Sanctions On Russian Diamonds Could Make Jewellery More Expensive
Whatever you think about the Russian Special Military Operation in Ukraine, nobody can deny the increase in global tension and economic impact primarily driven by EU and United States sanctions against Russia. Now Russian diamonds are sanctioned!
As if energy and food prices were not enough, we can add another area of life that may cost us more in the near future – diamond jewellery!
What's The Story behind Russian Diamonds?
While most of us think of diamonds coming from Africa or perhaps Canada, the industry has undergone substantial structural changes in recent decades. Russia became the largest diamond producer and exporter in 2009, and the industry hasn't looked back since then (until now). In 2020, Russia produced 30% of the world's diamonds, a whopping 23 million carats of gem-quality diamonds.
Russia's most prominent rival, Botswana, produced 16 million carats in the same year; that's over 30% lower production, and the other producers fell away behind the leaders.
Alrosa is the largest diamond producer in the world. The Russian-owned Alrosa handles 90% of Russian diamond production. The business is owned partly by the Russian government with a 33% share. Another 33% is owned by the Russian Republic of Yakutia, where the company is based.
The sanctions against Alrosa do not entirely stop the company's activities but are designed to make the business harder to run and hence less profitable.
However, President Biden in the United States has issued an executive order barring Russian diamonds from the United States.
Alrosa's biggest rival, the De Beers Group, has stated that they will work to make up the shortfall in diamonds destined for the USA. De Beers diamonds are sourced from Botswana, Canada, South Africa and Namibia.
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What About Alrosa And The UK?
Alrosa has been fully sanctioned here in the UK since March 24th, 2022. British citizens and businesses are now banned from doing business with the Russian mining company. So, like the USA, there is likely to be a short term impact on diamond supply. Of course, many diamonds are already made into fine jewellery in the UK. These diamonds will not be affected by world prices of diamonds unless retailers choose to increase their profit margins.
What Will Happen To Diamond Prices?
The sanctions against Alrosa do not stop the company from mining or selling its diamonds – except for sales to the USA and the UK. However, it is very likely that, spurred on by social pressure, people will choose to boycott Russian diamonds around the world. That will reduce the availability of diamonds as the world's consumers choose diamonds from the 'other 70%' of global diamond production. Indeed, the fear that this might happen will probably cause jewellers and manufacturers to reduce or stop buying Alrosa diamonds in favour of De Beers diamonds.
These changes in purchasing preferences will very likely lead to shortages of gem-grade diamonds from countries other than Russia, which will lead to higher prices for diamonds in our jewellery.
We cannot be sure of this, but industry analysts have seen anecdotal evidence that non-Russian diamonds were being sold at prices higher than expected and that this was due to the Russian/Ukrainian conflict.
It will likely take some 3 or 4 months for a shortage of gem-grade diamonds to become apparent due to the number of diamonds already in the supply chain. Diamonds that are already purchased and waiting to be turned into jewellery.
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Should You Buy Your Diamond Jewellery Now Or Wait?
Of course, as retailers of diamond jewellery, we have a horse in the race, but I think we should be cautious. Firstly, there is no good reason to bring forward an unplanned purchase. It is not as though diamonds were going to run out!
Prices may go up in the short term, but as supplies even out, we can expect prices also to normalise. For example, De Beers plans to boost output in 2022 by 25%. That would mean that the diamond supply will be almost unaffected in many markets. Of course, De Beers, who will be virtually the sole supplier in markets like the United States, will be unlikely to sell their diamonds at a discount – they will likely charge a premium for as long as they can. If that happens, blame corporate greed rather than supply issues.
Alrosa will be active, unsanctioned in some markets and probably pricing their gems at bargain prices. India springs to mind here!
So, if you are ready to make a purchase, do so now. If you are undecided but considering a purchase, take a wait and see attitude – see what prices look like when you are ready to buy and possibly put off your purchase for a while. Remember that it will take several months from the date of this article for stocks of existing Rusian diamonds in the UK to run out and lead to shortages. Longer-term, prices will probably normalise.
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Life Goes On At All Diamond!
We still love jewellery. Our British designers and artisans are still creating beautiful fine diamond jewellery. We are still proud of our products, quality and prices. So, please take a look at our range of diamond jewellery whether you are looking for an engagement ring, a graduation gift or an 'I love you' gift. Be inspired by beauty!
