Anyhow, the European Union has decided to ban Russian diamonds. EU officials tried to pass these sanctions many times, but Belgium, the global diamond powerhouse, resisted until the very end. What do these sanctions mean for the Russian diamond producer and who is really going to pay for the new meddlings with the market?
The EU has prohibited the import of Russian diamonds starting from January 1, 2024. “The EU is imposing a prohibition on the direct or indirect import, purchase or transfer of diamonds from Russia”, states the publication of the European Council.
From now on, it is allowed to bring diamonds only as personal effects for travellers and as part of the cultural exchange with Russia.
The ban introduction timing is the following: from January 1, 2024, a prohibition on direct import from Russia of any diamonds and diamond products. G7 countries will join the ban, noted the European Commission. Further, starting March 1, the indirect import of natural diamonds originating in Russia when processed in third countries will be prohibited. And from September 1, it will be banned to import from third countries synthetic diamonds originating from Russia and processed there, jewelleries and watches incorporating Russian diamonds.
The point is that Russia mainly exports raw diamonds, which are then processed in other countries, incorporated in jewelleries or watches.
At the same time, Russia is the largest world’s producer of raw diamonds, while Antwerp is the top global buyer of raw diamonds, with a share of about 80 per cent of the purchasing volume, and it is called the global diamond capital for a reason. This is why Belgium countered the introduction of this ban for so long.
In 2022 (more recent data are not available) the top buyers of Russian diamonds were UAE (USD 1.64 bn), Belgium (USD 1.46 bn) and India (USD 1.08 bn). They are followed, however, with a big gap in export volumes, by Armenia (USD 178 m), Israel (USD 104 m), Botswana (USD 49 m).
With the help of the ban, the EU aims to reduce Russian budget incomes.
“The export of diamonds has a relatively small share in the Russian export mix and the key risks caused by these restrictions are linked to the Alrosa company”, notes Olga Belenkaya, Head of the Macroeconomic Analysis Department, Finam Financial Group.
In 2022, Alrosa’s revenue was USD 4.5 bn, less than one per cent of the total Russia’s export volume of USD 590 bn. The loss of the access to the diamond hub in Antwerp can deprive Alrosa of a third of its profits. And to avoid losing all exports, the company will have to find a way to bypass the sanctions and have a possibility to supply diamonds at least to UAE and India or find new “transit” spots for “the transshipment” of Russian diamonds. The good thing is that diamonds are not oil and do not need special tankers, also requiring much less space for transit.
Russia has some options to bypass the diamond sanctions and it will use them, said the Spokesperson the President of Russia Dmitry Peskov. Russia will re-focus its export markets, said the Minister of Finance Anton Siluanov adding that these sanctions will not bring value to those imposing them.
“Belgium objected to the import ban of Russian diamonds fearing it would lose a substantial market share: it is likely that the trade flows shift to other hubs, such as India and UAE”, says Olga Belenkaya.
“Considering that Russia is the largest diamond producer, with a 35 per cent share of the whole global output, the import ban will cause market deficit in the near-term and the increase of prices, as an effect”, expects Tatiana Skryl, Associate Professor, Economic Theory Department, Plekhanov Russian Economic University.
With that, the Europeans themselves will have to buy jewelleries and watches, which incorporate diamonds, at a higher cost.
As always, ordinary consumers will pay for the Western non-market meddling. However, unlike utilities, jewelleries can hardly be called essential goods, so the tax in this case is being imposed on well-off Western consumers.
Russia shares the global market roughly in half with De Beers, Siluanov noted, a transnational company focused on mining, processing and selling diamonds. It was founded in South Africa and is owned by the British mining company Anglo American (85%) and the Government of Botswana (15%). Its benefit from this situation is obvious.
“If the sanctions work, it will be challenging for Alrosa to find alternative sales channels. On the other hand, the system of full raw diamond traceability from the mining site to the store shelf has not yet been built in the world. That is why, on its way to the buyer, Russian diamonds can become intermediate products incorporating other elements added, say, in India or China and further get a tag of a famous jewellery brand”, Skryl believes.
Not only India and China can buy Russian diamonds, which will have to be sold with a markdown, but also UAE, Israel and other countries. “Those countries will, in their turn, sell processed stones to the European Union just passing them on as those mined in South Africa or any other country: the EU is unlikely to have a traceability system, which can at 100% trace the origin of individual stones”, Leonid Khazanov, an independent industrial expert, told RIA Novosti. He believes it is not impossible that Europeans will just shut their eyes to the origin of stones, as “the EU authorities are feeling the real risk of ruining their jewellery industry bringing good revenues for their budget”.
This whole case can drive Russia together with other non-Western part of the world to transform the global diamond industry and develop their own standards in this field.
Because now the US, as the main buyer but not the key producer, has come up with such standards, and the entire industry follows them. “Trying to restrict the trade of Russian diamonds is just a competitive struggle disguised as a geopolitical statement. It is enough to say that the only international standard used to assign the value and cost of each stone, is owned by the GIA, the Gemological Institute of America. We will disrupt these monopolies. 85% of the world’s population, and the same share of prospective markets for diamonds, is concentrated in the countries having the same values of sovereignty, for which Russia is fighting today. So, we will develop the markets and standards of these countries, prioritizing the BRICS+ markets. And when it comes to standards, the GIA should not claim a monopoly of absolute truth”, Alexey Chekunkov, Head of the Ministry for the Development of Russian Far East of Eastern Development, told RIA Novosti.