Mining company Lucara Diamond has called on the EU to impose sanctions on Russian diamonds after the bloc reversed on plans to hit gemstone exports.
Eira Thomas, chief executive of the Canadian mining group that operates mainly in Botswana, told the Financial Times her personal view was that diamonds of Russian origin “should be sanctioned”.
The EU in October mooted a ban on imports from Russian diamond producer Alrosa — in which Moscow owns a one-third stake — as part of its eighth package of sanctions but the measure was removed at the eleventh hour despite the bloc going to great lengths to hit other extractive industries such as oil.
Resistance from Antwerp, the centre of the world diamond trade through which 86 per cent of the world’s rough stones pass, has been perceived as the key reason for the EU’s U-turn.
Official Belgian statistics showed that the country still imported €676mn of Russian diamonds in the second quarter of 2022, which then slipped to €154mn in the three months to the end of September – or a quarter of the historical average.
The Antwerp World Diamond Centre has claimed that 10,000 direct and indirect jobs would be lost if sanctions were introduced and warned that the United Arab Emirates and India are waiting in the wings to snatch business.
“Sanctions would give a $40bn industry away to countries that are best friends of [Russian president Vladimir] Putin’s regime at the moment,” said Tom Neys, spokesperson for the trade body.
Despite this, Belgium’s Prime Minister Alexander De Croo has publicly insisted his country would not block a ban on Russian rough diamonds.
The US has placed sanctions on Alrosa, the world’s largest diamond producer with a 30 per cent global market share, and banned the import of Russian rough diamonds but still allows for gems to be imported if they have been substantially transformed elsewhere.
About 90 per cent of the world’s diamonds go to India where they are cut and polished, in effect turning them into “Indian” diamonds in the eyes of US authorities. Indian banks have been allowed to open special accounts to trade with Russia in rupees, according to local media reports, which industry insiders believe is helping facilitate trade between the two countries.
Thomas said “the conversation [about sanctions] goes well beyond Antwerp when you think about the whole supply chain in India. I think it’s a more complex narrative than simply Antwerp doesn’t want to sanction diamonds.”
The EU in December finalised a ninth round of sanctions on Russia but one diplomat engaged in the discussions said: “[Diamonds are] not in the sanction package so we don’t really speak about it in the council meetings but the sector is reflecting on how to take into account the international geopolitical context in its activities.”
The diamond industry has been pushed earlier than other corners of the mining industry to prove the provenance of its products. The focus on “blood diamonds” from Sierra Leone and other parts of Africa led to the establishment of the Kimberley Process in 2003 to certify that diamonds were produced without fuelling conflict.
Leading jewellery companies including Tiffany, Richemont and Signet have all pledged not to source diamonds of Russian origin even if they were transformed outside of the country.
“If the EU was to sanction Russian diamonds tomorrow, then there wouldn’t be a shock as the market has slowly been gravitating towards that happening,” said Paul Zimnisky, an independent analyst.
Russia’s Alrosa has been struggling to export its diamonds at levels it achieved before the country’s invasion of Ukraine but Zimnisky estimates 75 to 80 per cent are still making their way to market.
That has been a boon for other diamond producers at a time when new mine supply is at multi-decade lows. “This is the best diamond market we’ve seen in the better part of a decade,” said Thomas.
Many producers including Lucara have invested in technology to trace the diamond throughout the supply chain to ensure it has been sourced ethically, which they say is now proving its worth.
Martin Rapaport, chair of the Rapaport Group, said stronger US sanctions enforcement together with EU measures to ban Russian diamonds would be powerful in reducing the $4.2bn of revenue Alrosa made in 2021.
“When you look at things like oil, we want to stop it. Governments want to use economic warfare,” he said. “But they do it in half-measures.”
Additional reporting by Alice Hancock in Brussels