Mar 14, 2022 8:44 AM


On March 11, 2022, President Biden issued a new Executive Order that prohibits the importation of Russian diamonds into the U.S. Today’s clarification from OFAC as explained by the JVC indicates that the order is limited to the US importation of Russian rough diamonds or of diamonds cut and polished in Russia. The order places no restrictions on the US importation of polished diamonds sourced from Russian rough but cut and polished elsewhere.

The trade is advised to review the JVC statement which advises extreme caution as additional sanctions may be implemented and broadened to include polished diamonds from Russian rough. In the meantime, the only restriction to diamond supplies is the inability of the cutting centers to pay Alrosa for rough.

Assuming the payments issue is resolved, current US sanctions on Russia’s Alrosa will not reduce the supply of rough diamonds. India, where about 92% of the world’s diamonds are manufactured, will enable money transfers without using dollars, euros or the SWIFT system. Americans will continue to legally buy polished diamonds from Indian or other cutters who have sourced the rough from Alrosa, as the polished diamonds are not subject to US sanctions.

While the Alrosa sanctions will not affect diamond supply, other factors related to the Russian invasion will have a major impact. Global economic warfare will significantly boost inflation, which was already rising due to overstimulation of the money supply and economy in response to the Covid-19 pandemic. Expectations of double-digit inflation are not unreasonable. Higher inflation will reduce disposable income and broad-based US diamond demand. It will also drive higher interest rates, which will further reduce disposable income, consumer wealth and consumer demand.

Shortages of wheat, oil and other essentials and their impact on inflation will have a greater effect on diamond prices than any shortages of diamonds. Other factors influencing diamond prices will include consumer boycotts that may reduce prices for Russian diamonds while increasing prices for documented African and Canadian diamonds. A primary stabilizing factor will be Chinese demand, which is not expected to change in the short term. Demand for higher-quality investment diamonds may improve due to economic uncertainty and money flow sanctions.

The medium- to long-term impact of the current global economic warfare will depend on the extent to which such warfare intensifies and on China’s position in it. Additional US sanctions on Alrosa targeting polished diamonds and not just the money flow will reduce supply, although it is unlikely that US customs will be able to ascertain the sources of polished diamonds being imported into the country. If the US extends Chinese sanctions or tariffs, China’s economic growth will decline, reducing global diamond demand. The role of investment diamonds as a store of value will increase due to political uncertainty, currency controls and sanctions.

The current short-term speculative demand for rough diamonds based on strong US consumer polished demand or possible Russian shortages is unsustainable. We expect US demand to settle down as increasing inflation and interest rates reduce consumers’ disposable income. In spite of the shocking political turmoil, short-term polished diamond prices will most likely stabilize as the desire for the financial and emotional security diamonds provide remains strong in the current highly uncertain environment.

Readers are encouraged to review the videos of our webinar, “Politics, Economics and Diamond Prices: Dealing Diamonds Amid the New World Order.” Our “Russian Sanctions: Resources for the Trade” web page also provides extensive information.

Martin Rapaport




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