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| A diamond mine in the town of Mirny, Siberia, Russia. (Source: AP) |
Thus, more than 18 months after the conflict in Ukraine, the G7 countries (France, the US, the UK, Germany, Japan, Italy and Canada) and the European Union (EU) have finally agreed to embargo Russian diamonds - considered the "Loch Ness monster" of the Western sanctions policy against Russia.
“Loch Ness Monster”?
A Belgian government source said an official announcement of the latest sanctions would be made in the next two to three weeks. Accordingly, Russian gemstones larger than 1 carat, whether raw or processed, will not be allowed to enter the G7 and EU markets from January 1, 2024.
Belgium initiated this latest sanction together with the European Commission (EC) and the United States - the world's number 1 diamond market. Today (September 19, local time), Belgian Prime Minister Alexander De Croo is expected to announce this information on the sidelines of the United Nations General Assembly in New York.
However, Belgian officials are still concerned about the fate of Antwerp, the world's diamond center. A "direct" embargo, according to Belgian officials, would "kill" the city without stopping Russian diamonds from flowing to Dubai, Tel Aviv or Mumbai, other famous diamond centers. The Belgian Prime Minister himself has affirmed his view that Russian gems should not be sanctioned. Because more than 80% of rough diamonds are sold through the diamond capital of Antwerp.
The secretive trade in Russian diamonds, worth hundreds of millions of dollars a month, is ripping apart a global trade that stretches from the cutting workshops of Mumbai to the luxury stores on New York's Fifth Avenue.
Since Russia’s Alrosa mining group (which mined nearly a third of the world’s diamonds in 2021) was placed on the US sanctions list, the allure of Russian diamonds has been enough to convince some Indian and Belgian buyers to buy in large quantities, even though some in the industry have been forced to opt out. Such deals are still happening quietly in the notoriously secretive diamond world.
In addition, Western traders have not been overly concerned about the origin of their goods, as the risks of buying Russian gemstones are still quite vague. Gemstones from Russian sources, once they enter the supply chain, are almost impossible to trace. Diamonds are often sold in packages of similar size and quality, divided into about 15,000 different types. They will be bought and sold again and mixed with other types many times before being mounted in rings or pendants.
Russia is currently the world's largest exporter of diamonds by volume, followed by African countries. For Russia, diamonds make up a very small part of the Russian economy, but this Russian luxury item occupies a very high position in the world gem industry. For example, the diamond trade is the livelihood of many cutters, creating about 1 million jobs in India alone.
In 2021, Russia’s diamond trade was worth just under $5 billion, a small fraction of the country’s total exports, dwarfed by oil and gas. Before the Russia-Ukraine conflict erupted, Russia’s total exports were $489.8 billion, with oil and gas accounting for $240.7 billion.
Kill two birds with one stone?
Currently, the G7 countries and the EU have agreed on two points, it is necessary to attack Russia's financial resources more strongly, but avoid heavy losses to the world diamond industry, such as the "diamond capital of Antwerp" and it is necessary to introduce an effective traceability system to prevent this embargo from being "circumvented".
The second issue will take longer. After months of discussion, a gemstone traceability process is about to be approved – it will incorporate blockchain techniques, nanotechnology, as well as the creation of a data platform accessible to different governments.
The added cost of traceability is estimated to be only “15 to 20 euros” extra per diamond, while some stones sell for tens of thousands of euros. “We will use 21st century technology to solve a 21st century problem. We will trace 90% of the stones. We cannot prevent an individual from buying a Russian diamond in China, but they will know that their gems will not be worth much when resold,” said a Belgian official.
Eventually, this new platform could be used to track other commodities, such as gold, or even make some financial transactions more transparent.
The aim of the new sanctions against Russia remains to deplete the coffers of the world’s leading diamond producer. But there are some not-so-simple questions about the belated sanctions. Before the decision was made, Western countries were still quite divided over a range of issues.
Sanctions are easily circumvented. Diamonds – once processed in Dubai or cut in India, Siberian gems have no difficulty penetrating other markets. Even as their numbers have plummeted, Russian gems are still found in Europe, especially in Antwerp – where nearly 85% of the world’s rough diamonds are “in transit”.
The only country that has really tightened regulations on Russia is the United States, which has imposed an embargo on Russian rough diamonds.
What about Antwerp, the diamond capital? Before the conflict in Ukraine, Russian diamonds accounted for more than a third of the gems cut in Antwerp. The Belgian city fears that 10,000 jobs could be lost in the sector if sanctions on Russian diamonds are implemented. Many of Antwerp's jobs have already gone to other diamond hubs like Dubai...
However, Belgian officials hope that Antwerp will limit the damage and stabilize the number of jobs in the sector. And Brussels will focus more than ever on diamond transparency, hoping that the sanctions against Russia will gradually produce results at the international level.
In addition, Belgian officials aim to completely reverse the logic of the market. For decades, Russia, as the main supplier, has been the one to set the rules of the market. But under the new system, the EU wants buying countries to have a greater role. So, together with the US (which sells 55% of the world's rough polished diamonds), if European countries, Canada and Japan are brought into the picture, nearly 75% of the global gem market will soon be closed to Russian diamonds.
Belgian officials predict that in the next few years there will be two markets, a “premium” market without Russian diamonds and a secondary market – especially in China – where Siberian diamonds will be sold “at low prices”. But this second market will gradually shrink and eventually the revenue from Russian diamonds will “melt like snow in the sun”.
Thus, one arrow will kill two birds with one stone, the Russians will no longer have money to invest in the exploration of new mines and their production will plummet and Moscow's treasury will officially lose billions of dollars. Meanwhile, other countries, such as India, the world's largest diamond processing market, will have to make a choice, if it respects the traceability regulations, India will enter the "lucrative" market of the G7 and Europe, otherwise it will be eliminated. At that time, there will also be no more "mixed" origin of precious stones - the sanctions from the West have achieved their purpose.
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