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Russia has attacked three civilian ships carrying grain in Ukraine’s southwest maritime corridor. This marks Russia’s first major attack on commercial shipping, and a significant escalation of this war.
Ukraine doesn’t have too many options for getting its grain out, so they rely heavily on sea transport. Since the collapse of a political deal with Russia that allowed grain shipments to get through, the Ukrainians have created a corridor through Romanian and Bulgarian waters; however, the Russians most recent strike might put an end to that.
We will likely see disruptions to global food supplies and further complications with maritime insurance…which makes sense, as the potential loss of three ships is no small setback. This situation is evolving rapidly and I will continue to update as news comes out.
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Hey everybody, Peter Zeihan here, coming to you from Colorado with just a quick update. It’s the 10th of October and we just got confirmation that the Russians are attacking civilian shipping with international flags in a corridor to the southwest of Ukraine, ships primarily carrying grain. We have been very, very fortunate in the conflict so far that we haven’t had a food crisis.
At the very beginning of the war, when the Russians were blockading the entirety of Ukraine’s Black Sea coast, we basically had 3 or 4% of global food production fall off market overnight with no replacement. And food prices quickly rose to, recent record highs, the highest we’ve had in 15 years. Since then, we had a political deal between Russia and Ukraine to allow ships to come and go in order to pick up foodstuffs.
And after that deal collapsed a year later, we then last year had the Ukrainians open up their own grain corridor, which went west from Odessa into Romanian Bulgarian waters, where Russian ships wouldn’t dare go. But there was still that thin sliver of territory between Odessa and the maritime border with Romania that was in Ukrainian space, where there was always a concern that the Russians would strike.
And now they have right now only three ships. Right now only three attacks. Right now, no ships have been sunk. But this would be the first time in the war in a meaningful way that the Russians have actually gone after commercial shipping. They have a couple things to keep in mind. Number one, Ukraine does not really have a very good way to get grain out by rail.
All the countries that border it to the west are also agricultural exporters. So even if there wasn’t a political complication and there are, these are markets that couldn’t absorb it. So you need to go several hundred miles further in order to get to ports in, say, Germany or Croatia in order to get the grain out. And those ports are already being used by other exporters.
So, you get snarled in addition to the fact that the rail lines are insufficient to the task, in addition to the fact that they use a different rail gauge. So really it’s by sea or really not at all. Second, while we have had some changes in the insurance regime of maritime shipping in the last several years, the still the bottom line is we haven’t really lost a insured ship in the Ukraine war yet, and we don’t know how insurers are going to adjust policies.
If you would ask me, before the war started, it would have been pretty dramatic where we had a loss of shipping like 25 years. And so if a ship had been taken down that had a policy, basically no one would be able to offer a policy anymore. And all ships would be completely uninsured in the area. That assumes there’s not a cascade through the financial system.
Now that they’ve had a couple of years to kind of prepare for this moment, we really don’t know what companies like Lloyd’s of London are going to do, but we’re going to find out really, really fast. So stay tuned. And if this gets bigger than it is right now, I’ll definitely be telling you more.
