Analyst Goikhman assessed the likelihood of a complete ban on Russian diamonds: “Impossible”

Some mine, others sell

– What is Russia’s place in the global diamond market?

– Our country is not only “ahead of the rest in the field of ballet.” In 2022, Russia produced more diamonds than any other country – 41.9 million carats, 7% more than in 2021. This gave a record 35% of the global market, estimated at 120 million carats. These are estimates based on data from the Kimberley Process Consortium (KPCS), an international organization for coordinating diamond producing countries.

To imagine the volume of production in Russia, let us recall that one carat is 0.2 grams. The mountain of diamonds produced during the year amounted to 8.38 tons! From such “mountains” not only diamond stones appear – “a girl’s best friend”, in rings and earrings. Natural diamonds are an element, for example, of modern optical and electronic products, tools, lubricants…

In addition to Russia, a large number of diamonds were produced in Africa in 2022 – Botswana (24.5 million carats), Congo (9.9 million carats), South Africa (9.7 million carats), as well as in Canada (16.3 million carats ).

But here’s the paradox. According to statistics, the main positions in diamond exports are not held by producing countries. Here, the leaders in 2022 are the UAE – 89.4 million carats (27% of global exports) and the EU – 75.2 million carats (22.7%). But they don’t have their own prey.

Russia sold 36.7 million carats abroad in 2022, that is, 88% of its production. This is 24% less than in 2021, and accounts for 11.1% of global supply volumes, according to KPCS. Botswana sold 27.1 million carats. Not far from it, with an indicator of 26.1 million carats, is India, which, like the UAE and the EU, does not mine these stones.

– That is, there is a paradoxical situation on the world diamond market – some are mining, others are selling?

– These are the features of this market, which are also important from the standpoint of anti-Russian sanctions. There are many countries and organizations on it – intermediaries, re-exporters, trade and production “hubs”. Therefore, statistical supplies do not reflect the share of producers. The main scale of diamond cutting, in particular, occurs in India – up to 95% of the world’s diamond production. And the largest global diamond trading center is Antwerp in Belgium. This is where their high export figures come from, which are also associated with huge imports.

The structure of Russian foreign diamond sales is based on these patterns. For example, in 2021, our country sold diamonds worth $4.7 billion abroad, according to KPCS.

Of these, 40% were bought by Belgium, 27% by the UAE, 19% by India. And these countries, which do not have their own diamond production, due to significant imports from different regions, resale and processing, export, according to statistics, more than Russia. But the market is single, and movements within it do not increase its volume.

It is impossible to completely ban

– We have more or less figured out the statistics. Well, how will the global market change if the EU introduces “diamond” sanctions against Moscow?

– Based on these statistics, four important conclusions can be drawn.

First. Our country’s real share in world sales, excluding re-exports from other countries, approximately corresponds to its share in production. And it can account for about 25-30% of the global market.

The second, following from the first. It is impossible to ban the sale of Russian diamonds – this would deal a very powerful blow to global supplies, which cannot be replaced due to limited mining capabilities.

Third. Sanctions on the import of Russian diamonds to Western countries would have little impact on the overall situation with market volume. There would be a more extensive redistribution of the geography of supplies. And, for example, Antwerp traders would start buying more stones not in Russia, but, say, in Dubai or Delhi. And in many ways, all the same our Yakut diamonds…

Fourth. The balance of the diamond market would be disrupted, and it would be necessary to change the structure of supply logistics. Perhaps this would lead to higher prices for raw materials. But the main thing is that long-established market mechanisms that do not like administrative restrictions are called into question. This is a difference reminiscent of the differences between pure natural diamonds and artificial ones… It is no coincidence that many participants in the Kimberley Process meeting held in November 2023 opposed Western anti-Russian sanctions in this area.

“Nevertheless, the EU is determined to impose a ban on the export of diamonds from our country. How painful could this measure be for Russian exports and the domestic economy in general?

– The answer to this question largely follows from the above analysis of the structure of the world market and Russia’s place in it.

