Sanctioning Russian diamonds, a critique

Recently G7 countries imposed trading sanctions on Russian diamonds processed in third countries, over and above restrictions placed by USA &UK in the wake of Ukraine war. Is this business strategy effective?

My critique is based on facts & figures than driven by impulsion or compulsion felt & exhibited by the West. When you craft your business strategy of bringing pressures upon your opponent you must consider not only the position of the opponent but the circumstances under which he operates.

Ostensibly, Russia is the largest producer of diamond roughs globally. More than one third of diamonds mined globally comes out of Russian mines say around 46 million carat. Alrosa the state owned Diamond Company alone accounts for 90% of the mined output. Equally important is the sales volume. Russia accounts for about 42 million carats of roughs that stand above Botswana the treasure trove of diamonds in Africa.

While Russia sells cut & polished diamonds with the fabulous Russian cut eulogised globally the main concentration is on the roughs. Most of these roughs go to India which is the world’s largest diamond processor employing millions of people doing this delicate jobs. Therefore, G7 sanctions on third party processed diamonds would be in the crosshairs of India whose support is vital for the West in international relations.

The second largest importer of Russian roughs is Belgium, where Antwerp functions as the global diamond trading & supply centre. Diamond traders in Antwerp are not going to take this type of sanctions head down. Not only they would oppose it tooth and nail but would not hesitate to use their leverage in the EU nerve centre in Brussels.

There again yet another operational glitch barges in. This sanction is applicable only to imports by the G7 countries which accounts for 40% of global trade only.

Diamond industry works in a circuitous manner, whose labyrinthine structure cannot be intelligible to administrators of the G7. Hence any tracking system to detect & eliminate Russian roughs is not going to be easy.

More important aspect is the transparency factor which is totally lacking in the diamond world. Even an accomplished trader like De Beers would not venture into signing on to any tracking system. One, they themselves have got entangled in ‘blood diamonds’ saga. Secondly, De Beers are not keen to outpace a worthy competitor like Russia with whom they can do business as supplier once the African mines they own and operate are fully exploited.

Here comes the bombshell for the business strategy! Even if G7 succeed in imposing sanctions in the final analysis it is of no use because Russian diamond exports net only a revenue of US$ 4.5 Billion whereas oil & gas brings in US$ 384 Billion. Why fret for a minuscule of just over one percent?

 

Cheers!

 

Muthu Ashraff Rajulu

Business Strategist

Mobile: + 94 777 265677

E-mail: cosmicgems@gmail.com

Blog:   Business Strategist