Key diamond supply caught in Russian sanctions
New York (CNN Business) Wide-ranging global sanctions against Russia for its invasion of Ukraine are affecting the global supply of a precious commodity – diamonds used in jewelry.
President Biden released a Executive Decree prohibiting imports of certain products originating in Russia. They include fish, seafood, luxury goods, alcoholic beverages and non-industrial diamonds.
The ban directly targets Alrosa, which the US government has identified as the world’s largest diamond mining company, responsible for 90% of Russia’s diamond mining capacity and accounting for 28%, or nearly a third of the world’s diamond production.
In 2021, Alrosa supplied 32.4 million carats of diamonds. Alrosa is partly owned by the Russian government and its shares are traded on the Moscow Stock Exchange.
“This is a very big problem and a unique situation for the diamond industry,” said Tiffany Stevens, CEO and general counsel of the Jewelers Vigilance Committee (JVC), a 105-member nonprofit organization. years that advocates for the jewelry industry in the United States and provides legal education and compliance advice to its 600 individual members.
On Friday, JVC informed its members that any US company buying diamonds directly from a Russian company should immediately suspend transactions. The disclaimer specifically mentioned Alrosa and Alrosa USA.
At the same time, JVC said it was unclear how US customs would handle imports of polished diamonds from other countries but originating in Russia. A rough diamond can touch many countries as it goes from an uncut gemstone to an alluring necklace or ring.
“The question is ‘what is considered of Russian descent?'” Stevens said. “It may come from Russia and then be cut and polished in India. Is it then considered an Indian diamond at that time?”
The diamond industry would benefit from further guidance from the US government on how the new policy would be implemented, she added.
The ban on Russian diamonds is an escalation of sanctions first applied by the United States in late February and could lead to serious disruptions in the diamond supply chain, said Paul Zimnisky, an independent diamond industry analyst. diamond.
As part of this first round of sanctions, the US Treasury listed large public and private entities which he sees as critical to the Russian economy. On the list are Alrosa and, separately, its CEO, Sergei S. Ivanov. The Treasury Department’s Office of Foreign Assets Control (OFAC) said Ivanov is the son of Sergei B. Ivanov, who is believed to be one of Russian President Vladimir Putin’s closest allies.
The Treasury Department said sanctions against Alrosa would severely restrict the company’s ability to raise funds in the U.S. market – a key source of capital and revenue generation – limiting the Russian government’s ability to fund further development. the invasion of Ukraine.
While the first wave of sanctions did not outright ban businesses from buying diamonds from Russia, they complicated companies’ ability to pay for them, as many Russian banks were kicked out of the international banking system. QUICKZimnisky said.
“(The sanctions) would delay the delivery of rough diamonds by weeks or even months to manufacturers who cut and polish diamonds,” he said. For example, India, which accounts for 90% of all cut and polished diamonds in the world, would feel the impact immediately.
Delays of up to three to six months will then trickle down to retailers buying the polished diamonds, he said.
The ban now means U.S. companies can no longer buy Russian diamonds at all and will have to source Canadian, African, Brazilian or Australian diamonds, Zimnisky said.
Another obstacle he anticipates in addition to harsh government sanctions are “self-sanctions,” stemming from the moral and ethical stance that consumers themselves may take. “For many retailers, up to a third of their existing diamond stock is of Russian origin,” he said.
Fine jewelry seller Brilliant Earth tweeted last month that it had removed all Russian-mined diamonds from its website and hoped for a “peaceful and speedy resolution in Ukraine”.
Signet Jewelers, one of the world’s largest diamond jewelry sellers, said it suspended business dealings with Russian entities at the start of the invasion, “in unity with everyone around the world calling for peace”.
Seal ( operates the Zales, Jared, Jay Jewelers and Diamonds Direct jewelry chains under its umbrella. )
Last week, Alrosa suspended its own membership in the Natural Diamond Council, a diamond industry group that promotes and markets the use of natural diamonds. Its members include major diamond producers De Beers and Dominion Diamond Mines.
The supply of diamonds already tight
The threat of diamond supply chain disruptions comes as the industry is already experiencing record global demand for diamonds and supply is at its lowest level in a decade.
“Demand has been so robust over the past two years that there is virtually no excess diamond inventory at this time,” Zimnisky said.
Jewelery purchases, and diamond jewelery in particular, have seen a surge during the pandemic, spurred by stimulus check spending and a buildup of savings as Covid restrictions have prevented other types of discretionary activities, such as travel and restaurants.
Diamond jewelry retail sales jumped 29% last year from 2020 and 11% from 2019, according to a new report of the consulting firm Bain & Company. Bain expects demand for diamond jewelry and polished and rough diamonds to continue to grow in the first half of this year.
“In 2022, the market is expected to post growth above the pre-pandemic period and return to historic growth rates by 2023-24,” the report said.
Zimnisky predicts that the weight of geopolitical tensions will affect diamond prices. “The time to watch is the middle of the year when companies start sourcing diamonds in anticipation of holiday demand. I think that’s when the shortages will be most felt. “, did he declare.
Martin Rapaport, founder of the diamond industry research publication Rapaport Diamond Report and chairman of the Rapaport Group which provides services to the diamond industry, sees the situation somewhat differently.
“Shortages of wheat, oil and other essentials and their impact on inflation will have a greater effect on diamond prices than any shortage of diamonds,” he said.