Russia is the biggest global supplier of uncut diamonds by volume. The international community has imposed new sanctions targeting Russian diamond transactions as part of a wider strategy aimed at reducing Moscow’s income streams, which support its military actions in Ukraine.
In December, the G7 nations of Canada, France, Germany, Italy, Japan, the U.K. and the U.S. declared an outright ban on Russian diamonds, effective from Jan. 1. That is to be followed by gradual implementation of restrictions on indirectly imported Russian diamonds starting from March 1. By September, a new system for verifying the origins of these gems is expected to be in place, although details regarding the verification process and its location remain uncertain.
“The G7 must understand that the direction they have chosen will cause great damage to the world diamond industry. We hope that the concerns we are voicing will convince the G7 governments that an alternative solution must be found,” WFDB president Yoram Dvash said in a Feb. 28 statement to The Northern Miner.
Criticism of the sanctions comes against a backdrop of lower demand for diamonds from India and China, and falling prices for rough stones, estimated by the Zimnisky Global Rough Diamond Price Index to be down about 25% from their early 2022 high.
‘Irreparable’ industry harm
The industry leaders are worried that enforcing these sanctions could lead to logistical, operational, and financial challenges. Among the sanctions’ new effects, one rule is that non-Russian diamonds must now be certified in Antwerp, Belgium before being sent to other markets.
They’re concerned about possible supply bottlenecks and unbalanced advantages to one player to the detriment of others.
“While strongly agreeing that the time has come for the industry to be able to trace the origin of their diamonds, we should be working together to meet these objectives but feel that the process that has been suggested will cause irreparable harm to the non-Russian industry,” presidents and members of the 27 diamond bourses within the WFDB said in the open letter.
Dvash says the WFDB is actively seeking industry consensus to address the challenges at hand. “Sanctions should work in the right direction, punishing the intended party and not the entire industry,” he said, adding that the sanctions could inadvertently make Russian diamonds more desirable due to increased costs and reduced supply of non-Russian alternatives.
The effect on the cost of rough and polished diamonds from non-Russian sources being forced into one node wasn’t considered in the calculations, the WFDB letter argued, voicing strong opposition to designating Antwerp as the single verification point.
“As diamond experts, we know that this would add no value to the objectives of the G7 member states and would result in a major restriction for all non-Russian diamonds, with terrible impacts on the industry,” the letter reads.
What’s more, the higher anticipated costs of shipping the diamonds to Belgium, which will ostensibly include extra financing terms for the diamond traders as well as insurance and freight charges will add significantly to the price of the stones.
Sovereign interference
The diamond bourses say the process detailed by the EU, as it stands, undermines sovereign African governments’ ability to send their gemstones directly to their chosen market. It also undermines legitimate local industry beneficiation and could encourage smuggling, which the WFDB says would be counterproductive.
Belgium favours conducting these verifications locally. Its support aligns with the Belgian government’s and the Antwerp World Diamond Centre’s aim to establish a hardy, traceable system for verifying the origins of diamonds to prevent Russian gems from entering the market under pretenses.
Botswana, Africa’s diamond hub, issued a statement on Feb. 9, generally supporting the initiatives to ensure that the diamond trade is responsible and does not fund conflict. Despite potentially facing added costs in a new verification system, the Botswana government sees an opportunity for enhanced value for its natural diamonds.
While the country has not directly banned Russian stones, it favours continued dialogue and partnerships with the G7 and other stakeholders to build a market that benefits development and avoids funding illegal activities. Botswana aims to protect and promote its diamonds-for-development narrative while ensuring its diamond industry remains a positive example of ethical sourcing and economic benefits.
Reuters reported on Feb. 8 from the Cape Town Mining Indaba that De Beers, a unit of Anglo American (LSE: AAL), and Botswana’s state-owned Okavango Diamond Company asked the G7 to consider unintended consequences as the bloc prepares to impose the second phase of the ban on Russian diamonds, concerned that African prices would be hugely inflated.
“Effectively (African producers) would be forced to send all their diamonds in one direction rather than choosing … (and) ethical African diamonds would become much more expensive,” De Beers CEO Al Cook told Reuters on the sidelines of the conference.
De Beers had previously urged the G7 to engage Botswana, Namibia, South Africa, Angola and India to develop the framework with input from across the industry.
Diamond market outlook
The diamond leaders call for more explicit guidance and a more global, collaborative approach to ensure transparency and ethical sourcing without disproportionately impacting the broader industry. They stress the need for solutions that do not centralize trade to a single point (such as Antwerp) and request the adoption of technology that could support the ethical tracking of diamonds across all regions, including support for artisanal and small-scale miners.
The signatories also want the G7 and EU to give assurance that whichever provenance-proving technology they settle on for diamond verification should be shared universally with non-Russian diamond producers to enable their continued inclusion in the market.
Artisanal and small-scale miners must also have free access to the technology and should be able to send their rough stones to any cutting centre.
While the Russian diamond sanctions intensify, De Beers said in a Feb. 22 market update that industry conditions are expected to remain “challenging” in the short term but that the long-term outlook is favourable.
De Beers says the heightened emphasis on the origins of diamonds, particularly with the upcoming G7 restrictions, may boost demand for De Beers’ diamonds, especially those tracked via their blockchain platform, Tracr.
However, the global supply of rough diamonds may decrease due to aging mines and few discoveries.
Further, De Beers says the market for lab-grown diamonds is experiencing a significant price drop, impacting manufacturers and possibly reducing retail prices, which could enhance the perceived value of natural diamonds compared to lab-grown alternatives.