The Kakhovka Dam Destruction: Impact on Local Commodities
By: Frank Stengs, Leopold Maisonny, Ojus Sharma, Carl Allen and Mathilda Minakova
Brief:
Dozens of localities have been flooded downstream up to Kherson resulting in the evacuation of thousands of people along both banks of the Dnipro River.
Russia and Ukraine blame each other for the destruction of the dam. Kyiv has accused Moscow to have sabotaged the dam to hinder a potential upcoming Ukrainian counteroffensive in the Kherson Oblast. For its part, Russia has attributed the attack to Ukrainian strikes.
The destruction poses concerns about the Zaporizhia nuclear power plant whose cooling systems draw from the dam’s reservoir. However, the situation is not yet worrying according to the International Atomic Energy Agency.
The floodings downstream pose a significant threat to agricultural production in the Kherson Oblast. The region is a crucial source of agricultural commodities for the domestic market and constitutes a key global supplier for some commodities.
The destruction of the dam poses great humanitarian risks. The likely rejection of the chemicals and infectious bacteria as a result of the floods may contaminate water supplies.
Who, what, where?
On 6 June, 2.30 local time, the hydraulic structure of the Kakhovka Dam (Каховская ГЭС, Kakhovka Hydro-Electric Station) on the Dnieper delta was detonated, according to Ukrainian officials by Russian troops that control the region around the dam since late February 2022.
The destruction of the dam was first reported on by Operational Command “South”, a military formation of the Ukrainian Ground Forces in the southern part of Ukraine.
Reportedly, only one explosion was heard, according to Ukrainian Defence Intelligence (GUR) and «Ukrhydroenergo» (the main state-owned hydropower administration enterprise along the Dnieper and Dniester) targeting the engine room, which is located near the third gate. Although not the entire structure was destroyed[source - satellite imagery?], the damage to the engine room according to officials makes the dam irreparable. The water reservoir is expected to be activated during the next 4 days.
The water from the dam flooded multiple regions on the right bank, with small settlements in and around the Ukraine-held city of Kherson risking being affected, with announced evacuations from the Ukrainian side in 8 high risk areas. Russian-installed authorities of the Kherson region on the occupied left bank, which has reportedly been most affected due to its low elevation, announced the evacuation of three settlements - the city of Nova Kakhovka, located near the dam, Golo Pristan and Oleshky.
The satellite imagery on the left is from 1/6/2023, while the imagery on the right is from 6/6/2023
Fallout
The Ukrainian Ministry of Internal Affairs published a list of settlement regions, along the right bank of the Dnieper and Kosheva rivers, that are currently being evacuated due to risk of flooding. 8 high risk areas for flooding include the historical centre, northeastern and southwestern neighbourhoods of Kherson area on the bank of the Dnieper and villages and settlements on the bank of Bezmen and Bile Lakes near the Kosheva river. Russian occupation authorities were initially reluctant to declare the need for major evacuations, but have since then declared a state of emergency, claiming that 7 people are missing.
More detailed, the 8 areas signalled as being at high risk of flooding are parts of:
Antonivka (urban settlement; смт) (right bank of Dnieper, northeastern suburb of Kherson)
Dniprovskyi district (neighbourhood in the northeast of Kherson under Antonivka)
Suvorovskiy district (historical centre neighbourhood of Kherson) (not to be confused with the Peresipskiy (until 2023: Suvorovskiy) district near Odessa)
Korabel'nyi district (western part of central Kherson) (not to be confused with southern part of Mykolaiv Oblast/area)
Karantynnyy Ostriv/island (island on Dnieper southwest of Kherson)
Zimivnik village (west of Kherson)
Komyshany (urban settlement; смт) (rear west of Kherson near Bezmen Lake)
Priozernoe village (rear west of Kherson near Bile Lake)
The most affected settlements along the left bank of the Dnieper are encircled by occupied territories and the evacuation status in the region is so far unclear. Russian-installed authorities of the Kherson region on the occupied left bank, which has reportedly been most affected due to its low elevation, announced the evacuation of three settlements - the city of Nova Kakhovka, located near the dam, Golo Pristan and Oleshky . According to Ukrainian evacuation services on the right bank, Russian forces reportedly “blocked communication” between both banks of the river to prevent citizens from the left bank to reach Ukrainian evacuation services on the right bank [?source/specification of block?]. Furthermore, Kherson authorities have accused Russian troops of continuing artillery strikes during the evacuation of flooded areas of the micro-settlement Ostrov (east from the Dam on the bank of the Dnieper Delta), resulting in the injury of two law enforcement officials.
The rise of water in land on the river banks contaminated by explosive ordnance has increased the risk of explosives being displaced through water and detonating. This makes citizens’ attempts to evacuate without the help of authorities highly dangerous. Especially, this concerns left bank settlements, where reportedly Russian-led evacuation efforts are less clear, and which has reportedly sustained more damage due to being located geographically lower. While many people in the most severely affected areas have chosen to follow evacuation measures. There have also been challenges in getting many residents of Kherson to relocate, as many choose to stay until the water recedes.
