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Ukraine crisis jeopardises Middle East’s Black Sea wheat supply -Breaking

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© Reuters. FILEPHOTO: An employee displays wheat grain at a Beirut, Lebanon mill on March 1, 2022. REUTERS/Mohamed Azakir/File Photo

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Hadeel and Sarah El Safty

CAIRO (Reuters), Wheat importers are under threat of delivering sensitive supplies to political regions in the Middle East, North Africa and Middle East (MENA), after Russia invaded Ukraine. They were unable to access the cheaper Black Sea grain that they depend upon.

The conflict that followed has halted ship traffic from Ukraine’s ports. Financial sanctions put doubt on payments for Russian wheat purchases, according to traders and bankers. This adds another layer of risk to governments across the MENA region, already facing conflict, high import costs, or economic crisis.

“Everyone’s looking for new markets, as it becomes increasingly difficult to purchase stocks from Ukraine and Russia,” said a Middle Eastern commodities banker. He cited disruption in shipping, increasing sanctions, rising insurance premiums, and increased shipping costs.

One trader stated that the market does not expect Russian and Ukrainian exports to resume after the fighting ceases.

Rising global prices, possible export restrictions and high international prices make it difficult to switch to alternate origins. However, there are options for growing local production within the MENA region due to water scarcity and increasing input costs.

Although the Gulf countries have fiscal surpluses that protect them, other MENA nations, such as Egypt and Lebanon are still vulnerable due to their dependence on wheat imports. Monica Malik (chief economist, Abu Dhabi Commercial Bank) said.

Traders said that Egypt bought almost 80% of its wheat last year from Russia and Ukraine, making it the largest global importer.

However, Russia invaded Ukraine and its state grain buyer cancelled 2 tenders because of low offers and high prices. Two cargoes remain at Ukrainian ports.

Egyptian officials claim the wheat harvest and reserves are sufficient to subsidise bread for approximately nine months. They are expecting to spend an extra $950 million due to rising prices.

Traders said that Egypt’s bread market may be more at risk because of lower stock levels. Ezzat Aziz of Cairo Chamber of Commerce reported that the prices of flour and local wheat has risen by 44% and 23% respectively since Russian invade began.

Algeria, another large buyer of wheat, claims it has enough grains to last the year. But, France is resuming French wheat imports that were suspended in protest at France’s colonial involvement in North Africa.

‘HUNGER’

Russia and Ukraine are responsible for around 29% of the global wheat exports. However, with the uncertainty surrounding their supply, Chicago’s wheat futures reached a new 14-year high Monday.

A second trader stated that wheat importers would have to pay 40% more than they did before the invasion.

Algeria, Libya, and other oil-producing countries in the Gulf might find their higher import wheat costs compensated by increasing hydrocarbon revenues. However, this cushion is not available to governments elsewhere.

Lebanon is currently experiencing one of the most severe economic crises in recent history. In fact, its wheat reserves were only one month old when Russia invaded Ukraine.

Official claims of sufficient supply for the entire summer have been questioned in Tunisia due to reduced bread stock, rationing at shops, and difficulties docking wheat imports.

Morocco will increase its grain imports as a result of the worst drought it has seen in many decades.

A source close to the situation in Syria said that the government could draw on its reserves, but admitted that it would incur more costs.

Both poverty and human need are increasing.

There is plenty of local wheat. They’ll try to grow more, but that is not the problem. A trader based in Syria said that some people will not be able to feed themselves, and there will be starvation.

There are also signs that some European countries might limit their grain exports. After Hungary announced an immediate ban on exports Friday, and Bulgaria said it would buy wheat to replenish its reserve, producers worry this could signal a similar move.

Romania said that export restrictions are not necessary for the moment.

Ahmed Morsy (senior analyst, Eurasia Group in the U.S.) said, “The difficult part is countries like Egypt and Morocco who have to face double whammy Black Sea imports (ceasing), as well as higher prices.”

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