Russia will continue to buy diamonds through a state fund in 2025 in order to support the diamond industry and market, Deputy Finance Minister Alexei Moiseev said on Thursday.
The Russian budget for 2025-2027 has set aside $1.55 billion for the purchase of precious metals and gems, Moiseev said in a statement.
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Russia will continue to ensure “stable global rough diamond prices in the wake of oversupply in the current market,” the same statement said.
State-owned precious metals and gems repository Gokhran resumed buying diamonds from Alrosa in March 2024. Alrosa, under US and EU sanctions, is the world’s largest producer of rough diamonds by volume with 30% of the market.
In the first five months of the year, imports of Russian diamonds to Hong Kong increased 18-fold year on year, according to data from Hong Kong’s Statistics Bureau published on its official website on June 30.
Hong Kong has dramatically stepped its imports of diamonds from Russia, purchasing $657.3mn worth of Russian diamonds in the first five months of 2024.
In the period from January to May 2024, Hong Kong’s imports of Russian diamonds soared from $36.5mn a year earlier to $657.3mn. As a result, Russia has become the third-largest supplier of diamonds to Hong Kong, with its share of total diamond imports rising to 12% from just 1% in 2023.
India remains the leading supplier of diamonds to Hong Kong, with imports valued at $2.9bn, followed by Israel with $716.6mn. Notably, both India and Israel, unlike Russia, do not mine diamonds themselves.
The substantial increase in Hong Kong’s diamond imports from Russia highlights a significant shift in the global diamond market. Dubai has also become a major market for the trade in Russian diamonds.
As bne IntelliNews reported, the EU included sanctions on Russian diamond exports as part of the twelfth sanctions package, but due to intensive lobbying by Belgium, where Antwerp is the leading European diamond market and the number-one destination for rough diamonds from Russian miner Alrosa, the sanctions were watered down and will be phased in gradually.
Russian diamond sanctions watered down again
Afraid of losing the diamond business completely to the growing rival markets in Asia and the Middle East, the EU has watered down the restrictions on trading Russian diamonds again last week.
The EU has extended the “sunrise period” for sanctions on Russian diamonds by six months and included an important concession for goods that predate the new rules, according to a statement released by the EU on June 24.
The EU also said the update “fine-tunes” the import ban on Russian diamonds included in the twelfth package and is included as part of the fourteenth sanctions package. Earlier in June, De Beers called for a one-year extension to the sunrise period for the G7 sanctions on Russian diamonds, but it is up to the individual countries to rule on the implementation of the ban.
The mandatory traceability programme for imports of rough and polished natural diamonds will now take effect on March 1, 2025 instead of September 1, 2024. This extension is intended “to allow more time to set up the G7 traceability scheme,” the EU explained reports Rapport.
This decision comes in response to calls from diamond trading powerhouse De Beers and other industry leaders to extend the interim period during which importers can use alternative documentation to prove that diamonds are not of Russian origin. Once this period ends, importers into the EU must use a traceability-based certification scheme to verify imports of diamonds over 0.50 carats.
Additionally, the EU has introduced a “grandfathering” clause to exempt diamonds that were already located in the EU or a third country other than Russia – or were manufactured in a third country – before the new rules were implemented. The EU ban on direct imports of diamonds from Russia began on January 1, 2024, while the ban on goods processed outside Russia started on March 1, 2024.
The EU said that these pre-existing diamonds no longer provide revenue to Russia.
“We are extremely pleased that, after months of intense negotiations, we have succeeded in pushing the needle to allow regularisation of so-called ‘grandfathered stock,’” said the Antwerp World Diamond Centre (AWDC). “Sanctioning these goods and prohibiting their trade would impose an unfair and severe financial burden on diamond companies without significantly impacting Russia’s revenues.”
The extension and concession aim to balance the need for stringent sanctions with the “practical realities of the diamond industry,” providing additional time and clarity for businesses to adapt to the new regulations.
Moreover, temporary imports or exports of jewellery, for example for trade fairs or repairs, will not fall under the ban. In addition, the EU has delayed the prohibition on jewellery incorporating Russian diamonds processed in third countries until the European Council, the EU’s executive arm, “decides to activate” it, the EU statement said.
The US currently has the strictest limits on Russian trade, requiring self-certification for diamonds of 1 carat or lower, falling to 0.50 carats on September 1. Larger diamonds are not covered by the sanctions.
Russia is seeking to strengthen ties with Brazil, India, China, and South Africa and other BRICS countries in response to tighter sanctions on diamonds from the G7 and EU.
