Saturday, December 2, 2023

Diamonds glitter in India but the West won’t buy

Indian and Belgian diamond merchants are picking up large quantities of Russian gems that are under a severe sanction from the Western bloc.

This, in turn, is causing heartburn in the Western diamond market which has refused to deal in Russian gems following the war with Ukraine and after mining giant Alrosa PJSC was hit with sanctions from Washington.

On Feb. 24, the one-year anniversary of Russia’s invasion of Ukraine, G7 leaders vowed to take action to decrease sales of Russian diamonds, JCK, a top portal for diamonds, said.

“Given the significant revenues that Russia extracts from the export of diamonds, we will work collectively on further measures on Russian diamonds, including rough and polished ones, working closely to engage key partners,” said a G7 (Group of Seven) statement, issued by the White House. 

G7 consists of the United States, Canada, France, the United Kingdom, Germany, Italy, and Japan.

But JCK said “the statement was not as strong as some expected, and it did not advocate specific measures against Russian diamond exports”.

In February, Belgium’s Prime Minister, Alexander De Croo, reiterated his strong position on Russian diamonds, saying that he opposes an EU ban on Russian diamonds – and that the boycott should instead encompass all Western markets. 

In a statement to Politico quoted by IDEX online, De Croo said: “The revenue for Russia from diamonds can only stop if the access of Russian diamonds to Western markets is no longer possible. On forging that solid front, Belgium is working with its partners.” 

However, the Jewelers Vigilance Committee (JVC) wrote in a bulletin issued Monday that “forthcoming sanctions will likely address” the current provisions that allow Russian diamonds cut and polished elsewhere to enter the United States.

“There is not yet any specific guidance available for U.S. businesses to implement,” the bulletin concluded. “However, JVC has received information that restrictions are likely to specifically target Russia-mined diamonds, regardless of where they are cut and polished.

“Any suppliers abroad who are still purchasing diamonds from Alrosa should begin segregating those goods to ensure they do not reach the U.S. market and should be prepared to begin making Customs declarations that their goods do not contain Russia-origin diamonds.”

But Russian diamonds are being sold all over.

The Indian and Belgian merchants are slowly, yet steadily, picking up these Russian gems at very, very lucrative terms. It was not immediately known who these Indian diamond merchants were. 

“There is some hoarding going on, but no one knows which Indian companies are doing it, and who are these Belgian companies,” says a top diamond source.

The diamonds which are getting picked by Indian and Belgian traders are – probably – of high grade, the source added.

How are the sales happening despite sanctions from the West? Traders – it is reliably learnt – are shifting their transactions away from US dollars to avoid being caught. Many are paying with rupees. Most European and Middle Eastern banks have withdrawn from funding purchases from Alrosa, but some Indian banks facilitate transactions in other currencies, like Euros and rupees.

And once the stones enter the supply chain these diamonds are near-impossible to track, ostensibly because these are remixed many times and sold in sachets.

The Russian diamonds and its secret supplies is something not many want to talk about in the open. Last year, Belgium’s Prime Minister told Bloomberg about the country’s position and said Russian stones should not be sanctioned. “More than 80 percent of rough diamonds are traded through its port city of Antwerp at some stage,” Bloomberg said.

Sources said a number of family-owned Indian companies which are into the business of cutting and polishing stones are also providing links between mining companies and jewellery stores. 

But there are risks of breaching the sanctions. As a result, top companies like Signet and Tiffany & Co have made it clear that they do not want Russian diamonds that were mined since the Ukraine war started. A few European luxury brands have also asked Alrosa’s rival, De Beers, to increase sales. 

Across the world, diamond businesses are economic bedrocks for the major cutting and trading hubs. And Alrosa gems are important because they come in small and cheaper sizes. India is an important destination, so is Belgium.

The Russian crisis – on a different level – has wrecked the mass workers in the bustling Surat town in Gujarat.

The other side of the story is that diamonds – in bulk – from Russia are no longer headed for India’s bustling Surat due to a sanction from the Western bloc, thereby triggering a major crisis for the town’s traders.

The crisis, claim those in the know, started because India gets nearly 65 percent of the roughs from Russia’s Alrosa. The company supplies nearly one third of the world’s rough diamond supply. 

Worse, companies in the US are no longer buying from India because the Indian products are suspected to be largely of Russian origin.

Damji Mawani, secretary of Surat Diamond Workers Association, says supplies have reduced and the prices of roughs have shot sky-high. “This is a very tough time,” Mawani said in a telephonic interview. 

India is the world’s largest diamond cutting and polishing hub, cutting and polishing in Surat nearly 80-90 percent of rough diamonds at an estimated 6,000 diamond polishing units that produce an annual turnover of $24 billion business. 

But supplies have dried up and nearly 7,000 workers have lost their jobs, Mawani said adding, most of the Indian midstream has stopped Indian purchases. No one wants to lose the Western customers. The US, especially, is a crucial market because nearly half of the world’s polished diamonds are sold in the US.

Once Alrosa operated ten to 11 sales every year out of its Antwerp office but now the company has stopped publishing information on sales. JCK said Alrosa no longer publicly lists its “Alrosa Alliance” members, but a pre-invasion list published at the end of 2021 can be seen here.

Many fear Russian diamonds could eventually end up in the markets of China, Japan and India, which account for one third of the global demand and are happy to receive Russian production. There is more, Alrosa is offering perks including unusual flexibility and is happily keeping prices of its diamonds on par with De Beers.

Experts say a diamond’s origin is absolutely clear at the start of the chain when it gets a Kimberley Process certificate, designed to end the sale of blood diamonds or conflict diamonds that financed wars in the 1990s.

But the KP certificate is no longer a guarantee.

But after that, things can get murky. Diamond parcels often get intermingled at trading houses; original certificates silently replaced with documents which are tagged as “mixed origin”. As a result, it is near-impossible to keep track of where Russian diamonds are eventually sold.

(Shantanu Guha Ray is Asia Editor for Central European News (CEN). His book, Diamond Trail, published in 2019, traces the growth of India’s diamond market and world diamond trade)

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