EU agrees new sanctions on Russia, with an import ban on diamonds

Starting on 1 January, the bloc’s 27 member states will no longer be allowed to buy natural and synthetic diamonds, as well as diamond jewellery, that come directly from Russia, unless these are meant for industrial purposes.

By 1 March, the import ban will be expanded to cover Russian-origin diamonds that have been cut and polished in other countries.

The raft of sanctions – the 12th since February 2022 – also aims to close the loopholes that have pierced through the price cap on Russian oil, which the G7 had set at $60 per barrel. Moscow has in recent months sold its product well above the cap thanks to a fleet of “shadow tankers” and the services of little-known trading firms, easily bypassing the commercial constraints the West thought to have under control.

The penalties do not alter the $60-per-barrell limit but introduce new measures, like an information-sharing system and stronger transparency rules, to ensure the global sales of Urals oil stay within the price cap.

Moreover, the new package blacklists 29 companies, including non-Russian ones, that are suspected of helping the Kremlin get a hold of EU-made advanced goods. The names of these companies were not immediately available.

The announcement made on Monday was only possible after Austria lifted its reservations. Initially, Vienna had blocked the deal over the addition of Raiffeisen Bank International (RBI) to Ukraine’s list of “international sponsors of war.” The list has no legal repercussions but entails considerable reputational damage.

Ukraine’s anti-corruption agency had targeted RBI, the largest Western bank in Russia, for allegedly providing services to “oligarchs close to the Kremlin.” Vienna took exception to this reasoning and pushed for the firm’s name to be removed.

The designation was suspended last week, paving the way for a resolution.

The news comes at a critical moment for Kyiv, which is pleading with Western allies to urgently step up their military and financial assistance to help the war-battered nation resist the advancing Russian troops. 

During last week’s dramatic summit in Brussels, EU leaders agreed to start accession negotiations with Ukraine, a sought-after goal by President Volodymyr Zelenskyy. But hours later, Hungarian Prime Minister Viktor Orbán wielded his veto power to prevent the approval of a €50-billion special fund in long-term support for Ukraine. 

Notably, Hungary did not veto the latest round of sanctions.

A phased-in ban

The ban on diamonds has been at the very top of Kyiv’s demands for more than a year.

Russia is the world’s largest producer of rough diamonds by volume, with more than 90% of its business dominated by a single company, Alrosa. In 2021, the year before the war was launched, Russia exported around $4 billion (€3.77 billion) worth of diamonds, an amount that fell only slightly in 2022 as the international community refrained from imposing any sort of penalty.

The secretive nature of the diamond industry has been credited as the main reason for the delayed action. Diamonds pass through multiple hands until they reach the final customer. For example: Russian rough diamonds are usually cut and polished in India and then traded in Antwerp, Belgium, from where they are shipped to other markets around the world like the United States, Hong Kong, and the United Arab Emirates.

This means that a retailer will most likely be unable to pinpoint the exact origin of a particular diamond, making it hard to separate Russian from non-Russian goods.

Fearing that a poorly designed ban would quickly fall victim to the underground market, the EU and the G7 have been developing an international traceability system to track down diamonds across the entire supply chain, from the mines to the shops.

Earlier this month, the G7 announced a roadmap in three gradual steps:

• By 1 January, impose restrictions on the imports of diamonds that are mined, processed or produced in Russia, excluding industrial purposes.

• By 1 March, impose restrictions on the imports of Russian diamonds that are processed in other countries.

• By 1 September, establish a “robust traceability-based verification and certification mechanism” for rough diamonds. The system should be in place in Western countries that are “major importers” of rough diamonds, like Belgium.

The G7 opened the door for cooperation with nations that fall outside the group but have a major stake in the diamond industry, such as India and the United Arab Emirates.

“We will continue consultations among G7 members and with other partners including producing countries as well as manufacturing countries for comprehensive controls for diamonds produced and processed in third countries,” the joint statement said.

The EU sanctions approved on Monday build upon this scheme and provide the legal basis for making the import ban a reality.

The bloc’s plan will replicate the timetable set by the G7.