Setting an agenda for “equal and fair interaction between the parties involved in all segments of the global diamond trade” was the focus of a roundtable discussion at the St. Petersburg International Economic Forum earlier this month.
Russia currently chairs BRICS (the initial letters of Brazil, Russia, India, China, and South Africa. Later additions are Iran, Egypt, Ethiopia, and the United Arab Emirates).
“The only universal mechanism for regulating the global diamond trade, the Kimberley Process Certification Scheme (KPCS), is being undermined by the attempts of numerous countries to introduce unilateral trade barriers,” said BRICS in a statement. Alrosa CEO Pavel Marinychev said: “New cooperation mechanisms will ensure the stability of the global diamond market and preserve the system of the free global trade of diamond products based on the core principles of the Kimberley Process.”
Russia warned back in November 2023 that sanctions on it diamonds would have a “boomerang” effect – harming the countries that imposed them more than Russia itself.
Nikolayev Aysen, head of Russia’s Yakutia republic, where state-controlled diamond miner Alrosa is based, told the BRICS audience: “Given the illegal unilateral restrictions that certain Western countries have imposed on Russian diamonds, it is crucial for us to support the efforts of ALROSA, which aim to diversify international supply markets. For example, this will make it possible to maintain the sustainable socioeconomic development of Yakutia.”
The US is rethinking restrictions on Russian diamonds after a wave of pushback from the industry and nations heavily involved in the diamond trade, Reuters reported on Monday.
Western countries have placed stiff restrictions on Russia’s diamond trade, with fresh sanctions in December banning the gems throughout the European Union. That’s a step up from the initial sanctions, which previously allowed the trade of Russian diamonds that were polished in other countries.
Diamond traders now need to self-certify that the gems they sell are not of Russian origin. By September, diamond traders in the European Union will need to send diamonds through a certification system in Belgium before selling them.
Those measures have helped crimp Russia’s war revenue, given that the nation is one of the largest producers of diamonds in the world. Yet the US, one of the world’s largest diamond consumers, could pull back on its commitment to implement the latest restrictions, three people familiar with the matter told Reuters.
Two sources said the US had pulled back on working with the G7 to implement the diamond ban and certifying that gems were not of Russian origin. Officials are “there but not engaging” in the discussion, one person said.
A senior White House official told Reuters the US would continue to work with the G7 on the Russian diamond ban, and that it had not changed its mind on the issue, but they noted several obstacles in enforcing the latest restrictions:
“We will want to make sure that we strike the right balance between hurting Russia and making sure that everything is implementable,” the official said.
The government has received pushback from firms and nations heavily involved in the diamond trade. Some African nations and Indian diamond polishers have complained about the latest restrictions, warning that the ban was faulty in its design and could raise problems in the industry. Diamond prices could also rise due to scarcer supply, they warned.
Virginia Drosos, the CEO of Signet, asked the US government to “stand against … the G7 Belgian solution,” according to a letter seen by Reuters.
De Beers, one of the world’s largest diamond miners, said it supported a ban on Russian diamonds but wants diamonds to be verified at the source of production, rather than in Belgium.
“The opportunities for, and likelihood, of Russian diamonds infiltrating the legitimate supply chain are in fact higher when you move further away from the source,” it told Reuters.
Group of Seven nations and the European Union are discussing ways to track Russian diamonds across borders, a move that could pave the way for restrictions on their trade in future, according to people familiar with the matter.
Previous EU attempts to sanction Russian gems have run into resistance from importer nations such as Belgium who argue that the effort would be futile because transactions will simply shift elsewhere without a mechanism to trace precious stones.
A diamond’s origin is clear at the start of the supply chain when it is issued a certificate under the Kimberley Process, which was designed to end the sale of so-called blood diamonds that financed wars. But after that they can become difficult to track.
Cut and polished stones are often intermingled at trading houses and the original certificate will be replaced with “mixed origin” documentation, making it near-impossible to keep track of where Russian diamonds are eventually sold.
The US has sanctioned the Russian mining giant, Alrosa PJSC, which accounts for about a third of the $80 billion global trade in rough diamonds. But the measures have had limited impact as much of the trade flows through other markets such as India.
The people with knowledge of the G-7 and EU discussions said a solution is not imminent, because tracing polished diamonds in a global market is extremely complicated. Still, two of the people said the G-7 could issue a statement on the matter as early as next week as part of the effort to maintain pressure on Russia as its war in Ukraine approaches the one-year mark.
