The G7 group of industrialized nations is expected to ban diamonds mined in Russia, the world’s biggest producer, following Moscow’s full-scale invasion of Ukraine last year.
However, the complexities of the trade mean it will be difficult to stop Russian diamonds from entering the global market, which is worth $87 billion a year.
World’s biggest producer
Around a third of the world’s diamonds are extracted in Russia by the state-owned company Alrosa, which operates mines in Yakutia, Siberia and Arkhangelsk, in the far north of the country. The trade profits the Kremlin by over $1 billion a year.
Western nations are determined to deprive Russia of that revenue. At the May G7 summit, members discussed imposing a ban on Russian diamonds. But enforcing it won’t be easy.
Almost all the world’s diamonds are cut and polished in the Indian city of Surat. A loophole in U.S. regulations means that Russian diamonds are freely entering the American market — which makes up 55% of global sales, explains Edahn Golan, a diamond industry analyst.
“India accounts for about 95% of global diamond manufacturing and polishing,” he told VOA. “According to U.S. regulations, a product that went through a major transformation at 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 because of that, they’re no longer Russian.”
The Kimberley Process, enacted in 2000, introduced traceability for uncut diamonds to prevent the profits from fueling conflict — so-called “blood diamonds.” However, 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 address a parcel that will have 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 entirely Russian diamonds — but one diamond in it comes from another country — now it’s a ‘mixed’ parcel.”
Not everyone supports the proposed ban. A G7 delegation travelled to India last week to seek its cooperation on excluding Russia from the diamond trade. But New Delhi is skeptical, says Golan.
“First of all, without [Russian firm] Alrosa’s production, they’re going to be losing one third of the global production coming in,” said Golan. “Secondly, India in general does not want to join sanctions on Russia, because their global politics are different than those of the United States and Europe.”
“This is especially sensitive to the Indian leadership, to [Prime Minister Narendra] Modi, because the majority of Indian diamond traders and manufacturers are Gujarati and Modi is Gujarati, so that’s an important economy for his constituency,” Golan said.
‘Russian diamonds are not forever’
The European Union outlined plans in May to ban Russian diamond imports. It hopes to cut Alrosa from the market starting in 2024, with a tracing and enforcement process rolled out in following months.
“We will restrict trade in Russian diamonds. Russian diamonds are not forever,” Charles Michel, president of the European Council, said 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 that would be inspected at trading hubs like Antwerp in Belgium. But the system could backfire, according to Professor Koen Vandenbempt, an economist at the University of Antwerp.
“Probably, they will not pass through Antwerp anymore. This large trade will just move to Dubai and from Dubai to India or directly to India — typically countries that will not and probably never will impose sanctions on Russia,” he told Agence France Presse.
Other industry players are pushing for a less technological, trust-based certification system — a proposal backed by the British-South Africa diamond consortium De Beers.
“It’s very easy to include in that system artisanal miners, in places such as northeast [Democratic Republic of Congo],” said Golan. “Those guys do not have the ability to use sophisticated technological means, but they do have, say, iPads and cell phones.”
Details of the G7 proposals are expected to be outlined in the coming weeks. It’s an opportunity to improve the diamond industry’s image, said Golan.
“I think that it’s possible to come up with a good solution that works both for the U.S. and European political ends,” Golan added. “I think there’s a way that it could serve very positively the diamond industry. It will require consultation on both sides.
“The diamond industry has a very negative perception in the eye of the consumer. And it’s a great way to prove that the diamond industry works,” he told VOA.