US sanctions on Russian diamonds: Surat industry stares at 25% job loss

Companies urge that sanctions be imposed only on high-valued diamonds of one carat and above

With the United States and Europe expected to impose stricter sanctions on diamonds originating from Russia by the end of May, the Surat polishing industry is staring at a 25 per cent job loss.

Representatives of the US State Department and European Union (EU) are discussing the matter with key stakeholders of the diamond industry, especially in India. If harsher sanctions are imposed, it will be difficult for diamonds sourced from Russia and polished elsewhere to be sold in US and European markets.

Led by Surat, the Indian diamond industry polishes nine out of 10 stones mined globally.

Surat houses over 6,000 diamond polishing units, which employ about one million workers and clock an annual turnover of $21-24 billion, or Rs 1.6-1.7 trillion.

Last year, after the invasion of Ukraine, the US had slapped sanctions on Russia’s Alrosa, the world’s largest diamond miner. Alrosa supplies 27 per cent of the world’s rough diamonds.

“If you look at it, there is no scientific method of tracing the origin of a rough diamond. So, we don’t know what such sanctions will achieve,” says Anoop Mehta, president of Mumbai-based Bharat Diamond Bourse (BDB), one of the world’s largest diamond exchanges. “In the worst-case scenario, it could lead to fewer orders for polishing diamonds for the US and European markets, which could mean fewer jobs for polishers.”

The US sanctions on Alrosa had resulted in a temporary shortage of rough diamonds last year, forcing the industry in Surat to send over 250,000 workers on a 15-days leave in May 2022.

“This time around, there could be at least a 20-25 per cent loss in jobs among diamond polishing units in Surat,” says Vipul Shah, chairman, Gems & Jewellery Export Promotion Council (GJEPC).

In the absence of a scientific method to trace the origin of rough diamonds, Indian industry stakeholders are of the view that the US and EU authorities will have to rely on self-declaration by diamond exporters.

The officials are said to have met several industry stakeholders, including the GJEPC, BDB and leading diamond exporters, among others.

Industry representatives in India are believed to be proposing alternatives such as sanctions on only larger sizes of one carat and above.

"We are trying to convince the US and EU authorities that the diamond industry is a soft target. Russian diamond imports to India, which are drawing sanctions, are hardly worth $2 billion, whereas oil imports from Russia, where there are no sanctions, stand at $80 billion,” says Shah of GJEPC. “If at all sanctions are to be imposed, then they should at least consider them for diamonds of larger sizes of one carat and above."

Russian rough diamonds make for roughly 33-35 million carats of the total global production of 130 million carats, and are valued at $3.5-4 billion. The US alone consumes 35-40 per cent of Russian diamonds.

Dinesh Navadia, veteran diamantaire and regional chairman of the Gem Jewellery Export Promotion Council (GJEPC) for Gujarat, is not as anxious as others.

“Since the war and the initial sanctions, the share of Russian imports has fallen from 27 per cent to roughly 10 per cent,” he says. “The industry is gradually turning to other sources, and there are mines such as those in Botswana that are expanding to meet the gap created by Russia. So, stricter sanctions might have a limited impact.”

The share of lab-grown diamonds is also increasing, which could further minimise the impact, he adds.

Losing sheen

• Russian rough diamond imports to India stand at roughly $2 billion
• Before the war, Russian rough diamonds formed 27% of the imports to India
• Today, Russian rough diamond imports are down to 10%
• Stricter sanctions from the US and EU could result in 25% job loss in Surat
• Surat employs about one million workers across 6,000-plus polishing units
• Industry suggests sanctions on larger-sized diamonds of one carat and above