THE DIAMOND WORLD

RUSSIA’S INVASION OF UKRAINE CREATES UNCERTAINTY
ABOUT ONGOING SUPPLY OF ROUGH DIAMONDS TO INDUSTRY

The invasion of Russian forces into the neighboring country of Ukraine on February 24, 2022, and the furious international reaction it has evoked, including the imposition of severe economic sanctions and the closing of European airspace to Russian airlines, has thrust the diamond industry into a state of confusion. This is because Russian diamond producer Alrosa, which is 33 percent owned by the country’s federal government, is responsible for about 28 percent of global rough diamond supply in terms of value, with sales totaling $3.98 billion in 2021.

The initial sets of sanctions against Russian entities announced immediately following the invasion, and in particular those being imposed by the U.S. government, have fallen short of a blanket ban on purchases of rough diamonds from Alrosa, but the mining company has been targeted both directly and indirectly, and its CEO has been personally sanctioned. The risk and consequences for members of the industry doing business with Alrosa are not yet clear at this stage.

On the same day that Russian forces entered the Ukraine, U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) the imposed a set of expansive economic measures, in partnership with allies and partners, targeting the core infrastructure of the Russian financial system. They included all of Russia’s largest financial institutions and the ability of state-owned and private entities to raise capital, encompassing nearly 80 percent of all banking assets in the country.

It also extended debt and equity prohibitions against 13 major state-owned and private entities, among them Alrosa, which OFAC described as “the world’s largest diamond mining company, responsible for 90 percent of Russia’s diamond mining capacity, which accounts for 28 percent globally.”

On February 27, the European Union, United States and their allies agreed to cut off a number of Russian banks from the main international SWIFT payment system, as well as to freeze the assets of Russia’s central bank, limiting the country’s ability to access its overseas reserves.

Based in Belgium, SWIFT, or the “Society for Worldwide Interbank Financial Telecommunication,” is a secure messaging system that facilitates transactions between more than 11,000 banks and financial institutions across the globe. The affected banks in Russia were not immediately named, but a German government official said they would include “all those already sanctioned by the international community, as well as other institutions, if necessary.”

The only country to have been previously sanctioned from using the SWIFT system was Iran, and that move resulted in its losing 30 percent of its foreign trade.