Diamonds have always been a crucial source of income for Russia, the world’s largest producer. Following two years of war, the EU has finally imposed sanctions on Russian diamonds and related businesses.
The European Union has recently introduced the twelfth round of sanctions against Russia in response to its full-scale aggression towards Ukraine. The sanctions were approved in December and came into effect at the beginning of this year. As part of this strategy, non-industrial diamonds mainly used to make jewelry and mined and processed in Russia cannot be imported into the EU. The ban applies to Alrosa, the leading Russian diamond producer and exporter. The Director of Alrosa, Pavel Marinychev, has been blacklisted and banned from entering EU countries. Additionally, his assets in Europe will be frozen. It took Europe quite some time to take action against the Russian diamond industry, while the US had already imposed similar sanctions two months after the aggression against Ukraine.
Although the USA is a significant market for diamond jewelry, the primary global hub for the diamond trade is Antwerp, Belgium. Around 50% of the world’s polished diamonds and 80% of its rough diamonds are sold and bought in this city. Belgium was lobbying the EU to lift diamond sanctions on Russia, but those efforts were unsuccessful. The closure of the leading global diamond market will be a notable problem for Alrosa. While the Russians may seek new markets and intermediaries, it will be challenging and costly, with no guarantee of success.
Treasures of Yakutia
Russia’s third largest export commodity after oil and gas is valuable minerals extracted from the Earth. As the largest diamond producer in the world, Russia earned 4.7 billion USD from diamonds in 2021, half of which went to Europe. However, data on export income in the Russian budget was made secret after the aggression against Ukraine. Trading diamonds was still possible during the first two years of the war. However, things have changed. It will now become more difficult to run businesses in the diamond industry. Russia will have to find new ways to sell its precious minerals. Many people rely on the income generated by the country’s diamond industry, which has been around for decades. Additionally, the industry has become a significant source of revenue for the Russian budget.
The industrial-scale mining of Russian diamonds started in the 1950s when extensive diamond deposits were discovered in Trubka Udachnaya, beyond the Arctic Circle in Yakutia. During Nikita Khrushchev’s term as the leader and at the peak of the Cold War, the USSR signed an agreement with De Beers, the world’s largest diamond company. De Beers, originally a South African-British concern, is now an international enterprise. In the 1960s, Khrushchev supported the fight against colonialism in Africa, among other things. As a result, De Beers was portrayed in Soviet propaganda as the devil incarnate of imperialism, inhumanely exploiting Africa. However, this did not stop the Soviet Union from launching their diamond mining operations with the help of De Beers specialists and trading the diamonds through the company. In the 1980s, one of the largest open-pit diamond mines in the world was established in Yakutia, which spans over a kilometer in diameter and 600 meters in depth.
In the 1990s, after the collapse of the USSR, Boris Yeltsin established Alrosa, a major diamond concern based on former state-owned enterprises. While foreign investors also appeared, the state maintained a controlling interest with direct control of 33% of Alrosa shares and another 25% falling under the authorities of Yakutia. Local governments in Yakutia, where diamond mining occurs, own several percent. Until May of last year, Sergei Ivanov, the son of another Sergei Ivanov, the former Head of Putin’s administration and former Defense Minister for six years, served as the Director of Alrosa. This diamond concern does not contribute as many billions to the budget as Gazprom or Rosneft. However, Alrosa hasn’t been accused of being a tool for the Kremlin’s political influence. Yet, diamonds bring enormous profits and give access to the world’s financial elite. It was only after 2022 that buyers of diamonds from Yakutia began to realize that these diamonds were as unethical and bloody as those sold by African warlords. Alrosa openly supports aggression against Ukraine and sponsors the B-871 Alrosa submarine (type 877 Kilo), which sails in the Black Sea Fleet and takes part in attacks on Ukraine as a carrier of caliber cruise missiles. The diamond manufacturer takes pride in this sponsorship.
Blood diamonds
Several of the most prestigious jewelry and watchmaking brands, such as Hermes, Tiffany, Patek Philippe, and Cartier, have confirmed that they have been following an ethical purchasing policy since the start of the Russian aggression. They ensure that the diamonds they receive are not obtained directly from Russia, and they depend on their suppliers to authenticate the stones’ origin. However, market experts say it is simply only possible to meet the demand from Swiss watchmakers and jewelers with Russian diamonds. In 2022, Switzerland directly purchased 22 kg of diamonds from Russia. However, most precious stones are imported to Switzerland through intermediaries. The Swiss watch and jewelry industry is a significant importer of diamonds small stones. Russia’s supply of these types of stones, which are in high demand by watch manufacturers, accounts for 60-70% of the total imports. These stones reach the Swiss and other European markets via intermediaries, with Armenia recently becoming an important player. Nevertheless, the traditional diamond trade routes still play a crucial role in the industry.
Until now, the unprocessed stones extracted from mines in Yakutia were transported to the diamond district in Antwerp, known as Diamond Quarter (Diamantkwartier). From there, they were sometimes sent to Tel Aviv, Mumbai, or New York for the initial cutting process. After the cutting process, the stones were sent to the World Diamond Cutting Center in Surat, India. Once in India, they were sold through intermediaries in New York, Israel, and Hong Kong to large markets in the USA, China, Europe, and the Persian Gulf countries. The Kimberley Process has regulated the global diamond trade for the past two decades. This set of regulations was introduced by the United Nations and is supervised by the World Trade Organization (WTO). Signatories of the agreement are responsible for controlling the origin of diamonds to prevent the trade of blood diamonds. Initially, this agreement was focused on diamonds from West African countries such as Sierra Leone, Côte d’Ivoire, and Congo. However, blood diamonds mainly come from Russia these days. And it is the case, at least for part of the world.
Although it is easy to certify diamonds and control their path initially, if Antwerp falls out of the trade chain, the diamonds will likely end up with Indian cutters or through Armenian, Chinese, or Arab traders. They may get mixed with diamonds from Africa or Canada, making it difficult to prove their Russian origin once they reach the markets as cut stones. While specialists can still identify their origin, it will be a complicated process, especially if watch manufacturers from Geneva or Zurich make mass purchases of diamonds. The European and American sanctions also complicate the situation for the Russians. Alrosa, the Yakutian diamond empire, will have to use smuggling tricks, pay more to intermediaries, and risk having its diamonds confiscated. All of these factors will increase costs and reduce profits.
Michał Kacewicz/belsat.eu
Translated by PEV
