EU Sanctions on Russian Diamonds Threaten Armenia's Thriving Diamond-Cutting Industry

The imminent threat of European Union sanctions on Russian diamonds casts a shadow of uncertainty over Armenia's flourishing diamond-cutting industry. The fate of this industry, integral to Armenia's economy, hinges on the EU's capacity to trace the origins of these gems back to Russian mines.

Reports from Eurasianet indicate that the EU is poised to include measures against the sale of Russian diamonds in its forthcoming 12th package of sanctions aimed at Russia due to the war in Ukraine. The move, designed to pressure Russia's economy and limit its financial capabilities for warfare, is anticipated to significantly impact Armenia's burgeoning diamond-cutting sector.

The impact, whether positive or negative, pivots on the EU's ability to trace the journey of cut diamonds to their rough origins in Russian mines. The proposed sanctions, outlined by the European Commission and awaiting endorsement from the 27 EU member states, target diamonds of Russian origin cut in third countries, revealed the AFP, which had reviewed a copy of the document.

Commencing from January 1, the embargo is set to encompass "non-industrial natural and synthetic diamonds as well as diamond jewelry." Moreover, the ban on the import of Russian diamonds cut or polished in third countries will be phased in between March and September, according to AFP.

Armenia's diamond-cutting industry heavily relies on raw gems from Russia, primarily procured by the Armenian state-owned company Hay-Almast, established in 2021 to facilitate bulk acquisitions from Alrosa, one of the globe's leading rough diamond suppliers.

Tigran Khachatryan, Director of Hay-Almast, voiced concerns over the potential impact of EU sanctions. "EU sanctions would undoubtedly affect Armenia's diamond-cutting industry, but it's challenging to speculate on the extent," he remarked, noting that 30-40 percent of the rough diamonds sourced by Hay-Almast originate from Russia.

Armenia's diamond-cutting sector has witnessed exponential growth, attracting significant foreign investments, including from KGK Diamonds in India. The industry's expansion has coincided with a rising demand for Russian raw diamonds.

Recent statistics from the Armenian Customs Service highlight the sector's boom, with 2022's total cut diamond exports amounting to $418 million, quadrupling 2021 figures. Though growth continued in 2023, it slightly slowed, with $240 million in cut diamonds sold in the first six months of the year.

Amidst uncertainties, some hope that Armenian diamonds originating from Russia might evade identification. An anonymous source in the Armenian government told Eurasianet, "The challenge lies in monitoring Russian rough diamonds' global movement and determining the origin of diamonds cut in Armenia or elsewhere."

Armenia's export/re-export supply chain, typically routing diamonds first through the United Arab Emirates, plays a pivotal role. Banking on re-exports has significantly bolstered Armenia's economy in recent years, notably since Russia's conflict with Ukraine.

However, experts caution that enforcing sanctions on diamond origins poses considerable challenges due to the stones' small size, alterations during cutting, and potential mixing with stones from other sources.

Armen Ktoyan, an economist, highlighted the risks associated with banking solely on diamond industry growth, indicating that most profits accrue to international companies handling global sales, urging cautious investments in this sphere.

Amid apprehensions, efforts to diversify rough diamond importers have surfaced as a potential strategy to safeguard Armenia's diamond industry against potential total bans on Russian rough diamonds.

Tigran Khachatryan revealed ongoing talks with a potential new supplier, hinting at optimism for a deal in the making. "We are halfway there in our talks with the new supplier. We hope to have a result soon," he shared, underscoring the industry's efforts to mitigate potential risks associated with sanctions on Russian diamonds.