Editor’s Note
As speculation grows about a potential easing of sanctions imposed after Russia’s 2022 invasion of Ukraine, businesses worldwide are assessing the implications. This article explores how companies are preparing for a possible new phase in the global economic landscape.
Amid intense uncertainty and speculation about the future of sanctions related to Russia’s full-scale invasion of Ukraine in 2022, companies across all sectors are beginning to imagine what a future of sanctions relief may mean for them.
One of those sectors is that of mining and sales of natural diamonds, which is navigating a number of major challenges, only some of which are directly or indirectly connected to business involving Russia. In any case, what happens in the diamond industry related to Russia could be particularly instructive for other sectors because of its exposure to Western consumers, the physical capability of tracing the product along the supply chain from beginning to end, and its experience with mechanisms intended to improve and promote standards for responsible business.
As in any sector, Russia-related sanctions are just one part of a complex web of factors that businesses have to navigate. The natural diamond industry is facing a number of near- to longer-term challenges:
Can it manage to find a new way forward vis-a-vis the growing interest from consumers in lab-grown diamonds?
Will tariff wars further damage the sector?
Who will purchase DeBeers, the industry’s most iconic name, historic leader, and, in most years, largest mining company by value? Anglo-American, which owns most of the company, has indicated for the last couple of years that it’s for sale but has taken billions in value write-downs along the way, opening up questions about its future.
What is the future of Signet, the largest retailer in the world (think: Kay, Jared, Zales), after a major leadership shake-up in March?
How will India, where more than 90 percent of natural diamonds are cut and polished, sustain its sector amid a crisis?
Will Chinese consumers ever come back?
On top of these market-specific questions, there is the impact of sanctions. The United States and several traditional allies have levied sanctions against state-owned miner Alrosa and other key Russian companies. And the G7 led a broader effort to restrict imports of Russian-mined diamonds over 0.5 carats by requiring import declarations and, eventually, traceability to ensure that none of these larger Russian-mined diamonds make it on to the fingers of Western consumers, which make up more than 70 percent of the global market. Traceability was expected to be required as early as September 2024 but has been delayed to ensure there is sufficient time and capacity to implement.
For an industry that has been struggling, the prospect that a major company like Alrosa would be removed from the sanctions list or might see an easing — or the end of — import restrictions on Russia may feel like a potential oasis in a desert of market challenges. But for companies and industry associations entertaining such hopes, it’s important to be cautious — and to be careful what they wish for, as a post-sanctions future could be much less clear and potentially far more fraught than the status quo.
First and foremost, full disclosure that I played a leading role at the working level in the G7 sanctions effort when at the State Department, both internally in the U.S. government, and within the G7 Technical Committee. And I continue to believe in the merits of the effort and approach from a policy perspective.
While the following focuses on diamonds, every industry will need to work through similar questions, navigating a series of overlapping and interlocking challenges, frameworks, and expectations.
Will the industry welcome Russian diamonds back into supply chains?
Given the current focus of the natural diamond sector on marketing to push back on lab-grown diamonds, is a message of “we welcome Russian diamonds back into our supply chains” going to be helpful? Or, even if not so glibly stated, is a position of backtracking on full implementation of traceability and identifying the country of mining for larger stones, returning to a state of more opacity and uncertainty about a diamond’s origin, the right message in a competition for the consumer? This is even more critical a question in a sector competing with the message from the lab-grown segment of the industry, which is often one focused on the fact that its diamonds are “more ethical” because they are free from abuses?
If one of the key selling points for the natural sector is to emphasize the “story” of the people in the diamond supply chain and how they benefit from the mining and manufacturing processes, then welcoming Russian diamonds back without corresponding traceability could well have the opposite effect; in fact, it could encourage and even help provide another argument — or at least another question — for the lab sector to try to exploit vis-a-vis natural diamonds.
Beyond messaging, even if sanctions are removed in the context of a negotiation, it remains likely that the government of Russia will remain engaged in conflict in Ukraine and in various countries across the Middle East and sub-Saharan Africa, both directly and through proxies like the remnants of the Wagner Group. And Russia remains the majority owner of Alrosa and the precious gem and mineral repository Gokhran, where a significant reserve of diamonds is being built up to prop up Alrosa.
Are companies prepared to conduct meaningful due diligence on issues of Russia’s exposure to conflict or human rights abuse elsewhere, such as Sudan or Myanmar?