Shipping still restricted in Russia's key Azov Sea grains trade route, sources say

MOSCOW, July 13 (Reuters) - Shipping in the Sea of Azov, the route for a quarter of Russia's grains exports, remained restricted on Monday for security reasons following Ukrainian attacks on tankers and other commercial vessels in the area, three industry sources said.

The restrictions on shipping entering and exiting the sea went into force on Friday, Reuters reported, sending Euronext wheat up as much as 4% to a six-week high. Russia is the world's biggest wheat exporter and also a major sunflower oil supplier.

One of the sources told Reuters commercial vessels could move freely in the Sea of Azov but could not enter or leave via the Kerch Strait, which links it to the Black Sea, or the Azov-Don channel - a navigable waterway connecting the Don River with the Sea of Azov.

Russian authorities have not formally announced the curbs, the sources said.

The Kremlin on Monday referred a question about shipping restrictions in the Sea of Azov to the Transport Ministry. The agriculture and transport ministries did not respond to requests for comment.

MARKET IMPACT

The restrictions could become an important driver in global and domestic grains markets if they are prolonged, said Andrey Sizov from the SovEcon Black Sea research consultancy.

"A full closure lasting several weeks could substantially disrupt Russian export flows," Sizov said, adding that disruption could drive up prices for futures and free-on-board shipments and dampen domestic grains and sunflower prices.

CBOT wheat was lower on profit-taking on Monday after hitting six-week highs, with losses limited by worries about tightening supplies and the Russian shipping curbs.

Grains shipments from Russia usually decrease in the months ahead of the harvesting campaign.

SovEcon forecast that grain exports in July would be about 2.3 million metric tons, compared with 2.7 million in June. In peak exporting months, shipments exceed 5 million metric tons.

Russia has started harvesting new crops in southern regions but the new grain has not yet arrived in the seaports, and there have been no reports yet about any major disruption to the grains trade because of the restrictions.

The harvesting campaign started late this year due to cooler weather in many parts of Russia. One source said that, thanks to the late start, companies exporting grain from the southern regions had about 10 days to reroute trade flows to ports outside the Sea of Azov.

Another one of the sources said the issue was expected to be discussed this week at the country's Security Council, chaired by President Vladimir Putin.

A third source said the traffic through the Sea of Azov was restricted but not fully stopped, as the two other sources said.

RESTRICTIONS COMMUNICATED VERBALLY

All three sources, who work in the grains and energy industry, spoke on condition of anonymity. They said the restrictions have so far been communicated verbally and there were no documents confirming them.

Russia's leading grains-producing regions, Rostov and Krasnodar, lie along the Sea of Azov. The country's second-largest port in the Black Sea region is located on the Kerch Strait. The Russia-controlled Ukrainian regions of Kherson, Donetsk and Zaporizhzhia as well as Crimea, annexed in 2014, also lie along the Sea of Azov.

Ukraine attacked 13 Russian vessels in the Sea of Azov on July 10, including 10 tankers. The Russian-controlled Ukrainian regions and Crimea have come under intensified attack in recent weeks, causing fuel shortages and power outages.

Many analysts and international organisations have warned about the risks to the global grains trade from the war in Ukraine because the Black Sea is used by both Ukraine and Russia for grain exports, although there have been no major disruptions during the 4-1/2-year conflict.

(Reporting by Reuters;Editing by Helen Popper)