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What happens to diamond prices when the Russian war ends?

Background           

Since Russia invaded Ukraine, the world’s major economies have tightened sanctions against Russian diamonds. The European Union is working on a “watertight’ traceability system,” where the onus falls on importers to prove their diamonds did not come from a Russian mine. Although it is not easy to establish where a diamond comes from, anyone caught lying about the origin of their diamonds to the Customs Control of most countries will face severe penalties.

Unlike the Kimberley Process, which requires specific documents to accompany rough diamond shipments, diamond importers must offer proof of origin or have their shipments confiscated. On the other hand, De Beers has developed a block-chain tracking system called Tracr and is offering a “code of origin” for some of its diamonds. This gives them a heads-up against Alrosa, the Russian diamond miner. Alrosa’s current customer base is limited to 15 to 20 primarily Indian companies. For the foreseeable future, further restrictions on Russian diamonds seem inevitable.

How important is the Russian supply to the world market?                  

Although Russia produces about 30 % of the world’s natural diamonds, some importers of Russian diamonds must have discovered ways to circumvent sanctions, as sales from Russian miner Alrosa fell by only 25% since the boycott started. During the same time, diamond sales of de Beers rose by a similar amount to $5.8 billion. De Beers clearly supplied the market with diamonds that Russia could not.

The portion of Russia’s diamond production that did not reach world markets since 2022 is about 8% of total world production. This has had some influence on the diamond price increases in 2022. However, the significant decrease in diamond prices in 2023, is due to a worldwide economic downturn rather than the Russian sanctions.

What happens when the war ends?                                                

The volume of diamonds stockpiled in Russia since the start of its aggression and whether it will be dumped when sanctions are lifted, can only be speculated on. What is undeniable is that the Argyle and several Canadian diamond mines have ceased operations, and no discoveries have been made in the past five years. The more sensible view is that diamond prices will stabilize when sanctions against Russian goods are intensified. But, if Putin comes to his senses and sanctions are lifted, a hoard of Russian diamonds may become available, causing prices to soften further. After that, it may take a year or two for diamond prices to increase again.

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