Diamonds: War, not sanctions, has driven down prices for Russian gems

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There is a disconnect between diamonds as tokens of love and their gritty origins. This is most noticeable when they are helping to finance a conflict. Last week, the United Kingdom joined the United States in ban russian imports of the gems

The move increased the level of sanctions on Russia’s big diamond miner, Alrosa. Other major economies are expected to follow suit. However, the impact on revenue from diamonds that help finance Russia’s war in Ukraine is likely to be negligible.

Russia is a major exporter of diamonds. The new laws aim to divert an additional $240 million of Alrosa revenue to state coffers this year. Sanctions on the company are difficult to enforce. Indian processors polish most of the Russian diamonds and India refuses to participate.

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

The high proportion of smaller stones that Russia produces makes removing them from the market very difficult. They can easily end up in Kimberley certified stone mix packs. Data from European buyers shows that many imports in recent months have such certification.

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

If rough diamond prices were to rise, a relatively small part of the increase would be passed through to finished stones given the weak outlook, says Ben Davis of brokerage Liberum.

Consumers have reduced their purchase of diamond jewelry in response to the cost of living crisis. The war in Ukraine has contributed to economic insecurity, particularly in Europe. As a result, Russian stones are worth less. Diamonds are not Vladimir Putin’s best friend.