About a week ago, officials of the US State Department and European Union (EU) alerted leading diamantaires and jewellers in Mumbai that plans were underway for harsher sanctions on diamonds originating from Russia, two persons familiar with discussions told ET.
It is feared the rule – that allows Russian rough diamonds to find their way to factories in Surat before being polished and shipped to luxury stores and dealers in New York, Paris and Tokyo – is about to change dramatically.
Today, as long as the roughs from Russia undergo a “substantial transformation” – acquiring the 4Cs of colour, carat, cut and clarity through skilled Indian craftsmanship – domestic diamond firms can freely export the cut and polished diamonds to the US and other G7 (Group of Seven) countries.
Transforming a mined stone into a polished diamond also changes the item’s harmonised system (HS) code, a six-digit number given to identify goods in cross-border trade.
However, if the G7 sticks to its plan, Indian diamond houses would soon be unable to sell stones cut from Russian roughs in affluent G7 markets even if they are transformed with cut and polish.
“We gather from the meeting held this month with the US government and EU officials that preparations are on to impose tougher sanctions on diamonds originating from Russia and (being) sold in the US and other G7 countries. They want to formalise the sanctions by the end of May,” said Vipulbhai Shah, chairman of Gems & Jewellery Export Promotion Council, the prime lobby comprising 7,500 jewellers.”We suggested that this should be gradually implemented as there is no technology to trace the origin of a rough stone,” said Shah. “Any abrupt decision will hurt the industry as the US is the largest market for gems and jewellery.”
The virtual meeting, said an industry person, was meant to spell out the shape that the decision taken during the G7 meeting this year could take. The G7 leaders’ statement issued on February 24, 2023, 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.”
Trade Impact
As the Russia-Ukraine war continues with no sign of de-escalation, Indian diamond exporters fear their sales in affluent G7 markets could be impacted.
According to trade circles, it’s difficult to place a number on the total quantity of rough stones sourced from Russia. While direct imports from that country may comprise 10% of total roughs imports, the actual quantity would be more as Russian roughs also enter through markets such as the UAE and Belgium.
A diamond trader said, “It’s almost impossible to track and trace the origin of each stone. And given the US and EU stand on Russia, very few exporters would like to stick their neck out to certify that a stone is not from Russia. Who would do that? You may inadvertently expose yourself to ban and even prosecution, if it is later found that sanctions have been violated. It’s a decision that would impact diamond companies in several countries, not just in India.”
In recent years, some diamond firms have been buying roughs from Moscow mining giants such as Alrosa to diversify their imports and reduce dependence on DeBeers. In overcoming the sanctions on several Russian financial institutions and dollar payments, some jewellers have been importing Russian diamonds from Dubai, where Russian businesses have clout. Such transactions, where payments are settled in dirhams, involve importing gems from UAE entities that could be backed by a Russian miner.
A ban on Russian stones could end all such deals where gems are routed through a third country and payments are not settled in dollars or through a bank on the US sanctions list. “Hopefully, there will be more meetings before the sanctions come in May. Perhaps, G7 should apply the rules on bigger stones – diamonds above a certain threshold level of carat -instead of putting a blanket ban on diamonds of all sizes,” said another person aware of the matter.
According to industry data, overall gross exports of gems and jewellery – at $34.86 billion between April 2022 and February 2023 – has dipped 2.18% from the year-ago period.