The Natural Diamond Industry: Struggling Between Dictatorship and Autonomy
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Original Diamond Observation Diamond Observation 2024-03-01 20:28 Beijing
Note: This article only discusses the diamond industry and does not express opinions on international politics and war conflicts. Please do not take the same seat.
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When the Russia-Ukraine conflict just broke out in 2022, we once conveyed a view from our international peers (guess): with the progressive western sanctions on Russian diamonds, the supply chain of the natural diamond industry may be forced to split, which will have a profound impact on the future development.
This viewpoint sparked intense feedback from a small number of industry friends at the time, who firmly believed that the diamond industry, especially midstream countries (mainly India), would not allow such division to occur and would use various means to "coordinate and prevent".
On April 7, 2022, the United States imposed sanctions on Russian diamond company Alrosa for the first time, blocking all of its interests in the United States.
In 2023, the UK implemented an import ban on Russian diamonds.
On December 6, 2023, G7 leaders agreed to implement import restrictions on non industrial diamonds from Russia starting from January 1, 2024. According to this agreement, starting from March 1, 2024 (i.e. today), the ban will be extended to bare diamonds of over 1 carat originating from Russia.
From today's international news, the United States, the United Kingdom, and even Japan have all made statements of cooperation.
Greedy Belgium
At the beginning, Belgium did not agree with the sanctions against Russian diamonds, and Prime Minister De Kro has repeatedly stated in public that such actions will bring greater losses to Europe.
But in the second half of 2023, this situation changed. De Kro first subtly expressed the view that Russian diamonds are "blood diamonds", and soon Belgium submitted a document requesting its Public Economic Service to become the responsible agency for all non Russian diamond verifications.
This action immediately faced opposition from multiple institutions, including Rapport and WFDB, believing that it would increase the cost of diamond supply chains and harm the interests of small and medium-sized mining enterprises.
At the same time, the core midstream country, India, has repeatedly requested the postponement of sanctions on Russian diamonds, and at the same time, news similar to the crisis faced by the Surat diamond industry due to sanctions issues has emerged.
Besides, does Antwerp really have the technical capability to become this "single point verification"? This is a big question mark.
In Rapaport's open letter, he described Antwerp's actions as seizing power, which makes sense from a certain perspective.
Strong Russia
As the country with the largest diamond production in the world, Russia has not significantly reduced its production due to sanctions.
Alrosa proudly released its 2023 financial report at the end of February this year. The data shows that the production of that year only decreased by 2.8%, reaching 34.6 million carats; Revenue increased by 9.2% to 322.6 billion rubles; However, net profit decreased by 15.2% to 85.18 billion rubles.
In short, Alrosa will remain steadfast for at least 2023.
The importance of political face
How much impact can sanctions on non industrial diamonds in Russia have on the Russian government's economic investment in the war?
Ahmed Bin Sulayem, Executive Chairman of Dubai DMCC, commissioned Zerohedge to publish an article on February 26th, which provided some interesting data on this issue:
In the months from the outbreak of the Russia-Ukraine conflict to September 2022, Russia's direct military costs will be 40 billion dollars.
It is expected that by 2024, Russia will invest $132 billion in direct military costs.
Based on this data, Russia generates a direct military cost of 126.56 million US dollars per day.
However, Alrosa's annual net profit was only around $930 million, accounting for about 2% of the annual military costs. Based on the 30% stake of the Russian federal government, the contribution of diamond revenue appears insignificant.
However, as Sulayem said, for the G7, even if Russia earns $1 from diamonds, it is still too much.
The diamond industry needs autonomy, not dictatorship
From upstream mining enterprises, to midstream grinding and trade, and even to downstream markets, the entire trade chain involves the income of millions of households. Therefore, the global diamond industry in the 21st century requires autonomy and collaboration, rather than confrontation and dictatorship.
The upstream African countries have been tired of their long-term lack of voice. Botswana, Angola, South Africa and other countries are further rising and seeking independent operation. At the same time, they are vigorously building their own diamond processing industry, hoping to extend to the middle reaches. This is fully illustrated by the "running in" between Botswana and De Beers, the cooperation agreements signed between Angola and many giant enterprises, and South Africa's efforts to support the diamond processing industry.
Mid stream India has a greater advantage in cutting and grinding, and coupled with the production of a large number of CVD cultivated diamonds domestically, it is relatively flexible in this sanction. The United Arab Emirates (Dubai) has been rapidly rising since 2022, with a total trade volume of rough and bare diamonds of $37 billion that year, and a non Russian rough trade volume of $17.5 billion that same year, showing a trend of catching up with Antwerp and becoming the world's largest diamond trading center.
The downstream is very complex and involves too much political content, so it will not be elaborated here.
In short, the sanctions imposed by the G7 and Western political groups on Russian diamonds are a form of destruction for the global diamond industry and are breeding a new dictatorship.
If, as G7 representative Peter Kovacs said, sanctions have to be put in place at any cost, we can basically foresee a dark, hypocritical, power struggle, and smuggling future.
