Regulatory mechanisms will be undermined
The 12th package of sanctions, which the European Union will unveil in mid-October, will most likely include a ban on the import of diamonds from the Russian Federation. More precisely, there will be two bans: a direct one will apply to the Russian diamond mining industry, and an indirect one is intended to hit resellers, in particular from India and the UAE. Meanwhile, according to experts, the initiators of sanctions from the G7 countries have little idea of the full consequences of this decision for the global market.
According to a Bloomberg source in Brussels, G7 members have yet to sort out the technical details of the ban, after which it will be included in its final form in the 12th EU package. Until recently, Belgium, on whose territory the world diamond center of Antwerp is located, was categorically against a direct ban on the purchase of Russian diamonds. The reasoning is that the measure will lead to the movement of profitable trade to other places. However, now the kingdom (not a member of the G7) has promised to support the restrictions if an effective mechanism is found for them.
At the end of August, the United States created a precedent for this by freezing the assets of Indian companies in the amount of $26 million for alleged connections with Russian exporters. According to Reuters, this happened after branches of Indian firms in the UAE tried to transfer money to purchase rough diamonds. India, which has a strong jewelry making industry, has warned that hundreds of thousands of people could eventually lose their jobs.
“The export of rough diamonds annually brings about $4.7 billion to our budget,” says Artem Deev, head of the analytical department at AMarkets. - Last year, due to sanctions, we had to reduce it by about a quarter, but we still received about $3.8 billion in the end. Belgium remains one of the main consumers of Russian products - it accounts for 40% of supplies. Therefore, it is extremely strange that Brussels decided to support the G7 initiative, because previously it had actively opposed it. However, they could simply put pressure on him.”
As for Russia, of course, the loss of this share of the world market will be a painful blow to the diamond industry. But not critical, since more than half of our exports go to the Asian region: 27% goes to the UAE, another 19% goes to India. And about 8% is purchased by Israel. Whereas the Antwerp industry will clearly stop working without Russian raw materials. Most likely, Deev argues, Belgium will publicly show loyalty to the Western community, and behind the scenes, it will find options to receive diamonds from the Russian Federation. Moreover, it is possible to trace the origin of stones only until they are certified under the Kimberley Process, a UN scheme approved in 2003 designed to prevent “blood diamonds” illegally mined in conflict zones from entering the market. After passing through it, it will be much more difficult to unambiguously determine the pedigree of the diamond. And while the G7 will develop technical mechanisms, a lot can change.
“Today Russia, with its rough and polished diamonds, occupies about 27% of the global market,” says Nikita Maslennikov, a leading expert at the Center for Political Technologies. – And this is taking into account the loss of large buyers in the United States and Great Britain, which in 2022 introduced a direct ban on imports from the Russian Federation. The restrictions currently planned by the G7 countries will hit not so much the federal budget (taking into account the rather modest revenues into it from the diamond industry), but rather the exporting companies already under American sanctions. And here two tasks arise: firstly, supporting the sector, and secondly, diversifying its activities, possible reorientation towards consumers within Russia.”
As for the global consequences, it is too early to judge them: too many questions arise. This is perhaps the main thing: certification of precious stones takes place within the framework of the Kimberley Process, and if sanctions are introduced, this could destroy the structure of legal regulation of the world market. It is important here that it is diamonds that are in demand (rough diamonds are in much less demand), their country of origin is fixed (again, within the framework of the Kimberley Process) at the place of cutting. In India and Europe, cutting is carried out mainly by independent small enterprises that do not have the funds to carry out additional and expensive technological expertise.
“In principle,” argues Maslennikov, “the problem is solvable, but only such industry giants as De Beers can handle it. All these technological problems associated with tightening control over the diamond trade will open Pandora's box. As a result, the gray sector may expand in the world, the demand for artificial diamonds will sharply increase, and prices will rise as a result of a decrease in supply. Accordingly, the entire market will blur and lose its former appearance.”