Zeihan: The wheat situation in Ukraine is more dire than we thought

The wheat situation in Ukraine is more dire than we know, and could upend global grain markets for years to come.

Russia and Ukraine have agreed on a deal to export millions of tons of grain trapped in Ukrainian ports due to the ongoing war. Cargo ships began leaving Ukraine’s Black Sea ports this week carrying tons of wheat for the first time in months, thanks to the U.N.-brokered agreement. Experts said this will help with global food shortages and soaring grain costs in the short term. But Straight Arrow News contributor Peter Zeihan warns that the wheat situation in Ukraine is more dire than we thought, and could have a major impact worldwide for years to come.

Excerpted from Peter’s Aug. 4 “Zeihan on Geopolitics” newsletter:

Turkish and U.N. diplomats have spent the last several weeks trying to forge a deal between Ukraine and Russia that would see Kyiv’s embargoed wheat be able to reach ports around the world. There have been several challenges facing Ukraine’s exports, not the least of which is the fact that Kyiv mined many of its own seaways in an attempt to stymie hostile Russian naval activity in the region. This week marked the first shipment of grain under a newly forged agreement between Russia and Ukraine, and while many are hopeful the deal will facilitate greater global grain supplies, there are a few reasons to remain skeptical.

Hey everyone. Peter Zeihan coming to you from Colorado. Today I want to talk about the wheat situation in Ukraine and Russia. Now for the last several weeks, UN staff and diplomatic personnel from Turkey and specific have been working to broker a deal that would allow Ukrainian wheat to leave Ukrainian ports under Ukrainian control and get to the wider world. There’s a lot of moving pieces here. For one, the Ukrainians have mined their own ports to inhibit the Russian’s ability to launch amphibious assaults. So they have to guide the vessels through. And then of course, the Russians are assaulting everything that moves and a lot of things that are not, so you have to get the Russians to agree to stop the assaults on the ports. Now, right now, the Ukrainians have about 18 million metric tons stored up in their silos at or adjacent to their ports. That’s a lot that needs to move. That is in excess of half of a normal harvest for the country. On Monday, August 1, we got our first ship, the Razoni, to dock, to load up and to leave for Lebanon. It’s carrying 26,000 metric tons.

So we need 700 more ships of this size if we’re gonna get that grain out. Unfortunately, the Ukrainian harvest starts in less than 45 days. So you’re talking about needing to get a dozen or so vessels in there every single day. So far, we’ve had one. I don’t have a lot of hope for this. And then the real problem of course is next is the harvest, two problems. Right now the Ukrainians have nowhere to put it. Their silos are full from last year’s harvest. They weren’t able to export because the war started back in February. And second, even if the farmers were able to work their fields and not be molested by Russian troops, and remember, we’ve already had mass evacuations from Eastern and Southern Ukraine, the problem remains is that they can’t get fuel into the country. So you’re talking about needing to harvest industrial levels of wheat without industrial equipment. And that’s just not possible.

So likely end result here is that this is the last year that Ukraine participates in international grain markets. They simply don’t have the capacity to get stuff out at scale. In fact, the only place that they might be able to ship stuff is by rail and at most with significant upgrades that have not yet been done, they can probably only ship about one-fifth of their normal produce out that way. The rail lines are just not designed for that kind of bulk of cargo. And a lot of them have to transit a little territory called Transnistria, which is under Russian control. You remove the world’s fourth-largest wheat exporter from the market and you’re gonna look at cascading problems, not just with food prices and malnutrition, but civil conflict and breakdown; most notably in the middle east. The last time we had a doubling of global wheat prices, we saw the Arab spring back in 2011.

What we’re dealing with is an order of magnitude more complicated and deeper rooted. And to think that we’re only going to have a doubling of prices is ridiculously optimistic. Now in the United States, this isn’t necessarily a disaster. You double the price of wheat, you actually only increase the cost of a loaf of bread by 25 cents. We don’t subsidize food processing like say, Egypt does. So here it’s a little uncomfortable. It’ll probably be noticed, but it’s not going to be a deal killer. Other parts of the world, not so much. All right. That’s it from me. Until next time.