deal. Prior to the G-20 meeting in Bali, it was expected that an agreement could be reached here, but there is no white smoke yet. Turkish President Erdogan remains optimistic and expect a deal to be imminent. The president has a telephone appointment with Vladimir Putin for this purpose.
Russia reportedly has an important demand to cooperate in extending the deal. Since the outbreak of the war - at the end of February - the use of an ammonia pipeline has been halted. This runs from the city of Tolyatti (formerly Stavropol) to the port city of Odessa, a route of more than 2.400 kilometers. Before the Russian invasion, 2,3 million tons of ammonia were transported through this pipeline annually. The ammonia is used for the production of nitrogen fertilizer. Its exports bring in $2,4 billion per year to the state treasury. Almost half of this volume is exported to the US.
Another demand from Russia is that the US and EU lift sanctions on state-owned bank Rosselkhozbank and allow the organization back into the Swift payment system. Yet fertilizer exports are the most important demand of the Russians. The condition of the pipeline after nine months of war is unknown. There was heavy fighting in the Mykolaiv region, through which the pipeline runs.
Conversations underway
According to Russian sources, the UN is acceding to the demand to ensure safe use of the pipeline, but UN spokesperson Ismini Palla said that discussions about this are still ongoing. Russian grain and fertilizers are not subject to Western sanctions, but their exports are significantly hampered. Buyers are reluctant and the country - in the case of fertilizer - cannot get the products to the port cities.
Fertilizer prices have risen this year mainly due to a lack of gas and its high price. In addition to the US, African countries mainly buy Russian ammonia and then produce fertilizer locally. Russia is therefore indirectly accused of creating famine because fertilizer has become unnecessarily expensive and difficult to obtain in Africa. In Europe – where 70% of factories have scaled down their capacity – the price of gas is a bottleneck.
Relaxation at fertilizer market
Bringing the pipeline back into service is likely to relax the fertilizer market somewhat, especially at a global level. Russian fertilizer producer Uralchem previously announced its intention to build a new terminal for ammonia exports, but such a plan will take at least more than a year to realize. Uralchem owns Togliatti Azot, the largest ammonia plant in the world, in Tolyatti. The factory has been completely shut down since the pipeline was closed.