Could taking Russian diamonds off the market cause a price jump?
If you’re thinking of taking out a collateral loan based on diamond jewelry, it pays to keep tabs on international events that affect diamond supply, demand, and pricing. The conflict in Ukraine is one international event that has diamond dealers in Antwerp, Belgium nervous about a possible disruption in the market.
Western officials have accused Russia of fomenting violence in Ukraine, and if the eastern giant does not back down economic sanctions against Russia are possible. Diamond dealers in Antwerp have been pleading with EU officials to leave diamonds out of the sanctions, fearing that stopping the flow of diamonds from Russia to Antwerp could disrupt one of their city’s prime industries and potentially cost thousands of jobs.
Alrosa, the state-owned Russian diamond mining company, is one of the largest in the world. Alrosa sells about half of its diamonds in Antwerp each year. These diamonds are worth $2.5 billion and make up about a quarter of Antwerp’s diamond business.
Right now, Alrosa and other large diamond companies like De Beers like going through Antwerp to sell their product because the city’s extensive diamond business related infrastructure makes it convenient to do so and also because they get the best prices. However, if sanctions were imposed by the EU, this would change.
With EU sanctions alone, Alrosa could adjust by routing their diamonds elsewhere. Currently, experts in Antwerp say Alrosa’s diamonds are some of the most well-documented available. Other batches of diamonds coming through places such as Dubai have less satisfactory documentation, raising the possibility that some of them may be “blood diamonds” or conflict diamonds. If Alrosa is forced to reroute, their diamonds’ pedigree may be obscured.
If the US also imposed sanctions—as would be likely—then there would be the added hurdle of having to stop the current practice of trading diamonds in US dollars and switch to another currency such as the ruble. Both rerouting the trade and changing the currency would result in a less favorable environment for buyers and sellers alike.
Alrosa and Belgian officials are working closely together to share market information and hopefully prevent or cushion as much of the disruption as possible should sanctions be imposed.
What does this mean for individuals wanting to buy and sell diamond jewelry or take out collateral loans based on diamonds? Ultimately, only time will tell. There may be a small window in which Alrosa diamonds are off the market and diamond demand spikes, causing an increase in prices until Alrosa makes arrangements to get back on the market.
