Despite the consensus that the Russia-Ukraine war could see long-term negative effects on the global diamond industry, the secretary of Surat Diamond Association, Damji Bhai Mawani believes there currently isn’t a need to worry. Mawani explains this stance by pointing to the significant inconsistencies in diamond prices since June of last year.

During that time frame, the price of rough diamonds has gone up 55 to 60 percent, while polished diamonds have only seen a 15 to 30 percent increase. Surat, a city in India with a population of over 6 million, is where approximately 85 percent of the world’s rough diamonds are cut and polished. Alrosa, the government-owned Russian mining giant assured Surat that the supply of diamonds to India would continue; however, industry experts don’t all share Mawani’s optimism regarding the long-term health of the diamond market. 

The European Union (EU), the United States (US), and the United Kingdom (UK) have used their combined force to remove Russia from the SWIFT international trading system, making trading with Alrosa extremely difficult. Alrosa is the largest global diamond mining company, with a 2019 output of 38.5 million cts. If they become squeezed out of the international market for a significant period, it is foreseeable that the cost of diamonds may skyrocket.

The specific wording of Russian sanctions leads some industry insiders to believe western countries will do nothing to stop the flow of Russian diamonds. Russian gems are exported as rough to India, where they are then cut and polished. India has not imposed any sanctions on Alrosa or diamonds originating in Russia. “The sanctions – unless they deepen – are not going to affect the normal business,” Martin Rapaport, founder of RapNet, the world’s largest online diamond trading network, said in a recent industry presentation.

Kiran Nasir Gore is an International Disputes Lawyer & Adjunct Professor at George Washington University Law School. Photo Credit: George Washington University Law School

One expert we spoke to had different advice. “In a sanctioned environment, it is crucial for diamond dealers to plan and screen for third party risks within their supply chain that could result in material shortages and supply disruptions,” said Kiran Nasir Gore, International Disputes Lawyer & Adjunct Professor at George Washington University Law School in conversation with International Gem Society. “Supply chain challenges eventually result in price fluctuations, but it takes time for this to come down the track. With less overall supply, third-country sources are going to raise their prices consistent with demand.”

Gore has 15 years of expertise as an international lawyer, whose client roster has included luxury and retail diamond and jewelry dealers in New York and Chicago. Gore expects a continuing landscape to come with the fallout of the Russia-Ukrainian war. “I think we can expect that the landscape will continue to change and develop. Although it seems the US, EU, and others are in agreement that sanctions on Russia are necessary, it is not a given that the sanctions imposed on Russia as a common target are identical – it’s possible they may vary in scope or scale.”

Gore believes a short-term effect of the sanctions for diamond dealers in the US, EU, and the UK revolves around their need to “carefully vet their supply chain with support from legal and compliance professionals to ensure that they do not run afoul of sanctions on Alrosa as they continue to try and operate as usual.”

“Looking even further longer term, and thinking optimistically, we can hope the war will end and sanctions will be phased out. But the compliance challenge will remain,” Gore said regarding the approach for phasing out sanctions in the eventuality that the war in Ukraine comes to an end and sanctions lift. “We cannot expect that all nations will implement identical approaches and timetables for phasing out sanctions. The need for strict due diligence and compliance efforts, throughout the supply chain and in oversight of foreign subsidiaries, will linger for likely years to come. “