Throughout the ongoing coverage of military actions in Ukraine, the potential global economic fallout from this conflict often goes unnoticed.
Russia, a major gas exporter, used to fulfill about half of the EU’s gas demand before the war, while Ukraine was a significant grain exporter alongside Russia.
The complete disruption of these channels could have led to catastrophic consequences.
Last year, this catastrophe was avoided, thanks to two crucial agreements reached early in the conflict.
The Black Sea Grain Initiative allowed Ukraine to continue exporting grain via the Black Sea under Russia’s control, and a deal permitted Russian gas to flow to Europe through Ukraine.
However, the grain initiative has recently been suspended, and the gas deal could also be terminated, escalating the true cost of the war.
The grain deal, brokered in July last year, was hailed as a “beacon of hope” by UN Secretary-General António Guterres, preventing a global humanitarian disaster.
More than 1,000 ships carried nearly 33 million metric tons of grain and foodstuffs from Ukraine’s ports over the past year.
However, on July 17, Putin withdrew from the deal, citing Western sanctions and demands for further concessions. The resumption of the Togliatti-Odessa ammonia pipeline became a key point of contention.
The pipeline was crucial for ammonia fertilizer’s global agricultural support, but it remained closed by Ukraine, leading to its eventual destruction and the suspension of the grain deal.
Criticism from the West followed, accusing Russia of weaponizing food. Yet, nuanced data revealed that only a small percentage of the grain went to the world’s poorest countries, while the majority was shipped to richer nations, including EU countries and China.
The suspension of the Black Sea Grain Initiative will result in increased overland transportation of Ukrainian grain through EU solidarity routes, potentially causing tensions in local markets and impacting farmers.
Meanwhile, the future of Russian gas exports to Europe remains uncertain, as Ukraine is unlikely to renew the gas transit deal when their contract with Gazprom expires in 2024.
The loss of this gas transit deal could leave Europe with a significant shortage of gas and higher prices, given the tightness of global gas markets.
This winter, Europe faces a natural gas deficit of at least 60 billion cubic meters, possibly leading to another gas crisis.
As the war persists, the safeguards put in place are unravelling, and the repercussions of this conflict continue to evolve.