Diamonds: war, not sanctions, have cut prices for Russian gems

There is a disconnect between diamonds as love tokens and their gritty origins. This is most glaring when they are helping to finance a conflict. Last week, the UK joined the US in banning Russian imports of the gems.

The move increased the level of sanctions on Russia’s big diamond miner Alrosa. Other important economies are expected to follow suit. The impact on the diamond income helping fund Russia’s war in Ukraine is likely to be negligible, however. 

Russia is a significant diamond exporter. New laws aim to siphon an extra $240mn of Alrosa revenues into state coffers this year. Sanctions on the business are difficult to enforce. Indian processors polish the bulk of Russian diamonds and India declines to play ball.

A sanctions flop would be consistent with the record of the Kimberley Process. This UN initiative was meant to halve the flow of African conflict diamonds. It is judged to have mostly been a failure.

The high proportion of smaller stones that Russia produces makes eliminating them from the market very tricky. They can easily end up in Kimberley-certified mixed packages of stones. Data from European buyers shows many imports in recent months carry such certification.

Even if sanctions work, they would have limited scope to lift diamond prices in the face of weak consumer demand. London-listed Petra Diamonds said prices in May were 13 per cent lower than in March. De Beers, which is owned by Anglo American, reports that prices in its latest sale of rough diamonds were 20 per cent lower than a year ago.

If uncut diamond prices rose, relatively little of the increase would pass through to finished stones given the weak outlook, says Ben Davis of brokers Liberum.

Consumers have cut back on buying diamond jewellery in response to the cost of living crisis. The Ukraine war has contributed to economic insecurity, particularly in Europe. Russian stones are worth less as a result. Diamonds are not Vladimir Putin’s best friend.