European Union Considers Import Ban on Russian Diamonds, Impacting Global Market

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The European Union is on the verge of imposing an import ban on Russian diamonds, severing a crucial market for the world’s largest diamond producer. European Council President Charles Michel, speaking at the G7 summit in Hiroshima, Japan, stated that “Russian diamonds are not forever.” The plan to sanction the Russian diamond industry, which accounts for $4 billion in exports, is expected to be announced this weekend as part of the 11th package of sanctions following Russia’s invasion of Ukraine in February 2022.

Russia currently produces about one-third of the world’s diamonds, making it the largest exporter, according to the Antwerp World Diamond Centre. The potential EU ban comes more than a year after the United States prohibited its companies from purchasing Russian diamonds for non-industrial purposes. On Friday, the United Kingdom also announced its intention to ban imports of Russian diamonds later this year, along with imports of copper, aluminum, and nickel of Russian origin.

The ban will have significant financial implications for Russia, as well as for European retailers and diamond traders. European consumers may experience the impact of higher prices for luxury jewelry and watches due to a potential shortage of diamonds in the market. The diamond industry already suffered a blow in April 2022 when the United States banned imports from Alrosa, a Russian state-owned mining company responsible for 90% of Russia’s diamond mining capacity.

While the United States accounts for half of the global demand for diamonds used in jewelry, Europe and the United Kingdom together represent only around 5% of the market. However, the ban on Russian diamonds could still lead to price inflation for European consumers. Diamond production takes time and significant investment, and it may take up to two years before the market sees any significant increase in supply.

Synthetically made diamonds, primarily produced in China, are unlikely to face severe disruption as they are widely used in industrial applications due to their hardness. These lab-grown diamonds may help partially fill the gap in the jewelry market left by the absence of Russian exports. However, cheaper synthetic diamonds are unlikely to compete with their natural counterparts, as natural diamonds are considered a luxury product.

The potential ban on Russian diamonds has raised concerns among diamond traders in Antwerp, Belgium, the world’s largest diamond trading hub. Traders fear that sanctions will drive business away from Antwerp, which has already lost significant trade to Dubai in recent years due to tightened rules on transparency and ethical sourcing. Approximately $40 billion worth of diamonds pass through Antwerp annually, with 5% to 10% originating from Russia.

Closing loopholes in the ban will be a crucial task for the European Union. The EU’s new sanctions package will focus on preventing Russian diamonds from entering the bloc through circumvention routes. The challenge lies in designing a comprehensive system that can accurately determine the origin of diamonds to close potential loopholes.

In conclusion, the potential European Union ban on Russian diamonds threatens to disrupt the global diamond market. The ban would impact Russia’s finances and European retailers while potentially leading to price increases for consumers. Diamond traders in Antwerp express concerns over losing business, and the challenge for the EU lies in designing an effective ban that prevents circumvention. The long-term effects will depend on the industry’s ability to adapt and fill the gap left by Russian diamond exports.