The G7 and EU ban on importing unpolished Russian diamonds has left the global diamond industry in a tizzy. The industry fears supply disruptions, a shift in trade dynamics, and price fluctuations, to name just a few issues. The persistent lack of clarity, procedural difficulties, and the sheer magnitude of the process are complicating matters further, with global industry stakeholders feeling the pressure of having to revamp their business model.
The story so far
The ban on the import of unpolished Russian diamonds has been imposed in various stages. As of January 1, 2024, it applied to all natural, non-industrial rough or polished diamonds that originated in Russia, and had been exported from that country. To put this into perspective, import restrictions were in place for non-industrial diamonds which had been mined, processed or produced in Russia.
The restrictions were applicable to diamonds of all sizes, and pertained to stones imported directly, or via a third country, without transformation. This meant Russia could no longer export diamonds directly or indirectly to G7 nations and the EU. It is pertinent to note that this geography accounts for almost 70% of the global diamond consumption.
From March 1, 2024, the restrictions were tightened further, with the ban extending to Russian natural, non-industrial rough or polished diamonds that had been processed in a third country, and were equal to, or above, 1 carat. Effectively, this means that indirect import restrictions have also come into force.
From March 1, 2024, the restrictions were tightened further, with the ban extending to Russian natural, non-industrial rough or polished diamonds that had been processed in a third country, and were equal to, or above, 1 carat. Effectively, this means that indirect import restrictions have also come into force. To explain this further, all rough or polished Russian diamonds of size 1 carat and above, which are processed in third countries, will be banned from the G7 and EU markets. This covers Russian mined diamonds that might have been transformed into polished stones in other countries.
By September 1, 2024, a traceability mechanism is supposed to be put in place, which will establish the provenance of diamonds. As per a G7 statement, issued on December 6, 2023, members of the bloc that are “major importers of rough diamonds will establish a robust traceability-based verification and certification mechanism for rough diamonds within the G7 by September 1, 2024.”
Implementation challenges
While the import ban sounds doable in theory, in practice, there’s a lot that is hazy. Diamonds pass through many hands in different countries before they reach retail stores. The supply chains are long and complicated. It will not be easy to keep track of where stones the originated from, owing to a long list of intermediaries involved. Smaller diamonds, particularly, are sold in large quantities, and get mixed up with stones originating from different parts of the world, and Russia is known for producing small diamonds in bulk.
In spite of industry bodies, such as the World Diamond Council (WDC), Antwerp World Diamond Centre (AWDC), the Gem and Jewellery Export Promotion Council (GJEPC), and the Gemological Institute of America (GIA) working together to resolve issues, a one-size-fits-all solution seems off the charts as of now.
While GIA is able to triangulate data gathered from a rough stone and match it to finished diamonds, it still needs documentation establishing provenance of a stone. De Beers’s blockchain offering, Tracr, is also available to the industry to trace the origin of diamonds, but none of these solutions are operating at scale. In spite of declarations, it might be difficult to trace a diamond right back to the mine.
By September 1, 2024, a traceability mechanism is supposed to be put in place, which will establish the provenance of diamonds. As per a G7 statement, issued on December 6, 2023, members of the bloc that are “major importers of rough diamonds will establish a robust traceability-based verification and certification mechanism for rough diamonds within the G7 by September 1, 2024.
Impact on the global diamond industry
Implementations challenges notwithstanding, the ban on the import of Russian diamonds has the potential to disrupt the global diamond market. It will impact not only the Russian producers, but also other players of the industry, including retailers and consumers.
Finding alternative sources of diamonds to fill the gap left by Russian imports will not be easy – the more worrying aspect is that diamonds might be procured from other problematic geographies. While the sanctions are sure to accelerate efforts to infuse traceability into the diamond industry, supply chain disruption will be a major pain point for stakeholders.
The ramifications will extend to several spheres. Russia accounts for roughly one-third of the world’s diamond supply, and an alternate source cannot spring up suddenly. As it is, mines are drying up, no major new finds have been reported, and operating existing mines is becoming more and more expensive. Supply shortages are a very real problem that the industry will have to deal with.
Then there are the logistics problems -- if authorities start verifying the paper trail for every import parcel, it is sure to lead to disruption and delays, further stressing an industry that is already dealing with reduced margins.
In the end, the effectiveness of the ban will be determined by how well it is implemented – and as of now, the implementation process seems to be riddled with numerous challenges.
It will not be easy to keep track of where stones the originated from, owing to a long list of intermediaries involved. Smaller diamonds, particularly, are sold in large quantities, and get mixed up with stones originating from different parts of the world, and Russia is known for producing small diamonds in bulk.
