As I reflect on my trip to the WFDB Presidents meeting in Shanghai, I appreciated once again the complexities and conflicting commercial interests that entities from around the world need to deal with. Clearly, there are big ones and small ones to consider.

How has the war in Ukraine impacted the diamond industry?

The  G7 group of countries which are made up of United States, Canada, France, Germany, Italy Japan, United Kingdom and the European Union were determined to create as much pressure as possible on the Russian government’s ability to derive revenues from exports so that it will in some way impair their  ambitions to conquer Ukraine, or depending on your interpretation restrict NATO from bringing Ukraine into the NATO alliance.
So, the G7 implemented a sanction on all rough diamonds being exported from Russia, banning them from entering G7 countries.

In dollar terms, the total exporter production of Russian diamonds amount to $3.8 billion, from a pool of approx $15 billion of rough diamonds worldwide (rough diamonds are those crystals that come from the mines and have not entered the production process i.e. polishing). One needs to appreciate that not all these diamonds go to G7 countries after they have been polished. China is not part of the G7 and purchases approximately 10 % of the global polished diamonds. India is the largest polishing centre in the world accounting for 95% of all diamond manufacturing. For them this is a big blow as they are the biggest purchaser of Russian rough diamonds which they sell into the US market. America purchases approximately 40% of all polished diamonds in the world. The Middle East is a huge buyer of diamonds, with countries like Qatar and Saudi Arabia renowned for the purchasing of exceptionally large and expensive stones. So, in real terms, outside of the G7, Russian diamonds where the sanctions do not apply would be worth to Russia a total of $2 billion. It is important to note that even with these sanctions the Russian diamond industry managed to make a profit of USD$900 million. Just to put that in perspective, apparently, it’s more than what DeBeers made.

I will now begin to explain what an insane obligation and problem the G7 is creating for the diamond and jewellery industry around the world with their sanctions.

What’s happened in the diamond world?

The G7 said let’s ban all diamonds coming from Russia. Now, how does one determine where diamonds come from? Up until now, the diamond industry, one of the most regulated industries in the world, both from a tracking system that was developed after the blood diamond era, and the fact, that the financial services sectors around the world consider diamonds to be high risk, so they have implemented exceptionally stringent anti-money laundering laws very much targeting the diamond trade.

They issue at hand is how does anyone prove to a customs department in each country that the diamonds that have been imported from anywhere in the world do not come from Russia?

Interestingly, within the European Union a lovely little country called Belgium that has a history of diamonds dating back 500 years, and traditionally was one of the largest importers of diamonds from Russia, raised their hand telling their colleagues in the G7 that the only viable solution is that  all diamonds from around the world should be sent through to Antwerp.  They supposedly have the technology, people skills and manpower to determine what is and what isn’t a diamond from Russia.

“We will be the determiners of diamonds origin.  We are the only ones with the skill to do this.”

Total arrogance, but worse a subterfuge on multiple levels.

Let’s look at some facts.

GIA (Gemmological Institute of America) is considered worldwide the foremost authority on diamond research.

Sarine an Israeli tech company has developed the scanning, laser cutting, and diamond plotting technology which is used by 80% of the industry.

95% of all the polished diamonds in the world are polished in the city of Surat in India.

Sadly, Antwerp was one of the major diamond centres in the world 50 years ago, today is but a shadow of its glorious diamond days.

To the layperson, the obvious question is “Is this true? Is Antwerp the only country in the world that has the people, the technology, and the skills to make such a determination?”

The answer is a resounding no, not even close.

Not only do they not have such a skill nor technology but unless one is able to track the diamonds as they come out of the mine, using a combination of laser scanning, blockchain databases, and a methodology which in some way guarantees the chain of custody along the way, it is impossible for any entity in the world to determine the source of the diamond. Just for your information, there are some mines which utilise the lasers, the scanning, the blockchain databases and a whole raft of other tools to show a diamond journey of origin all the way to polished, and literally to the ring on your finger. However, they themselves will tell you, there is no technology in the world today that can take a natural diamond and tell you exactly where it came from. So how did Antwerp sell such a bluff?

Let’s go back to my original premise of the complexities and commercial interests that entities around the world have, this is clearly a case in point. Antwerp, which still has a diamond centre has literally been decimated and has been overtaken by places such as India, and particularly Dubai. For decades, they have no longer been a diamond polishing industry of any consequence. To give them the respect they deserve, they do have a small and specialist quota of diamantaires who tend to be brought in to polish exceptionally large and valuable diamonds, where you can’t beat the experience of generations of knowledge. Why has it been dying? Because of its archaic work practices and inability to bring new technology innovation into this space which is required to inspire the next generation of diamantaires.  They have not found new opportunities that vertically integrate into the diamond jewellery market, and so the next generation has moved onto to other industries, which is very sad, as they were the market leaders for generations.

When this G7 initiative of sanctions came forward, Antwerp raised its hand as the diamond experts, and said “we have a solution”. The rest of the G7 countries were happy to hear that and were happy to get rid of the problem to someone who claims to have a solution.  Everyone still has the romantic notion that Antwerp was the diamond centre. Nobody really did the homework to understand that the solution Antwerp was proposing was a total fallacy.

Could Antwerp work with the rest of the diamond centres around the world in a unified manner to find a workable solution? Of course they could!  Is there still a wealth of knowledge in Antwerp in the diamond industry? Absolutely!

So why didn’t they?

Bottom line they had no interest in working with all the diamond centres around the world but saw this as their chance to grab the mantle of being the diamond centre that Antwerp once held many decades ago.  Sadly, this is the perfect example of a small group blinded by their ambition who successfully sold the idea to a larger group who looked at the few billion dollars being discussed and thought it a bargain.  In terms of the money that is normally discussed re oil, gas and grain, a few billion is nothing more than a rounding error on the balance sheet.

Antwerp thought - this is our chance, all roads lead to Antwerp and we will control everything! What does that mean? It means that every diamond parcel should be sent to Antwerp first to be verified that it doesn’t come from Russia before it is sent to anywhere else in the world.

How can they prove that this does not come from Russia? Do they have some magical technology? No! For clarity’s sake, the GIA (the largest diamond certification laboratory in the world) have spent more money on research in this area than anyone else.  They conclude that it is impossible to guarantee the origin of a diamond as there are too many factors which make the product homogenous. I personally have attended lectures to see if it is at all possible. When it comes to white diamonds today, no laboratory can state unequivocally where it came from, unless as I wrote above you can track them, ensuring the chain of custody using lasers, data imaging and datasets that cannot be manipulated.

It’s bad enough that the world is suffering financial difficulties and supply delays due to multiple conflicts around the world.  On top of this we now have diamond parcels being delayed and stopped unless documentation can be provided in some manner or form to guarantee that the stones are not from Russia. These custom departments do not have the knowledge, skills, or training to come to any conclusions. Bottomline, it’s a nightmare and it’s costing the industry millions of dollars because the methodology was so badly executed, and the Antwerp entities concocted a ridiculous story that was easier to believe than not. The G7 countries showed a lack of understanding and seem to have no desire to understand the implications that this can have internationally, impacting on the commercial interests of so many.  However instead of Antwerp raising its hand and showing the rest of the diamond world that it can join together and find a solution that works for everyone, they attempted through subterfuge to take advantage for themselves.

There is no doubt that this will backfire but in the meantime the diamond industry is just going to suffer another setback, at a time where it can ill afford it.

Stay tuned for no doubt I will have updates as to how this current debacle is resolved, and a more practical solution is implemented.