On 24Feb Oleksandr Kubrakov announced that the Ukrainian Verkhovna Rada had amended the 2023 State Budget of Ukraine to include up to 20 Billion UAH for the funding of a war risk insurance program which will cover both inland and sea borne vessels.
This wasn’t the first time they talked about this plan. If you watched their coverage from @WEF in Davos in January, then you will have seen them talk about it and I noted then how important it could be. At the time they did not mention the insurance being applied to shipping vessels.
So why is this important? You may remember that on 29Oct2022 there was an attack on the port of Sevastopol, reportedly by Ukrainian USVs. In response to this, Russia decided to suspend their involvement in the Black Sea Grain Initiative (BSGI).
Subsequently, on 31Oct2022 Russia suspended the movement of ships along the grain corridor which caused one of the main insurers to suspend coverage for all new shipments. This effectively shut down the BSGI.
The revocation of insurance was really the only thing that shut down the BSGI during this incident. The UN, Türkiye and Ukraine were all committed to continuing the initiative despite Russia pulling out.
By introducing this war risk insurance the Ukrainian government is removing the major stumbling block that stopped movement of vessels. As we approach the renewal date for the BSGI (19Mar2023), Ukraine is essentially calling Putin’s bluff. If he doesn’t agree to an extension, then the UN, Tükiye and Ukraine have demonstrated that they will continue the initiative regardless. Russia may have to interfere with the ships in the humanitarian corridor in order to take back control and the response would be world-wide condemnation. Ironically, China’s “Peace Plan”, released this week, specifically mentions how important the BSGI is and encourages support for the work of the UN.
“9. Facilitating grain exports. All parties need to implement the Black Sea Grain Initiative signed by Russia, Türkiye, Ukraine and the UN fully and effectively in a balanced manner, and support the UN in playing an important role in this regard. The cooperation initiative on global food security proposed by China provides a feasible solution to the global food crisis.”
Again, this is your friendly reminder that China imports the highest percentage of BSGI products. Their percentage has been increasing regularly. The BSGI is a strategically advantageous deal for China as it continues to increase its strategic stockpiles of grain.
In the bigger picture, this war risk insurance has the potential to open exports (or imports for that matter) for other Ukrainian products. Before the full scale invasion and shutdown of Ukrainian Black Sea ports by Russia, Ukraine’s largest trading partner was the EU and iron and steel were the main exports. The new insurance package potentially covers any ship wishing to export any goods from Ukraine. Exports mean an injection of cash into the Ukrainian economy, which is an important step towards restoration, but more importantly, it reinforces Ukrainian sovereignty and autonomy.
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