Editor’s Note
This article discusses the European Commission’s proposed embargo on Russian diamonds, citing concerns over their role in financing the Ukraine conflict. The piece highlights potential challenges, including unintended economic consequences and issues in tracking these “blood diamonds.”
Suspected of contributing to the financing of the war in Ukraine, Russian diamonds are the target of an upcoming embargo by the European Commission, which has been discussing new sanctions against Russia since November 17. Between collateral victims and compromised traceability of these conflict diamonds, the desired impact on the Russian economy may not have the intended effect.
On September 19, 2023, the Belgian Prime Minister announced the ban on Russian diamonds in G7 member countries. Following the Russian invasion of Ukraine, many countries have condemned Russia by imposing economic sanctions on oil, gas, dual-use goods… Since October, G7 member countries have been discussing new sanctions against Russia. Among these, one would aim to impose an embargo on Russian diamonds.
These sanctions aim to limit the diamond market that fuels the financing of the war in Ukraine. However, this European initiative seems more like a communication operation. Indeed, the Kimberley Process already exists, aiming to ban diamonds from conflicts that could subsequently finance rebel movements and terrorist activities. The difference between this new process and existing sanctions lies in the fact that now a country is directly targeted, rather than a conflict zone. Each country participating in the Kimberley Process must implement internal regulations to control and certify the legal origin of the diamonds they export. This relies on a certification system requiring the shipment of rough diamonds in sealed envelopes, accompanied by certificates attesting to their legitimate provenance, without links to armed conflicts.
Although the Kimberley Process has been criticized for certain shortcomings in its implementation and effectiveness, it has helped reduce the trade in conflict diamonds and has raised awareness in the industry and among consumers about the importance of traceability and legality of diamonds in the global market.
Behind this objective, the EU, in consultation with the G7, wishes to sanction the world’s 3rd largest diamond producer. Indeed, this sector brings in about $4.5 billion to Russia each year. Being cut off from the Antwerp market risks economically weakening the country and particularly about fifty Russian companies.
The United States, New Zealand, the United Kingdom, and Canada already sanction precious stones from Alrosa, the Russian public diamond mining company. Furthermore, the company has suspended the distribution of rough diamonds at the request of the GJEPC (Gems and Jewellery Export Promotion Council) since November. This decision follows the announcement of US sanctions.
This new embargo imposed by the G7 could lead to a drop of between 30 and 40% in Alrosa’s revenue. To achieve this, the G7 is turning to new three-layer traceability technologies to promote transparency on the origin of gems and thus remove Russian stones from the Western market.
Antwerp is the hub of the market: every day, about $200 million worth of diamonds are sold and bought. Euronews estimates that “80% of the world’s rough diamonds are traded in the city of Antwerp, Belgium.” This is why the city is more reluctant about the embargo on Russia: Antwerp fears a circumvention of sanctions by Russia and a loss of the market to countries less restrictive on the origin of gems or on money laundering.
The city also worries about seeing its privileged position in diamond trading move to Dubai or to Surat (the largest precious stone processing workshop) in India. Indeed, among the main diamond exchanges of the WFDB, World Federation of Diamond Bourses, four are located in Antwerp (Beurs voor Diamanthandel, Diamantclub van Antwerpen, Vrije Diamanthandel, Antwerpse Diamantkring), two in India (Bharat Diamond Bourse, Surat Diamond Bourse), one in Israel (The Israel Diamond Exchange Ltd.) and one in the United States (Diamond Dealers Club). On the other hand, Surat, which could benefit from this embargo, does not seem particularly thrilled by this announcement. Indeed, sanctions on Russian diamonds could impact the polishing activity.