Increased tensions in Ukraine again threaten the Black Sea Grain Initiative

by Joseph Glauber, Brian McNamara, and Elsa Olivetti

OPEN ACCESS | CC-BY-4.0

On June 6, the Nova Kakhovka dam in southern Ukraine, located about 70 km upstream of Kherson, a port city on the Dnipro River, collapsed, sending an uncontrollable flow of water from its reservoir downstream. Futures markets reacting to the news sent wheat futures up almost 3 percent before falling back later that day.

In an unrelated action, an ammonia pipeline, which prior to the war had carried anhydrous ammonia from Tolyatti in Russia to the Ukrainian port of Pivdennyi (Yuzhny) near Odesa, was reportedly damaged. While the pipeline had been inoperative since the start of the war, reopening it had been a condition put forward by Russia for extension of the Black Sea Grain Initiative during recent extension discussions.

What will be the impact of these developments? While the dam collapse and the damage to the ammonia pipeline are not likely to seriously affect grain supplies from Ukraine in the short term, increased tensions could result in termination of the Black Sea Grain Initiative.