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With neither India and the United Arab Emirates explicitly imposing sanctions on the import of rough diamonds from Russia, there had been speculation during the early days of the invasion of Ukraine that the impact of the crisis on the industry may be restrained. But the decision on April 7 by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) to place the Russian mining company Alrosa on its Specially Designated Nationals (SDN) list, effectively banning Americans from trading its diamonds, was a game changer.

It soon became apparent that, even if they were not expressly restricted from doing so, few diamond-trading companies outside of the United States were prepared to run the risk of provoking the U.S. authorities, and neither were banks prepared to authorize transfers of payment to and from the Russian Federation. While Alrosa was releasing no details, it was fair to assume that, at the very least, its exports had been dramatically reduced.

With Alrosa supplying some 30 percent of the rough goods flowing into the prior to the start of the crisis, and a substantially higher percentage of the smaller sized goods, it would be a unreasonable not to assume that the market would not be impacted – both in the short and long terms.

But the effects are not straightforward, nor are the solutions being sought to cope in the marketplace.

De Beers CEO Bruce Cleaver


According to a report by Bloomberg about three weeks ago, Prices for smaller rough diamonds, of the type typically supplied by Alrosa, had increased almost 20 percent since the start of March.

In years gone by, De Beers would have stepped in make up for the shortfall, but that is no longer the case. Its old policy of holding a buffer stock worth 5 billion to protect the market from supply-driven shortfalls has long been disbanded, and today the company holds only as much goods in its safes as it needs for its own projected sales.

Nor is De Beers likely to boost production much before 2024, and not necessarily in the product ranges that currently are undersupplied.

“It’s very difficult to see us bringing on any new production,” said Bruce Cleaver, De Beers CEO, when interviewed by Bloomberg. “Thirty percent of supply being removed isn’t sustainable.”

De Beers’ primary concern at present is not trying to meet market demand, but to ensure that its goods do not get a tangled in the crisis. In the Bloomberg article, De Beers was reported to be considering increasing both the paper and physical audits it already conducts on its customers to ensure that the supply they receive remains segregated from goods that may have originated in Russia.

“They have to show us that our production is not being mixed,” Cleaver told Bloomberg.


One scenario that has been discussed is dealers possibly separating goods, designating polished diamonds sourced from Russian rough for markets where they are not taboo, with the most prominent example being China.

Whether trade of this sort is actually being conducted in substantial amounts it is difficult to say. But in cities like Surat, India, where thousands of workers’ jobs are threatened because of a shortage of rough supply, there certainly are incentives to do so.

According to Bloomberg, delegation from Alrosa visited India in April to discuss the possibility of enabling payments outside of the SWIFT system, from which Russian banks have been barred, which would involve involves Russia depositing rubles into Indian banks, where they would then be converted into rupees. But talks were said to be inconclusive, largely because the Indian trade and the banks are nervous about an adverse American reaction to any such  workaround.

Alrosa declined to comment on the Bloomberg article.

Another way of addressing the shortfall is using laboratory-grown diamonds, and indeed the Ukraine crisis has provided more fuel to the LGD sector, which has already experienced growth in sales over the past year that exceeds that experienced by the natural diamond sector.

The other tried and proven method of traversing period for polished diamonds are in shorter supply at economically viable priced is to increase the use of colored gemstones, which enables manufacturers to maintain the number of carats used in a stone, while maintaining the general price point.

With banks restricted from executing U.S. dollar transfers to Russia, the Russian government is trying to encourage companies to make rouble-designated transfers.