China has joined Russia in opposing an effort to redefine conflict diamonds to include those sold by individual nations, as a rift between Western and pro-Russia nations jeopardizes the process for certifying rough diamonds as conflict-free.
Ukraine, Australia, Britain, Canada, the European Union, the United States and civil society groups were pushing to place Russia on the agenda at this week’s Kimberley Process (KP) meeting in Botswana and to broaden the KP’s definition, under which only gems funding rebel movements are “conflict diamonds”.
Russia, the world’s biggest producer of diamonds, has said the situation in Ukraine has “no implications” for the Kimberley Process.
China agrees that the Ukraine issue falls outside the scope of the KP, the country representative told the meeting, according to three sources. China joins Belarus, Central African Republic, Kyrgyzstan and Mali in backing Russia’s stance within the body, which seems unlikely to come to any agreement.
“It’s clear that this is posing really an existential crisis for the Kimberley Process,” said Hans Merket, a researcher at Belgian non-governmental organisation IPIS, who is a member of the civil society group.
“It has become impossible to even discuss the KP’s problems and shortcomings, let alone that there would be any room for convergence on how they can be addressed.”
China’s KP representatives did not respond to an emailed request for comment.
The KP certification scheme, designed to eliminate the trade in so-called “blood diamonds”, was set up in 2003 after devastating civil wars in Angola, Sierra Leone, and Liberia, which were largely financed by the illicit diamond trade.
The Kimberley Process Civil Society Coalition and some member states have been arguing to broaden that definition for years, but it is difficult to do as the KP makes decisions by consensus.
Jacob Thamage of Botswana, the current KP chair, said that more participants now believe reform is needed.
Russia may buy an as yet undetermined amount of rough diamonds from sanctions-hit producer Alrosa through its state precious metals and gems repository Gokhran, the country’s Finance Minister Anton Siluanov said on Wednesday.
The United States imposed sanctions on state-controlled Alrosa in April, complicating the Russian company’s operations in the global diamond market, with the aim of cutting off a source of revenue for Russia.
“We do not rule out the possibility of Gokhran purchasing diamonds produced by Alrosa. The amount will be determined later,” Siluanov told reporters.
Gokhran is generally more focused on purchases of precious metals from Russian domestic producers than diamonds, he added.
Alrosa, the world’s largest producer of rough diamonds, was behind about 30% of global output in 2021 and competes with Anglo American unit De Beers.
Its sales, mainly to Belgium, India and the United Arab Emirates, totalled $4.2 billion in 2021.
Gokhran bought diamonds worth $1 billion from Alrosa during years of weak demand caused by the global financial crisis.
A 14.83-carat pink gem found and cut by Alrosa PJSC is expected to fetch one of the highest prices ever for a diamond when the Russian company puts it up for sale later this year.
The oval stone, named The Spirit of the Rose, has been certified by the Gemological Institute of America as fancy vivid purple-pink with excellent clarity, excellent polish and very good symmetry, said Alrosa spokeswoman Evgeniya Kozenko. The sale is planned for November, she said.
The Spirit of the Rose diamond.
Colored diamonds, formed by impurities such as boron or nitrogen, are the most expensive and rarest, with pink and red stones fetching the highest prices. The Spirit of the Rose may be one of the most expensive pink stones ever, according to Eden Rachminov, the chairman of the board of the Fancy Color Research Foundation.
He estimates the potential price at between $60 million to $65 million.
Sotheby’s set the record for any gem ever sold at an auction in 2017, with its $71 million sale of the 59.6-carat Pink Star to Hong Kong-based jewelry retailer Chow Tai Fook Jewellery Group The stone was mined by De Beers, and dethroned the Oppenheimer Blue, which fetched $58 million in an earlier sale at Christie’s.
Kozenko declined to comment on how much Alrosa hopes to raise from the sale, but said that The Spirit of the Rose will be the most expensive stone ever polished in Russia. The company is still considering how to conduct the sale, with a decision expected next month, she said.
It’s a good time for a sale, as pink stones are about to get even rarer after Rio Tinto Group confirmed earlier this year that it was shutting its giant Argyle operation in Australia. The mine produces about 90% of the world’s pink gems.
Alrosa found the 27.85-carat rough stone at its alluvial mines in Russia’s Far East in 2017 and named it Nijinsky, after ballet dancer Vaslav Nijinsky. The preparation and cutting process, which took a full year, was done at Alrosa’s cutting factory in Moscow.
The Spirit of the Rose was named for the ballet Le Spectre de la Rose, staged by the Ballets Russes company, which premiered in 1911 and in which Nijinsky was a star.
