{"id":118591,"date":"2023-08-28T15:30:16","date_gmt":"2023-08-28T15:30:16","guid":{"rendered":"https:\/\/lasixlineon.com\/?p=118591"},"modified":"2023-08-28T15:30:16","modified_gmt":"2023-08-28T15:30:16","slug":"how-more-sanctions-on-russian-diamonds-could-affect-the-global-market","status":"publish","type":"post","link":"https:\/\/lasixlineon.com\/beauty-balance\/how-more-sanctions-on-russian-diamonds-could-affect-the-global-market\/","title":{"rendered":"How More Sanctions on Russian Diamonds Could Affect the Global Market"},"content":{"rendered":"
Nineteen months have passed since Russia invaded Ukraine, sending shock waves around the world \u2014 and through the global diamond market.<\/p>\n
Russia is the world\u2019s biggest diamond exporter by volume, with a state-owned company, Alrosa, mining almost one third of all diamonds produced in 2021.<\/p>\n
To prevent funds from flowing into the Kremlin war chest, the United States \u2014 the world\u2019s largest market for finished diamonds \u2014 took action last spring when President Biden banned the import of rough diamonds from Russia and the U.S. Treasury Department placed sanctions on Alrosa.<\/p>\n
Other countries imposed sanctions of their own, including Britain, which early this year announced an outright ban on Russian diamonds.<\/p>\n
Last year the European Union had tried several times to enforce sanctions on Russian diamonds, but was prevented by Belgium because of protests from Antwerp, the Belgian port city that is a leading trade hub for precious stones. Its representatives have expressed concerns that, aside from the difficulty that comes with tracking a diamond\u2019s true origin, sanctions could hand Antwerp\u2019s rivals, like Dubai and India, a competitive advantage on the Russian diamond trade. Not everyone agreed.<\/p>\n
\u201cThere are people for whom the diamonds sold in Antwerp are more important than the battle we are waging,\u201d President Volodymyr Zelensky of Ukraine said last year.<\/p>\n
Now, the diamond industry is readying itself for the unveiling of sanctions from the Group of 7 nations \u2014 Britain, Canada, France, Germany, Italy, Japan and the United States \u2014 and the European bloc that would prohibit the import of gemstones mined in Russia, including those cut and polished in other countries.<\/p>\n
\u201cThe current U.S. sanctions only covered rough Russian diamonds or those cut and polished inside Russia,\u201d said Paul Zimnisky, a diamond industry analyst based in the New York City area. \u201cGiven 90 percent of diamonds are cut and polished in India, and can therefore be classed as Indian gems, the current regulations aren\u2019t as strict as you might think.\u201d<\/p>\n
But some responses were \u201cfar more stringent than the government regulations required,\u201d he said, with numerous high-profile luxury players, including Richemont and LVMH Mo\u00ebt Hennessy Louis Vuitton, telling suppliers that they would not buy Russian stones, putting the onus on those suppliers to disclose the provenance of their gems.<\/p>\n
More governments with considerable economic firepower are expected to be part of the new effort. Brad Brooks-Rubin, a senior adviser in the Office of Sanctions Coordination in the U.S. State Department, said consumers in the G7 nations account for almost 70 percent of all diamond purchases.<\/p>\n
\u201cBy cutting off most of their demand, if an import ban were to be agreed, Russian diamonds would have a narrower lane through which to work their way into the marketplace,\u201d he said. \u201cThe focus of all discussions is how to target Alrosa and Russia\u2019s diamond revenues that could then be funneled to their war efforts.\u201d<\/p>\n
The formal announcement of G7 sanctions is expected in September, and negotiators are still finalizing the exact terms for tracking and tracing individual gemstones and accompanying customs paperwork. The expectation is that these new sanctions would come into effect in January, after the all-important holiday retail season.<\/p>\n
Jewelry shoppers may see prices rise if there is a shortage of non-Russian diamonds after more sanctions are imposed, but increases would likely come gradually rather than suddenly. The industry has been expecting the action.<\/p>\n
The question is whether an industry, mainly composed of small businesses, that is organized around the quality, size and color of stones \u2014 not their provenance \u2014 could segregate stones and accurately produce paperwork that categorizes them by origin. That challenge likely would be further exacerbated by the multiple supply chain loopholes that are possible when diamonds make their multinational journey from a mine, through a hard-to-police global web of middlemen, and ultimately to consumers or into industrial uses.<\/p>\n
Diamonds can change hands 20 to 30 times between mine and market, according to Hans Merket, a researcher with the International Peace Information Service, an independent research agency. \u201cIt will be important to find the right balance between ambition and realism,\u201d he added, as it could take \u201cyears rather than months to get all noses in the right direction and reorganize this complex global supply chain.\u201d<\/p>\n
Another headache? Russia is known for producing small diamonds that are mostly sold in very large quantities. The new G7 sanctions likely would cover only finished stones of one carat or larger, Mr. Brooks-Rubin said, although smaller gems may be included later.<\/p>\n
Tiffany Stevens, the chief executive and general counsel of the Jewelers Vigilance Committee, a nonprofit organization based in New York City that focuses on ethics via legal compliance and policy advocacy in the jewelry trade, said the invasion had required the diamond industry to make significant changes in its operations, and it had been given time to prepare for the new requirements that tougher rules would bring.<\/p>\n
