US Treasury Sanctions Largest Russian Diamond Miner Producing Third Of World's Supply

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by Tyler Durden
Saturday, Apr 09, 2022 - 04:00 PM

The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) has hit Russian diamond miner Alrosa PJSC with sanctions, potentially reducing 30% of the world's rough stones, tightening global supplies, which may result in soaring prices. 

Alrosa, a Russian state-owned enterprise and the world's largest diamond mining company responsible for 90% of the country's diamond mining capacity, was sanctioned by the OFAC. All clients and other counterparties must halt transactions with the Russian miner by Thursday, the OFAC said.

"These sanctions will continue to apply pressure to key entities that enable and fund Russia's unprovoked war against Ukraine," said Brian Nelson, Under Secretary of the Treasury for Terrorism and Financial Intelligence.

"These actions, taken with the Department of State and in coordination with our allies and partners, reflect our continued effort to restrict the Kremlin's access to assets, resources, and sectors of the economy that are essential to supplying and financing Putin's brutality," Nelson said. 

In 2021 Alrosa generated over $4.2 billion in revenue. Diamonds are one of Russia's top non-energy exports by value, with exports in 2021 totaling over $4.5 billion. 

According to Bloomberg, "Alrosa produces about the same amount of gems as De Beers, the iconic diamond company that had a monopoly until the start of this century." The U.S. represents about half of the world's global diamond demand, and supply shortages could follow as a third of the world's diamond supply evaporates. 

Diamond data provider PolishedPrices' broad diamond index shows prices have already retraced 50% of the decline from the peak in 2011 to the low in 2020. Data has yet to reflect the Russian invasion of Ukraine nor yesterday's OFAC sanction. The last print on the index was Feb. 22. 

There's also a push by a bipartisan group of 11 US Congress members to halt the diamond trade from Russia to India. Most of the diamonds from Russia are polished in India and freely move around the world. 

"As it stands at this time, a diamond can be mined by an Alrosa subsidiary, polished or cut in India or another country, and sold to the United States without any prohibition, making a profit for the Russian government," the lawmakers said in a letter. 

The turn of events is a plus for the diamond industry after gem prices plunged before the virus pandemic as demand plunged (read: here & here & here). De Beers might be able to secure more market share and capture increasing profits as price increases are likely to continue and demand remains robust in the U.S.

However, soaring prices are bad news for Americans getting engaged as their ability to afford a multi-carat ring becomes harder. Perhaps, consumers should look into lab-grown diamonds as a cheaper option.