Editor’s Note
India’s diamond industry faces renewed uncertainty as geopolitical tensions from the Russia-Ukraine war threaten to disrupt its post-pandemic recovery. This report examines the potential impact of international sanctions and emerging challenges.
India’s diamond industry, having recovered from the shock of the Covid-19 pandemic, is in recovery mode. However, it appears this recovery may not be fully realized. The reason is the Russia-Ukraine war. Following the attack on Ukraine, the US and European countries have imposed several sanctions on Russia. Due to these sanctions, concerns were already being raised about a direct impact on the Indian diamond industry. Now, a new crisis may be looming for the diamond industry. In fact, a group of US lawmakers has sought the US administration’s help in banning the sale and international trade of diamonds of Russian origin. If this happens, India’s diamond industry will be significantly affected because exports of diamonds from here to the US will stop.
Regarding the ban on diamonds of Russian origin, US lawmakers have written a letter to US Secretary of State Antony Blinken and Treasury Secretary Janet Yellen. In the letter, they expressed concern that the sanctions issued by the Treasury Department to target Russia’s diamond industry will have a very minimal impact on the ability of Russia’s largest mining company, Alrosa, and its CEO Sergei Ivanov, to operate independently on a global scale.
Russia-based Alrosa is the world’s largest diamond mining company. Alrosa supplies nearly 30 percent of the world’s rough diamonds and is a crucial source for India. 30-40 percent of the rough diamonds that come to India are from Russia. The rough diamonds that arrive in the country are cut, polished, and exported. Alrosa contributes 90 percent to Russia’s diamond mining capacity, while its global contribution is 28 percent. The company recorded sales of $4.2 billion last year.
It is also interesting to note that the Russian government holds a one-third stake in Alrosa. The company’s CEO, Sergei Ivanov, is the son of Sergei Borisovich Ivanov, one of President Vladimir Putin’s closest associates. Sergei Borisovich Ivanov has served as Chief of Staff of the Presidential Executive Office, Deputy Prime Minister of Russia, and Defense Minister of Russia. Additionally, he is a permanent member of the Security Council of the Russian Federation.
The sanctions imposed on Russia by Western countries on February 24 have only blocked debt and equity transactions in Alrosa’s case. This has dealt a very minor blow to Russia’s large share in the global diamond trade. The sanctions have not yet been able to disrupt Alrosa’s trade and revenue, which ultimately reach the Kremlin. Therefore, US lawmakers now want the sale and international trade of diamonds of Russian origin to be banned, which would deal a major blow to the Kremlin.
Previously, the US administration announced an import ban on March 11, which prohibits products originating from the Russian Federation, including non-industrial diamonds, from entering the United States. Experts say there is a major flaw in the sanctions imposed on Russian diamonds. That is, the import of Russian diamonds cut and polished in India or other places into the US is still permitted. The reason is that the term ‘Russian Federation’ does not largely include goods substantially transformed in a third country.
Under the current system, diamonds of Russian origin can be cut or polished by an Alrosa subsidiary in India or another country and sold to the United States without any sanctions. US lawmakers say this is benefiting the Russian government.
Lawmakers say the State and Treasury Departments should guide Customs and Border Protection (CBP) and the Department of Homeland Security (DHS) to ensure they ban the import of Russian diamonds into the United States.
According to a recent report, nearly 95 percent of the world’s diamonds are cut and polished in India. Surat in Gujarat, India, is considered a hub for cutting and polishing rough diamonds. In the last financial year, the total gross export of cut and polished diamonds from India was $25.47 billion US dollars. As of February 2021, the share of India’s gold and diamond trade in the country’s GDP was 7.5 percent. Meanwhile, the share of gold and diamond trade in total exports is 14 percent.
The Indian diamond industry is targeting revenue of $24 billion in the financial year 2021-22. If this target is achieved, it will return to pre-pandemic levels. However, if India’s diamond industry is significantly affected due to sanctions imposed because of the Russia-Ukraine war, the recovery could be impacted. The sanctions have disconnected Russia’s central bank and two major banks from the SWIFT system. This has already created problems with fund transfers with banks for the gems and jewelry industry in India. Now, if the US administration imposes a ban on the export of diamonds of Russian origin cut and polished in India, it will create a new crisis for the Indian diamond industry.