The G7 group of industrialised nations is expected to ban diamonds mined in Russia, the world’s biggest producer, following Moscow’s full-scale invasion of Ukraine last year.But the complexity of the trade means it will be difficult to stop Russian diamonds entering the global market, which is worth $87 billion a year.
The world’s biggest producer
About a third of the world’s diamonds are mined in Russia by state-owned Alrosa, which operates mines in Yakutia, Siberia, and Arkhangelsk, in the far north of the country. The Kremlin earns more than $1 billion a year from the trade.Western nations are determined to deprive Russia of this income. At the G7 summit in May, members discussed imposing a ban on Russian diamonds. But enforcing it won’t be easy.
Indian hub
Nearly all the world’s diamonds are cut and polished in the Indian city of Surat. A loophole in US regulations means Russian diamonds can freely enter the American market – which accounts for 55% of global sales, explains Edahn Golan, a diamond industry analyst.”India accounts for about 95% of the world’s diamond production and polishing,” he told VOA. “According to U.S. regulations, a product that has undergone a major transformation in a particular country is considered a product of that country.
“In the case of Russian rough diamonds [that are] polished in India: From the standpoint of American regulations, those are Indian diamonds,” Golan added. “And therefore they’re no longer Russian.”
Traceability
The Kimberley Process, launched in 2000, introduced traceability for uncut diamonds to prevent profits from fuelling conflict – so-called “blood diamonds. But the process does not apply to cut, polished diamonds – and the system is otherwise flawed, says Golan.
“The question was, how does the Kimberly Process deal with a parcel that contains rough diamonds from multiple origins? And the solution was, let’s just put down ‘mixed’,” he said. “So now if you have a parcel that is all Russian diamonds – but one diamond in it is from another country – now it’s a ‘mixed’ parcel.”
Objections
Not everyone supports the proposed ban. A G7 delegation travelled to India last week to seek its cooperation in cutting Russia out of the diamond trade. But New Delhi is sceptical, says Golan.
“First of all, without [Russian firm] Alrosa’s production, they’re going to lose a third of the world’s production that comes in,” says Golan. “Secondly, India in general doesn’t want to join the sanctions against Russia because their global policy is different from the US and Europe.”
“This is particularly sensitive for the Indian leadership, for [Prime Minister Narendra] Modi, because the majority of Indian diamond traders and manufacturers are Gujarati, and Modi is Gujarati, so it’s an important economy for his constituency,” Golan said.
Russian diamonds are not forever
The European Union unveiled plans to ban Russian diamond imports in May. It hopes to squeeze Alrosa out of the market from 2024, with a tracking and enforcement process to be introduced in the following months.
“We are going to restrict the trade in Russian diamonds. Russian diamonds are not eternal,” said Charles Michel, president of the European Council, at a press conference in May following the G7 summit in Hiroshima.
Under the EU’s plans, diamonds could be issued with a blockchain-protected certificate of origin, which would be verified at trading hubs such as Antwerp in Belgium. But the system could backfire, according to Professor Koen Vandenbempt, an economist at the University of Antwerp.
“They will probably no longer go through Antwerp. This big trade will just go to Dubai and from Dubai to India or directly to India – typically countries that will not impose sanctions on Russia and probably never will,” he told Agence France Presse.
African miners
Other industry players are pushing for a less technological, trust-based certification system – a proposal backed by Anglo-South African diamond consortium De Beers.
“It’s very easy to include artisanal miners in this system, in places like the northeast [of the Democratic Republic of Congo],” Golan said. “These guys don’t have the ability to use sophisticated technological means, but they do have, for example, iPads and mobile phones.”
Details of the G7 proposals are expected in the coming weeks. It’s an opportunity to improve the image of the diamond industry, said Golan.
“I think it’s possible to find a good solution that serves both the US and European political objectives,” Golan added. “I think there’s a way that it could be very positive for the diamond industry. It will require consultation on both sides.
“The diamond industry has a very negative perception in the eyes of the consumer. And it’s a great way to prove that the diamond industry works,” he told VOA.