In 2022, the value of Russian diamond exports amounted to $3.8 billion. At the same time, the country’s total export volume was $591.5 billion, according to the Federal Customs Service of the Russian Federation. Thus, diamonds, despite their preciousness, account for 0.6% of Russian exports. Not much! And even if we assume that their export will be completely banned, this will not greatly affect foreign trade and the economy as a whole.

But based on the characteristics of the market, it is difficult to imagine such a practice as a “total ban.” Large importers that are not among the “unfriendly” countries will not refuse supplies from Russia. After all, the well-being of cutters from India and sellers from the UAE depends on these imports… But the bulk of Russian diamond exports are oriented towards such countries, which do not belong to the “unfriendly” ones. Sanctions will not affect it.

Moreover, European consumers and stockbrokers are also unlikely to actually purchase significantly less Russian diamonds. In Antwerp, for example, the diamond business has been operating for over 500 years, employing 2.5 thousand specialists. And the huge volumes of diamond exports from the EU speak volumes about the importance of this sector for Europeans as a whole. Therefore, a ban on the import of stones from Russia could hypothetically hit the corresponding cluster in the European Union. This is exactly what presidential press secretary Dmitry Peskov had in mind when he said that by introducing such restrictions, Europe would harm itself more than us.

Therefore, business in the EU will continue to buy Russian raw materials, which formally may become Indian or South African. We went through this with the example of “Latvian oil” or “Belarusian shrimp,” which have already become memes.

On both sides of sanctions

– Deputy Minister of Finance Moiseev, commenting on a possible decision by the EU, said that Europe does not even shy away from cartel agreements in the diamond market, just to punish Russia. What did he mean?

– Alexey Moiseev spoke about possible violations of the Kimberley Process, which has been established for decades. Its procedures coordinate the interests of market participants, maintain due freedom of supply and acquisition of clean diamonds, and the necessary competition. The November address of the Ministry of Finance of the Russian Federation to the participants of the Kimberley Process states that its achievements are “balanced functioning of the diamond market; open tripartite dialogue between governments, industry and civil societies; stable economic growth in producing and processing countries”

And attempts to impose sanctions mean the desire to create a cartel agreement of a number of countries to limit the access of sellers to Western markets. The monopoly of buyers in economics is called “monopsony”. The phenomenon is well studied. Such an action, if implemented in practice, could initially lead to a short-term increase in prices on the market. However, quite quickly this would contribute to a drop in demand for natural diamonds and their significant reduction in price. First of all, due to the greater use of synthetic stones and low-quality raw materials. This would be a blow to both producers and consumers. Moiseev says: “Responsible industry participants … risk losing their business in a very short time, and the diamond-mining countries of Africa are an industry vital for the socio-economic development of entire regions. Thus, the proposed sanctions, if implemented, go far beyond the anti-Russian component and could have adverse consequences for many countries – on “both sides of the sanctions.”

– If sanctions are nevertheless imposed, what future awaits the Russian diamond industry? Will products from our country be able to legally enter world markets after this?

– Probably, due to the redistribution of logistics flows, there may still be some reduction in the export of our diamonds, an increase in transportation costs, and an increase in discounts on sales. Of course, this would be negative for the Russian diamond industry. But the sanctions will not deal a fundamental blow to it.

In addition to increasing exports to Asian countries with their subsequent re-export to the West, some direct supplies to “unfriendly” countries will also remain. Business, if it is beneficial to both parties, will always find ways to circumvent sanctions. Moreover, in such a specific area it is extremely difficult to monitor their compliance. Determining the origin of stones and controlling flows are all technically complex and expensive procedures.

– Let’s summarize our conversation. In your opinion, will total anti-Russian bans be introduced on the diamond market and who will suffer more from them?

– Let me sum this up in poetic form.

Sanction phrases

grimaces, ecstasies –

Like cheap rhinestones

not diamonds at all…

But it’s not time to quit.

Carat by carat, drop by drop

It’s time for us to collect

gems!