LONDON (CNN) The European Union is poised to impose an import ban on Russian diamonds, cutting off the world’s largest diamond producer from one of its key markets.
“Russian diamonds are not forever,” said European Council President Charles Michel on Friday on the sidelines of the G7 summit in Hiroshima, Japan.
A plan to sanction Russia’s industry, which is worth $4 billion in exports, could be unveiled as early as this weekend, a senior EU official told journalists during a briefing on Thursday.
According to the Antwerp World Diamond Center (AWDC), the world’s largest diamond trading center in Belgium, Russia produces around a third of the world’s diamonds and is the largest exporter.
The EU ban would be part of an 11th package of sanctions over Russia’s sweeping invasion of Ukraine in February 2022, more than a year after the United States banned its companies from buying Russian diamonds for non-industrial purposes.
On Friday, the UK also announced that later this year it would ban imports of Moscow diamonds, as well as all imports of Russian-origin copper, aluminum and nickel.
The EU ban will affect Russia’s finances as well as European retailers and diamond traders. Luxury jewelry and watch buyers may also feel the impact in their wallets.
How many hits?
According to the UK government, Russia’s diamond exports generated about $4 billion in 2021. According to the country’s central bank, the value of Russia’s total exports of goods this year was $494 billion. Oil and gas accounted for about half of this.
The country’s diamond industry suffered a major blow back in April 2022 when the United States banned imports of Alrosa, a Russian state-owned mining company responsible for 90% of Russia’s diamond mining capacity.
The United States accounts for half of global demand for diamonds for jewelry, said Paul Zimnisky, an independent diamond industry analyst, while Europe and the United Kingdom together account for only about 5% of the market.
A worker holds a rough diamond at the Diamonds of Alrosa factory in Moscow, Russia, in April 2021.
A ban on Russian diamonds could push up prices for European consumers, especially if diamond production doesn’t pick up elsewhere.
“It costs billions to produce more diamonds and it takes up to two years to really see that production in the market,” Tom Neys, a spokesman for the AWDC, told CNN.
He noted that diamond jewelry demand is currently “sluggish” but “as we get closer to the end of the year.” [when demand tends to pick up]… You will feel that pressure and that will likely translate into higher prices.
According to Zimnisky, the use of diamonds in industry is not likely to be seriously affected since more than 90% of these gemstones are synthetically produced in China. Due to their hardness, diamonds are suitable, for example, for the production of drills and surgical devices.
It’s possible that synthetically created diamonds could also help fill the jewelry market gap created by Moscow’s exports, Zimnisky said, although a glut of cheaper lab-grown diamonds are unlikely to compete with their natural alternatives. That will always remain a “luxury product,” Zimnisky said.
A blow to Belgium
Europe’s diamond traders are dismayed at the prospect of sanctions.
“We are firmly against sanctions,” said AWDC’s Neys, adding that in response, traders would simply move their businesses out of Antwerp.
The Belgian city has already “lost a lot of business to Dubai” over the past 15 years, he said, as Antwerp tightened its rules on transparency and ethical diamond sourcing.
According to AWDC, approximately $40 billion worth of diamonds are transported through Antwerp every year. Between 5% and 10% of these diamonds are of Russian origin, down from about a quarter before the war.
Businesses are likely to move to the most active trading hub, Neys said. And “when the big ones move, the small ones will follow, and then you’re left with nothing,” he added.
A 3D model of a rough diamond is seen on a screen at the Diamonds of Alrosa factory in Moscow, Russia, in April 2021.
Some of the world’s biggest jewelry makers, including Pandora – the world’s largest – have already voluntarily avoided Moscow’s diamonds after the invasion.
Other well-known jewelers have also realigned their supply chains, Zimnisky said, so that a ban on Russian diamonds would primarily affect Europe’s small, independent jewelers.
“Ultimately [there’s] “There will be a split in the diamond market… the non-Russian diamonds will be channeled to the western world,” he said, while Russian diamonds are likely to end up in China, India and the Middle East.
Europe’s greatest task is to create a complete ban that prevents Russian diamonds from finding their way into the block via detours.
Speaking to journalists on Thursday, a senior EU official said the “main focus” of the union’s new sanctions package is “circumvention”.
Zimnisky stated, “If you’re, say, a US industry participant…buying diamonds from an Indian cutter and polisher, technically you could still buy stones of Russian origin.”
Approximately 90% of the world’s rough diamonds are sent to India to be cut and polished before being re-exported to jewelry makers.
According to Neys, the current US ban does not go far enough here. “There are still many Russian diamonds being sold within the American economy,” he said.
“If you really want to close loopholes, you have to find a system that prevents.” [Russian] “Diamonds go to the G7 market,” Neys said. For this to work, he added, jewelers and dealers need access to technology that could determine the provenance of diamonds.
— Jake Kwon, James Frater and Niamh Kennedy contributed to the coverage.