Last week, the International Gem Society detailed how the war between Russia and Ukraine, launched by the visions of Vladimir Putin, would not affect the supply of diamonds or gold in the short term. However, a recent announcement by the President of the United States, Joe Biden, changed the landscape.
Using the powers extended in the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) (IEEPA), the National Emergencies Act (50 U.S.C. 1601 et seq.), and section 301 of title 3, United States Code, President Biden issued the Executive Order on Prohibiting Certain Imports, Exports, and New Investment with Respect to Continued Russian Federation Aggression on March 11, 2022.
The following portions of the executive order pertain directly to the global diamond and gold supply:
(i) the importation into the United States of the following products of Russian Federation origin: fish, seafood, and preparations thereof; alcoholic beverages; non-industrial diamonds; and any other products of Russian Federation origin as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State and the Secretary of Commerce;
(ii) the exportation, re-exportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of luxury goods, and any other items as may be determined by the Secretary of Commerce, in consultation with the Secretary of State and the Secretary of the Treasury, to any person located in the Russian Federation;
(iii) new investment in any sector of the Russian Federation economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, by a United States person, wherever located.
“This is a very big deal and a once-in-a-lifetime situation for the diamond industry,” said Tiffany Stevens, CEO and general counsel of the Jewelers Vigilance Committee (JVC) to CNN regarding the situation. However, Stevens showed uncertainty how US Customs would treat diamonds polished in another country yet had their origin in Russia.
“The issue is ‘what is considered of Russian origin?'” Stevens said. “It can originate in Russia and is then cut and polished in India. Is it then considered an Indian diamond at that point?” Without further clarification, the diamond industry will continue to scramble to find the proper protocol under current restrictions.
The initial set of sanctions the US Treasury listed Sergei Sergeevich Ivanov, the current CEO of state-owned diamond mining company Alrosa and board member of the private bank, Gazprombank. The Treasury Department believes sanctions against Alrosa will keep the company from raising capital through the US market, which Putin would use to further his invasion of Ukraine.
“We will see probably see a shortage of diamonds and an increase in price due to that shortage in diamonds in about four months. Give or take,” said Michael Zibman, general manager, Windsor Jewelers of Augusta, Georgia to WRDW this week.
The long-term effects of Putin’s aggression in Ukraine will likely see a long-term price increase of diamonds originating from Russia. The US joined the G7 (Germany, Japan, the United Kingdom, France, Italy, Canada, and the US) along with the European Union in revoking Russia’s ‘most favored nation’ trading status.
“Revoking PNTR (Permanent Normal Trade Relations) for Russia is going to make it harder for Russia to do business with the United States and doing it in unison with other nations that make up half of the global economy will be another crushing blow to the Russian economy that’s already suffering very badly from our sanctions,” President Biden said regarding the strategic move.
While Congress needs to approve the move to become official in the US, such legislation is expected to pass with relative ease. In practice, PNTR entitles a trade partner with the lowest possible tariffs as legally possible. In the US, such a tariff is 2%, making it more likely for companies to do business with goods that will cost less to import.
With a clear message sent by the global community against the war in Ukraine, several questions remain for all sectors of the diamond industry; however, it seems to be a consensus that prices will see a dramatic increase over the next year as the effects of sanctions begin to bear fruit.