(Bloomberg) — Russia’s invasion of Ukraine is fracturing a billion-dollar trade that spans the permafrost-laden diamond mines of Siberia, secretive trade houses in Antwerp, dusty polishing powerhouses in India and New York’s glittering designer jewelry stores.
Russian mining giant Alrosa PJSC supplies about a third of the world’s raw gems, and US sanctions against the company are causing panic in the industry. Firms from Tiffany & Co. to Signet Jewelers Ltd. have announced plans to suspend sales of Russian diamonds. With wedding season looming in America, desperate delegations have been seeking a workaround from India, the world’s largest exporter that cuts and polishes nine of 10 stones.
The US relies on India for close to half its diamonds. That makes New Delhi an unmatched stakeholder in managing the fallout and keeping shops on Fifth Avenue stocked. Disruptions could crimp supplies across North America and cost India $2.5 billion this quarter, or nearly 10% of its annual sales. As pandemic restrictions ease, Signet and other jewelers expect 2.5 million weddings in the US this year, the highest number in four decades.
In the Indian city of Surat, one of the world’s largest polishing hubs, the diamond bazaars have gone quiet in recent weeks. Workers sit idly and grumble over cups of tea. Imports of new stones are down. Prices have fallen. Practically everybody has the same complaint: Sanctions have pushed exporters into a tough spot.
“Normally the streets are chock-a-block with buyers and sellers,” said Manish Jain, a trader who was commiserating with several others on a hot day last month. “Prices suddenly dropped after the war began and we are now left holding high-valued stocks with no buyers.”
For now, a caveat in US sanctions allows imports that are “substantially transformed” in a country like India, though lawmakers are pushing to close loopholes. But polishers say some clients have started refusing Russian-mined stones, characterizing them as conflict diamonds. With so much uncertainty, India’s traders are preparing to mark the origin of every stone — re-routing Russian ones to friendlier markets in China, Southeast Asia, or the United Arab Emirates.
India is still exporting Russian diamonds to the US since the current stock was obtained pre-sanctions. But that supply will run out by the first week of June, according to Vipul Shah, vice chairman of India’s Gem & Jewellery Export Promotion Council. And while many European countries have yet to restrict imports of Russian luxury goods, the list is growing there, too. The UK announced that high-end items from diamonds to caviar would be prohibited or heavily taxed.
De Beers, the world’s second major diamond provider, is also limited in cranking out more gems. The company now only carries working inventory stocks and its mines are running at full tilt. There is little chance of material increases in supply before 2024, when an expansion at its flagship South African mine is slated for completion.
“It’s very difficult to see us bringing on any new production,” Bruce Cleaver, chief executive officer of De Beers, said in an interview in Cape Town.
Losing access to Russian diamonds over the long term would devastate the industry, Shah said, jeopardizing thousands of jobs in India and hitting major trading centers across the world.
Alrosa canceled its last sale in April and is unlikely to sell any large volumes again this month, according to people familiar with the situation. The price of a small rough diamond, the type that would end up clustered around the solitaire stone in a wedding ring, has surged about 20% since the start of March, the people said.
“Diamonds are not like oil, where some other country can jump in to make up for a shortfall,” Shah said. “No new mines are coming up elsewhere. Our dependence is huge.” Gems and jewelry are India’s third-largest source of export revenue, pulling in about $39 billion for the fiscal year that ended in March.