EU sanctions against Russian diamond giants, global market may be impacted

On January 3rd, the European Union imposed sanctions on Russian state-owned diamond giant Alrosa and its CEO Pavel Marinichev, which will result in visa bans and asset freezes in the EU. The EU stated that the company accounts for 90% of Russia's diamond production and "constitutes an important component of the economic sector that provides significant revenue to the government."

EU diamond ban on Russia

Firstly, due to Russia's huge total diamond exports, the EU is attempting to restrict this in order to weaken Russia's treasury. The EU ban came into effect on January 1st, prohibiting the export of natural and synthetic diamonds from Russia. The ban on processing Russian diamonds in third countries will be implemented in stages in September.

The EU ban was introduced after months of arduous negotiations with the G7 countries to establish a Russian diamond tracking system. Belgium is the world's largest diamond trading center and insists that the system needs to be established to make the embargo effective. Since the Russo Ukrainian War, the European Union has imposed 12 rounds of sanctions on Moscow so far. But so far, the Russian economy has successfully adapted to the sanctions and chaos caused by the conflict.

Early G7 Group diamond sanctions against Russia

In October 2023, the G7 Group discussed four plans to ban Russian diamonds from entering the G7 market, ranging from relaxed self-regulation to strict import measures. These four proposals were prepared by the jewelry industry groups of Belgium, India, France, and the World Diamond Council, and were discussed at a technical meeting of representatives from the seven countries.

However, reaching an agreement is difficult as the details of the G7 ban may improve or worsen the commercial conditions of major diamond centers in the world, such as Belgium, India, or the United States, as well as their share of the $87 billion global natural diamond jewelry business.

India and Belgium hope to establish their own diamond centers as entry points in Mumbai and Antwerp, respectively. The French group hopes to have multiple entry points to prevent bottlenecks, while WDC hopes to establish a more self regulatory system. For polished gemstones, the weight threshold of the gemstone may be 1 carat or more.

Although diamonds, as well as nuclear energy and liquefied natural gas, are one of the few remaining important sources of income for which the West has not yet imposed comprehensive sanctions, progress in discussions has been slow due to the participation of all global participants.

The ban on Russia may have a significant impact on the market

Prohibiting Russian diamond trade, including Russian diamond mining operations, could have a huge impact on the global diamond trading market. Russia is one of the countries with the largest diamond production in the world and has the largest diamond mining and processing enterprise in the world. Belgium is a hub for diamond trading in Europe, with nearly 40% of diamond transactions coming from Russian diamonds.

Many countries have long-term economic cooperation with Russia, and this sanction has raised concerns that their diamond trade will be significantly impacted. Especially in 2021, the revenue of Alrosa, Russia reached 332 billion rubles, with Belgium being the most challenging country under sanctions on Russian diamond trade. The Belgian diamond industry also expressed resistance to Russia's embargo measures.

For the EU, sanctions are a response to Russia's actions and also aimed at maintaining stability and security in Europe. For the entire diamond industry, this is also a response to unfair trade practices to ensure fair competition and sustainable development.