\u201cThe G7 sanctions is a turning up of the heat on Russia and also offers a brightening of the lines for the trade on how to enforce it,\u201d she said. \u201cBut our industry is also very fragmented and global, with many in the trade who still won\u2019t fall under its remit.\u201d<\/p>\n
Despite continuing diplomatic moves, including sanctions imposed on an Alrosa chief executive who was appointed in May, industry analysts say that the Russian diamond export numbers are close to what they were before the invasion of Ukraine, but some of the import locations have changed.<\/p>\n
Karen Rentmeesters, a spokeswoman for the Antwerp World Diamond Centre, which represents the diamond sector in the city, said official imports of rough Russian stones to the gem hub had dropped around 95 percent compared with pre-conflict levels as a result of the impact of sanctions on trade flows and payments, and local traders and manufacturers complying with the wishes of valuable clients and partners.<\/p>\n
China now has become a major new port of call for Russian diamonds, and new cutting and polishing hubs in former Soviet states, such as Armenia and Belarus, have seen a significant uptick in their volume of rough stones from the country. Dubai \u2014 with its favorable geographic location between East and West, and a recent influx of Russian business \u2014 also has benefited significantly from the existing sanctions.<\/p>\n
India, where 90 percent of the world\u2019s rough stones are cut and polished in the city of Surat, has continued to handle Russian diamonds without falling foul of Western governments. Prime Minister Narendra Modi has defied pressure from the West to impose any sanctions on Russia or scale back economic ties with the Kremlin.<\/p>\n
But U.S. authorities have frozen some diamond deals that were conducted by Indian traders who were suspected of handling Russian stones, presenting challenges for Surat and Mumbai traders. And overall, the industry says that thousands of low-wage cutting and polishing jobs are at risk.<\/p>\n
In a strategy to offset potential damage to local trade and to maintain employment, the Indian government and its gem industry has significantly increased investments in the manufacturing of lab-grown diamonds (which require the same cutting and polishing as natural stones), already a major focus for the country. In June, Mr. Modi presented a 7.5-carat synthetic diamond to Jill Biden, the first lady, during his visit to the White House. The gesture was a diplomatic flourish given that the recent flood of Indian lab-grown diamond exports to the United States had sent their market value tumbling.<\/p>\n
According to Mr. Zimnisky, \u201cthe Russians have ramped up diamond sales in recent months in an attempt to claw back market share lost last year following the disruption in trading.\u201d<\/p>\n
Yet diamond prices are down 18 percent from their all-time highs in February 2022, according to one Global Rough Diamond Price Index published in June, with the popularity of man-made diamonds, a slowdown in China\u2019s economic recovery, an uncertain macroeconomic backdrop and the continuing war in Ukraine all contributing to a lackluster market.<\/p>\n
For sanctions negotiators and the wider industry, the focus is whether new technologies are capable of offering a watertight and verifiable solution to determining the origins of a stone.<\/p>\n
Currently, customs officers require a government-issued certificate guaranteeing that the stones meet the requirements of the United Nations-backed Kimberley Process, created to prevent the flow of conflict diamonds. The certification requirement has been a step forward, but as Skander Nasra, an adviser to Prime Minister Alexander De Croo of Belgium, pointed out, the method is recognized to have significant flaws.<\/p>\n
\u201cWe have been working toward a more significant way of hitting Russia,\u201d he said, \u201cand that is with sanctions with a remit that ushers the industry toward using tracing technologies and blockchain. It is the only credible way to close the loopholes around rubber stamping or self auditing and to ultimately keep Russian stones off the market, even if it takes several years to successfully implement a scheme.\u201d<\/p>\n
After the invasion, De Beers scaled up its Tracr platform to allow participation from others in the diamond industry, while the Gemological Institute of America introduced a consumer-facing service called GIA Source Verify that would validate a diamond\u2019s country of origin.<\/p>\n
A Swiss company, Spacecode, which already offers technology to track diamonds through the supply chain, now says it has a new device that can identify the region of origin of individual diamonds and intends to have it available for sale by the end of 2024. Another company, Sarine, has also unveiled a traceability system called the Diamond Journey, which begins with a 3-D scan of a rough stone at the mine and then logs every subsequent step to the retailer.<\/p>\n
There will likely be an extended transition period before the sanctions roll out. In the short-term, the expectation is that the trade will rely on auditing.<\/p>\n
\u201cNaturally, some well-resourced major players will adapt, but small- and medium-sized or family businesses, which are a cornerstone of the jewelry trade, will have a much tougher time,\u201d Ms. Stevens said.<\/p>\n
Mr. Zimnisky added that \u201cwe are a long, long way from a state where the technology to trace the chemical makeup of a stone is used industry wide,\u201d though he noted that the trade has been moving in this direction already. Demands related to the Russian sanctions had just accelerated those efforts.<\/p>\n
Elizabeth Paton<\/span> is a reporter for the Styles section, covering the fashion and luxury sectors in Europe. Before joining The Times in 2015, she was a reporter at the Financial Times both in London and New York. More about Elizabeth Paton<\/span><\/p>\n