Dealing with Russian Diamonds

Sanctions against Russia are tightening, and with a ban on all Russian-origin diamonds above 0.50 carats coming into force in September, traceability is the diamond industry’s number-one priority. The impact the measures will have on the wholesale market, however, remains to be seen.

The nitty-gritty

The US accounts for over half of global diamond demand, and American restrictions on nonindustrial diamonds mined in Russia — the world’s largest diamond producer — have been in place since shortly after the invasion of Ukraine in February 2022. On January 1, 2024, the Group of Seven (G7) and the EU jointly declared a ban on directly importing any nonindustrial diamonds that were mined, processed or produced in Russia. Those sanctions entered their second phase on March 1, prohibiting diamonds above 1 carat from entering EU or G7 countries even if they were cut or polished outside Russia. The third phase goes into effect on September 1 and will expand the restrictions to stones of 0.50 carats and above.

Documentation requirements are currently murky, with different countries making different demands for proving the sources of incoming goods. Self-certification has been in place in the US since March 1, while the EU is asking for origin information at the border — usually in Antwerp — and the UK’s official and rather nebulous government advice is that traders “should be prepared to provide documentation to demonstrate evidence of a good’s supply chain.”

To enforce the more stringent measures coming in September, the EU plans to use blockchain technology to create traceability records for all stones passing through the Antwerp World Diamond Centre (AWDC), making it possible to identify those diamonds when they show up again in the market.

Best efforts?

Despite the sanctions, Russian miner Alrosa’s profits actually increased in 2023, due to sales it funneled away from Antwerp to Dubai. So do the measures go far enough?

Without any obligation to undergo processing in Antwerp, Russian diamonds will continue to find their way into G7 markets via other countries, maintains Michael Indelicato, CEO and founder of RDI Diamonds.

“Let’s remember also that it’s only G7 markets that are not accepting Russian diamonds,” he cautions.
“The new sanctions will not be watertight,” acknowledges Steven Boelens, the Antwerp-based executive director of supplier BNT Diamonds and cofounder of diamond jeweler Baunat Group. “But diamond companies will have to align, and the higher-end their clients, the bigger the need for transparency and evidence.”

The six-month “sunrise period” between the EU-G7 plan’s second and third phases has given governments a chance to prepare, and suppliers time to set up traceability solutions to comply with future documentation requirements. Because of differences in how the various parties will implement those measures, jewelry businesses must be on the alert for further changes, says Sara Yood, deputy legal counsel for the Jewelers Vigilance Committee (JVC) and the Responsible Jewellery Council (RJC).

“We don’t yet know what exactly will be implemented on September 1, other than that the threshold for the current restrictions will drop to 0.50 carats,” she explains. “Suppliers across the wholesale market will need to ensure that origin and provenance information is retained throughout the diamond supply chain, as customers inside the G7 market will expect to see truthful, accurate and verifiable information about the diamonds they are selling.”

Side effects and opportunities

The trade also expects to see delays and price hikes due to the extra processing. Antwerp already suffered a bottleneck in March that took several weeks to resolve. Additionally, the measures will likely trigger an increase in consignment, or memo orders, putting pressure on smaller dealers — especially if, as Boelens predicts, the natural-diamond market loses ground to synthetics.

“Buying on memo will become more important,” he forecasts. “Lab-grown diamonds will take a bigger market share; we expect the natural-diamond market to shrink but be higher-end, leading to two distinct diamond clients: a group that places importance on value, and a group that does not.”

There is optimism about the long-term effects of Russian sanctions on the overall diamond market.
“If jewelers are smart, they will use this process as a way to sell more natural diamonds, which I believe will eventually go up drastically,” says Indelicato. But ultimately, the consumer will decide — and right now, consumers want proof that their diamonds are not Russian.

“Diamond jewelry is a luxury product,” declares Boelens, “which makes it even more important to be sustainable, transparent and ethical.”

 Main Image: David Polak/Midjourney

This article is from RDI Diamond’s Welcome to the Future special report. View other articles from the supplement here.