Russia's $4.7B diamond exports targeted by new sanctions

By Nuran Erkul Kaya and Ata Ufuk Seker

LONDON (AA) – To target Russia, the world's largest rough diamond producer with exports worth $4.7 billion a year, with new sanctions, Europe is seeking a way to create a tracking system that shows the country of origin of the diamond to prevent the circulation of Russian diamonds in international trade.

In 2021, the world rough diamond production was at 118.7 million carats, according to data compiled by Anadolu from Kimberley Process (KP).

Some 39.1 million carats of the overall amount were produced by Russia, with a 33% share.

The Russian mining company Alrosa, which supplies 90% of Russia's production, is currently subject to the sanctions of Canada, the UK, the US, New Zealand, and the Bahamas.

Botswana makes 19.1% of global rough diamond production, Canada produces 14.8%, the Democratic Republic of Congo generates 10.9%, and South Africa makes 8.2%.

In 2021, the value of overall rough diamond production was at $12.9 billion.

Traders in the rough diamond trading centers in Antwerp (Belgium), Dubai (United Arab Emirates), Mumbai (India), and Tel Aviv (Israel) have the right to purchase a certain amount of rough diamonds from miners each year.

Rough diamonds, which have become a part of the supply chain through these trade centers, are converted into luxury consumer goods in processing centers, especially in India.

- 90% of diamonds processed in India

According to the Observatory of Economic Complexity (OEC), an economic data platform, India ranked first in the world with $26 billion worth of rough diamond imports in 2021, while its diamond exports amounted to $26.3 billion.

In India, where nine out of every 10 diamonds are processed in the world, it is estimated that direct employment in this industry is 1 million and indirect employment is 5 million.

India stands out as the country where mainly small stones are processed.

India exported $10.2 billion worth of diamonds to the US, its largest export market, in 2021.

Hong Kong accounted for $6.75 billion of India's exports, Belgium for $2.38 billion and the United Arab Emirates (UAE) for $2.23 billion.

India's share in the US' diamond imports was 55.7% in 2021.

Diamond exports of Belgium, one of the world's diamond trade centers, in 2021 were calculated as $13.9 billion and imports as $13.7 billion.

The diamond imports of the UAE totaled $13 billion in 2021, and its exports were $13.6 billion.

Russia exported $4.7 billion worth of diamonds in 2021 compared to $323 million in imports.

Russia made 40% of its diamond exports in 2021 to Belgium, 27% to the UAE, 18.8% to India, and 8.3% to Israel.

Israel's imports in 2021 amounted to $6.73 billion, while exports totaled about $9.1 billion.

- 60% of Russian diamond processed in India

Russia's total export revenue in 2021, which was subjected to many sanctions by Western countries due to the war it started in Ukraine last year, was $494 billion.

Oil and gas revenues accounted for about half of this revenue.

Although diamond exports remain lower in overall exports, the EU plans to sanction this sector to cut Russia's export revenues.

In the 11th round of sanctions, the EU seeks to create a global tracking system that shows the country of origin to prevent not only the direct import from Russia, but also the sale of Russian rough diamond in international trade through different countries or trade centers.

With this tracking system, Russian rough diamond products will be subject to sanctions, even if they are not directly sold to Western countries, but are processed and turned into products in another country.

It is estimated that 60% of Russian diamond products are processed in India.

For this reason, if a system that can track the country of origin is implemented, it is predicted that the Russian diamond sector will be adversely affected, as well as the diamond trade in international markets, especially in Mumbai and Antwerp, and prices will rise due to the decrease in supply.

The possibility of cutting off trade with the US, which is one of the largest diamond markets in terms of finished products, poses a risk for economies such as India, where the share of this sector is high.

- Diamond sanction in G-7 agenda

Sanctions on the Russian diamond were also on the agenda before and during the Group of Seven leaders' summit hosted by Japan on May 19-21.

In a statement before the summit, EU Council President Charles Michel said they are now focused on closing the legal loopholes in the sanctions, adding: "We will restrict trade in Russian diamonds.

"Russian diamonds are not forever and we will lay out openly and frankly why these sanctions are necessary and justified."

During the summit, the UK announced that it would impose a ban on Russian diamond imports by the end of this year.

*Writing by Gokhan Ergocun