As sanctions on Russian diamonds kick in, traders are fleeing their long time European base of Antwerp and setting up in Dubai to avoid what they say are “impossible” rules, The Times reported on March 26.
A ban on dealing with Russian diamonds is being phased in that was included in the twelfth sanctions package last year. Under the new rules, any stone larger than one carat has to be sent for inspection to ensure it is not of Russian origin after March 1.
However, traders have complained that it is “impossible to determine the origin of a stone” simply from its physical composition and that the red tape is delaying delivery to customers by up to two weeks.
From September the rules will be tightened further to include any stone larger than 0.5 carat that will affect four-times more stones and will make the disruptions worse, say traders.
British diamond dealers are not affected by the rules which are being imposed only on EU members, the president of the London Diamond Exchange told The Times, but many British deals still process stones in Antwerp, so will also be affected.
Some European traders plan to move to Dubai or India to avoid working under the EU rules. Most diamond cutters have already done this due to cheaper labour and sanctions are expected to exacerbate this trend.
The United States has long since imposed a similar ban on Russian diamonds, but the EU has been extremely reluctant to follow suit. Diamonds are amongst the very last Russian products to be sanctioned in a move that was long resisted by Belgium, as Antwerp holds a disproportionately large share of the European diamond trade.
The diamond industry in Belgium has thrived for centuries and accounts for over half of Russia’s total diamond exports of 28.2mn carats, worth approximately $2.5bn in 2021.
The EU has proposed a new certificate of origin system for diamonds that will expand on the “blood diamonds” regime that already exists on African diamonds.
Russia remains the world’s largest exporter of rough diamonds by volume (35%). Sanctions against Russian banks and the state diamond company, Alrosa, which accounts for 90% of Russia’s diamond production, have already resulted in a significant reduction in Russian diamond exports, which decreased by nearly a quarter to 36.7mn carats in 2022. The overall value of Russian diamond exports, estimated at $3.87bn in 2023 of which $1.4bn went to Belgium.
Dubai in the United Arab Emirates (UAE) will be welcome the sanctions as it has largely ignored the sanctions regime and has become a centre for Russian business in exile that have set up new companies designed to avoid the sanctions regime.