Another humanitarian risk is the continued provision of drinking water and power to all affected regions: Dnepropetrovsk, Zaporizhia, Nikolayev and Kherson. Currently, Kryvhii Rih is the most affected by these shortages, with major water shortages reported in the city, shutting down major industries and importing power from other sectors of the grid. Power and water shortages on the East bank of the river are likely to also fluctuate and be quite significant, however there has been limited information divulged by the Russian authorities over the damages inflicted to industry or supply of water and power.
Another major ripple effect is the acute water shortages transporting water to Russian occupied Crimea via the North Crimean canal. Restarting water low to Crimea via the caputre of this canal was a major objective of Russian operations in Ukraine since the closing of the Canal by Ukraine in 2014. So far, the crisis at the Nova Khakovka dam seems to be sabotaging this water flow. As a result, while agriculte in Crimea may face a crisis in the short term, this may not lead to any drastic change in Crimea’s strategic or industrial situation for the time being.
Impact on commodities/ infrastructure
The breach at the Kakhovka Hydroelectric Power Plant and the resulting uncontrolled water flow downstream may pose a threat to agricultural production in the Kherson Oblast region of Ukraine. This region is a source of various agricultural commodities both for the domestic market and as a global supply. The potential effects on the commodities market, particularly for trading agricultural commodities, need to be carefully analysed to assess the risks involved. In this risk analysis, we will evaluate the impact on specific commodities and the potential consequences for the trading of agricultural commodities in Ukraine and globally.
Ukrainian Agricultural Commodities in Kherson: The region of Kherson primarily accounts for 10% of national Millet production, 8% of Soybean production, 6% of national Wheat Production, 6% of national Rapeseed production, 6% of national Barley production, 4% of national Sunflower Seed production, and 1% of national Corn production.
Potential Effects on Commodity Trading: Latest analysis suggests that the river breach and waterflow is limited to the river floodplains, and areas around them. Therefore, the scale of the damage is currently limited to the shores of the river, reducing any risks to storage facilities, or waterlogging, and does not pose any immediate significant threat, or risk to global supplies of the commodities mentioned above.
Map: worst case modeling Nova Kakhovka
Area within the rapid flood zone: between 5% and 10% of Kherson-oblast surface area. This may change with water level rising, and thus depends on the duration of flooding.
Immediate impact if we take the average of region production:
Millet
Ukraine produces 100Mt of Millet
20th largest producer in world, 0,3% of global supply
0,5% of total Ukrainian Millet production in 5% scenario
1% of total Ukrainian Millet production in 10% scenario
Affected supply: Between 0,5Mt and 1Mt
Soybean
Ukraine produces 4,100 Mt of Soybean
9th largest producer in the world, 1,1% of global supply
0,4% of Ukraine Soybean production in 5% scenario
0,8% of Ukraine Soybean production in 10% scenario
Affected supply: Between 16,400Mt and 32,800Mt
Wheat
Ukraine produces 20,900 Mt of Wheat
9th largest producer in the world, 2,6% of global supply
0,3% of Ukraine Wheat production in 5% scenario
0,6% of Ukraine Wheat production in 10% scenario
Affected supply: Between 62,700Mt and 125,400Mt
Rapeseed
Ukraine produces 3,500 Mt of Rapeseed
7th largest producer in the world, 4% of global supply
0,3% of Ukraine Rapeseed production in 5% scenario
0,6% of Ukraine Rapeseed production in 10% scenario
Affected supply: Between 10,500Mt and 21,000Mt
Barley
Ukraine produces 6,180 Mt of Barley
7th largest producer in the world, 4,1% of global supply
0,3% of Ukraine Barley production in 5% scenario
0,6% of Ukraine Barley production in 10% scenario
Affected supply: Between 18,500Mt and 37,100Mt
Sunflower
Ukraine produces 11,200 Mt of Sunflower seed
2nd largest producer in the world, 21,7% of global supply
0,2% of Ukraine Sunflower seed production in 5% scenario
0,4% of Ukraine Sunflower production in 10% scenario
Affected supply: Between 22,400Mt and 44,800Mt
Corn
Ukraine produces 7,200 Mt of Corn
8th largest producer in the world, 2,4% of global supply
0,05% of Ukraine corn production in 5% scenario
0,1% of Ukraine corn production in 10% scenario
Affected supply: Between 3,600Mt and 7,200Mt
Conclusion
It is also important to note that only Sunflower, Barley, Wheat and Rapeseed; represent significant shares of global supply, and therefore the impact on other commodities such as Corn, Soybean and Millets, can be rendered negligible with high confidence. Yet, traders, investors, and market participants must stay informed about the situation, closely monitor market trends, and adapt their strategies to manage the risks associated with the breach's impact on agricultural commodities.