Bloomberg: Russia’s secret gem sales are dividing the diamond world

The secretive sale of Russian diamonds, worth hundreds of millions of dollars every month, is fracturing the global trade that stretches from cutting factories in Mumbai to luxury stores on New York’s Fifth Avenue.

Many in the industry refuse to deal in Russian gems following the invasion of Ukraine and after mining giant Alrosa PJSC was hit with US sanctions. But there’s a handful of Indian and Belgian buyers who are snapping up large volumes at lucrative terms, getting to pick and choose the diamonds they need while others stay away, Bloomberg reported on September 17.

The deals are happening quietly, even for the famously secretive diamond world. And while they’re not breaching sanctions, there are other risks to consider – heavyweights like Tiffany and Signet Jewelers don’t want Russian diamonds that were mined since the war began, and suppliers say they are worried about losing crucial contracts by dealing in Alrosa gems.

The sales present a problem for any attempts at a boycott: Once stones enter the supply chain, they can become near-impossible to track.

Diamonds are sold in parcels of similar sizes and qualities – there are about 15,000 different categories – and can be retraded and remixed multiple times before ending up in an engagement ring or pendant.

Western retailers trying to avoid Russian gems are also concerned about securing enough diamonds, especially the small and cheaper types that Alrosa specialises in. The company accounts for about a third of rough diamond supply, and any Russian stones mined before the war are essentially all used up.

Some big European luxury brands have asked Alrosa’s rival, De Beers, to increase sales to suppliers they trust, according to people familiar with the matter who asked not to be identified discussing private information.

The company has made some efforts to do so, but has little extra to sell, the people said.

As Russian supplies divide the diamond world, much of the tension is focused in the “midstream”, a vast network of mostly family-owned businesses that cut, polish and trade the world’s precious stones – many of them in India – and provide the link-up between mining companies and jewellery stores.

Before Russia’s invasion of Ukraine, Alrosa sold to more than 50 such customers every month. Sales froze up initially after the invasion but have now returned to near-normal levels. But it’s happening very quietly.

Before the war, the company ran 10 sales a year out of its Antwerp, Belgium, sales office based on a set calendar, and published the results afterwards. Alrosa has now stopped publishing any information on its sales or financial performance.

Most of the Indian midstream is still avoiding Russian purchases because of the risk that they lose western customers as a result, according to people familiar with the matter. The United States, in particular, is a crucial market – 50 per cent of all polished diamonds are sold in the country, ranging from luxury pieces worth tens of millions to stones that sell for less than $200 at retailers like Walmart.

While diamonds are a discretionary luxury for the people who buy them, the business itself is an economic bedrock for the major cutting and trading hubs.

The diamond trade roughly supports an estimated one million jobs in India, where the government has pushed to keep business flowing.