The European Union will completely abandon diamonds from the Russian Federation

The EU plans to refuse Russian diamonds – both direct supplies and after cutting abroad. The proposed version of sanctions, if adopted, will be more stringent than that of the United States. Traditionally, Europe has been an important market for ALROSA, but this year the supply of Russian diamonds to the EU has already fallen four times compared to 2022. At the same time, it is not yet clear how exactly European authorities will track Russian stones cut in other countries.

The EU intends to impose an embargo not only on direct supplies of Russian diamonds, but also on stones that were processed in third countries, it said EU Observer. If the proposal, which is being discussed as part of the 12th package of sanctions, is approved, then the ban on direct deliveries will come into force on January 1, and the ban on stones cut in other countries – from September 1, 2024.

The proposed version of the embargo is stricter than the one in force in the United States.

Being the largest market for diamond jewelry, the country has banned the import of Russian rough and polished diamonds, including ALROSA in the SDN List. But American sanctions did not interfere with the supply of diamonds from India, which is the world’s cutting center and produces 95% of all diamonds. After processing, Russian diamonds could be supplied to different countries as Indian diamonds.

The European market has historically occupied an important place in ALROSA’s business. At the end of 2021, the company received more than a third of revenue from sales to Belgium – 120 billion rubles. out of 332 billion rubles. But, according to Eurostat, in 2023 the situation with the export of diamonds from the Russian Federation to Europe has changed significantly: according to the results of nine months, supplies of rough diamonds amounted to €285 million, which is four times less than the same period in 2022. ALROSA did not provide comments. The company has not disclosed sales data since the start of Russia’s military operations in Ukraine.

If strict EU sanctions are introduced, the market will face the problem of tracking the origin of stones.

The World Diamond Council (WDC) and diamond mining company De Beers advocate the so-called G7 diamond protocol. Its essence boils down to a complete ban on Russian diamonds and polished diamonds weighing 1 carat or more in the G7 territory. The responsibility for checking compliance with the protocol will be assigned to trading companies and independent auditors.

However, Martin Rapaport, chairman of the Rapaport Group, a key information and analytical company in the diamond market, believes that the “G7 diamond protocol” requires overly complex compliance and audit systems, which is more profitable for large companies that are able to bear the corresponding expenses. “This allows mining companies such as De Beers to control diamond markets by selectively allocating auditable rough diamonds to selected companies,” Mr Rapaport said in a letter to European Commissioner for Financial Stability and Services Mairead McGuinness.

An alternative plan was proposed by Belgium. It provides for the mandatory use of blockchain technology for imported rough and polished diamonds. Imports will be regulated by the state through customs at one point of entry for diamonds and at several points of entry for polished diamonds.

In Russia, attempts to limit the sale of diamonds are called “disastrous for the entire industry.”

“Imposing restrictive measures on the world’s largest supplier will inevitably lead to massive market distortions that will hit the most vulnerable the hardest,” emphasized November 14, Deputy Head of the Ministry of Finance Alexey Moiseev.

It is difficult to disconnect Russia from the global trade in rough diamonds, since it accounts for 35% of production and 40% of global reserves, notes Boris Krasnozhenov of Alfa Bank. In emerging markets, including India and China, where demand is only growing, consumption in diamond equivalent exceeds Russian production by at least a third, he clarifies. According to the analyst, the practical implementation of EU sanctions, including measures to trace the origin of stones, will take more than one year, while the sanctions will not only lead to increased costs for the end consumer, but will also disrupt the rhythm of supplies of raw materials.

Evgeniy Zainullin