| 24 February 2024, Saturday |

Ukraine crisis jeopardizes Middle East’s Black Sea wheat supply

After Russia’s invasion of Ukraine cut off access to the lower-cost Black Sea grain that they rely on, wheat importers pose a threat to providing politically sensitive bread supply across the Middle East and North Africa (MENA).

The ensuing conflict has halted shipping from Ukraine’s ports, while financial sanctions have put payments for Russian wheat purchases in jeopardy, according to traders and bankers, adding to the risk for governments in the MENA region already dealing with high import costs, economic crises, and conflict.

“Everyone is searching for other markets since buying stocks from Ukraine or Russia is getting increasingly difficult,” a Middle Eastern commodities banker said, citing shipping disruptions, mounting sanctions, and increased insurance rates as reasons.

“Until the conflict stops, the market does not expect Ukrainian and Russian shipments to restart,” one merchant stated.

Switching to alternate origins is costly because to growing worldwide pricing and likely export limitations, while water scarcity and rising input costs limit alternatives for boosting local production in the MENA region.

While budgetary surpluses protect Gulf countries, other MENA countries such as Egypt and Lebanon “remain some of the most vulnerable globally, given their reliance on wheat imports and high household food spending,” according to Monica Malik, chief economist at Abu Dhabi Commercial Bank.

According to dealers, Egypt, which is frequently the world’s greatest importer, bought 80 percent of its wheat from Russia and Ukraine last year.

However, since Russia’s invasion of Ukraine, two tenders have been canceled due to a lack of offers and exorbitant pricing, and two cargoes have been detained in Ukrainian ports.

Egyptian officials claim that wheat stocks and the upcoming local harvest will enough for nine months of subsidised bread. However, they expect to pay up to $950 million more in the current budget due to rising costs, and strategic reserves may be eroded as a result.

According to dealers, Egypt’s commercial bread industry could be jeopardized due to low stock levels. According to Ezzat Aziz of the Cairo Chamber of Commerce, prices of local wheat and flour have jumped by 23 percent and 44 percent, respectively, since the Russian invasion began.

Algeria, a big customer, claims it has enough food stocks to last until the end of the year, but it is resuming French wheat imports, which had been halted following a dispute over France’s colonial role in the North African country.

‘Hunger’ Russia and Ukraine export about a third of the world’s wheat. However, with supply uncertain, Chicago wheat futures hit a 14-year high on Monday.

“Importers will have to pay 40% more for wheat than they did before the invasion,” a second dealer said.

While Algeria, Libya, and Gulf oil producers may be able to offset greater wheat import prices with increased hydrocarbon profits, other nations do not have this luxury.

As Russia invaded Ukraine, Lebanon’s wheat supplies stood at barely one month, making it one of the worst economic disasters in contemporary history.

Reduced bread stocks, flour restriction in stores, and difficulties docking wheat imports have cast doubt on official assurances that there is enough supply to last until the summer in Tunisia.

Morocco, meanwhile, is planning to increase grain imports following the worst drought in decades.

Syria’s economy has been ravaged by years of violence, and a person familiar with the situation said the government could rely on reserves, but that prices would rise.

Poverty and humanitarian needs are becoming more severe.

“There is local wheat; they will attempt to create more, but there is, of course, a problem.” Some people will go hungry because they won’t be able to eat,” a Syrian businessman said.

There are also signs that other European countries may impose export restrictions after Hungary put an emergency embargo on grain exports on Friday, while Bulgaria planned to buy wheat for its reserves, which producers worry could signal such a move.

Romania has stated that it does not believe export restrictions are necessary at this time.

“The difficult thing is that countries like Egypt, Morocco, and Lebanon face the double whammy of Black Sea imports (ceasing) and increased costs,” said Ahmed Morsy, senior analyst at Eurasia Group in the United States.

  • Reuters