Russia’s just backed out of a deal that could send food prices soaring just as June's CPI reading hit a two-year low of 3%.

On Monday, Russia put a hold on its wartime agreement, which allowed Ukraine—the world’s fifth-largest grain producer—to export its crops via the Black Sea. The deal helped stabilize global food prices after Russia’s invasion of Ukraine.

After the announcement, wheat, corn, and soybean prices started climbing. Some fear that Russia may go even further and impose an import tax on Ukraine’s wheat exports.

Why did this happen?

Since the inception of the pact brokered by Turkey and the United Nations, Russia’s used it to blackmail the West.

Hinting at withdrawal, it demanded the West lift export restrictions and allow their state agricultural bank back into the SWIFT international payment system.

In response, the United Nations and the EU offered a compromise proposal. The deal: if Moscow continued to allow exports, they would permit transactions covering grain trading.

Russia rejected the offer and suspended the Black Sea deal.

Originally, the deal was set to expire on Sunday, but the possibility of an extension remained in play. Now that possibility is off the table.

How will food prices be impacted?

The end of the deal means staple foods like bread could become more expensive.

Since its start, the Black Sea grain deal has carried nearly 33 million metric tons of grain through Ukraine ports. About half of this was corn and close to one-quarter was wheat.

The rest included barely, soya beans, rapeseed, and sunflower products.

Shocks to the food system brought on by the war have already led to life-threatening food scarcity in nearly 30 countries, impacting about 84 million people.

East Africa—which imports about 80% of its grain from Ukraine and Russia—will likely face the most significant blow from Russia’s withdrawal. Grain prices there have already surged 40% this year.

Some of the other countries that previously received large Ukraine exports via the Black Sea deal were China, Spain, and Turkey.

What happens next?

Without the deal in place, Ukraine can still export over land—but there will be a substantial drop in volumes. Rail exports account for just 15% of what Ukraine ships via sea.

U.S. Secretary of State Antony Blinken said the US was looking for ways to help make up the shortfall. But without access to waterways, it may prove challenging.

Russia’s decision is unlikely to have a meaningful direct impact on Americans. U.S. agricultural imports from Ukraine barely reached $143 million in 2019.

Many of those goods included fruit & vegetable juices ($48 million), other vegetable oils ($31 million), snack foods ($12 million), and other dairy products ($2 million).