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BENGALURU – The prospect of curbs on Russia’s diamond trade by G-7 members is causing unease in India’s diamond hub of Surat, already distressed by low global demand.
Nine in 10 of the world’s diamonds are cut and polished in this bustling town in the western Indian state of Gujarat. Surat imports an estimated 35 per cent of its rough diamonds from Russian companies including Alrosa, the biggest global producer of the precious gem.
Talk of a ban on Russian diamonds is weighing heavily on Surat’s more than 4,000 diamond processing companies, which employ at least a million craftsmen, polishers and traders.
At the G-7 Summit in Japan on May 19, leaders pledged to restrict trade in “diamonds mined, processed or produced in Russia” to cut off a crucial source of revenue that is funding President Vladimir Putin’s war on Ukraine.
The G-7 is made up of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, with the European Union as a non-enumerated member. A joint statement said it would curb the Russian diamond trade, worth US$4.5 billion (S$6 billion) a year, including by using high-tech methods of tracing.
The same day, the UK’s Prime Minister Rishi Sunak announced a ban on Russian diamond imports. The UK, the US, Canada, New Zealand and the Bahamas had already blocked trade with the Russian diamond miner Alrosa in April 2022.
Ukrainian President Volodymyr Zelenskyy has long called for a ban on the import of Russian diamonds. “I believe that peace is way more valuable than diamonds,” he told the Belgian Parliament in March.
“We are awaiting a proper understanding of how the sanctions will be executed, since there is no way to trace the origin of rough gems right now,” said Mr Vipul Shah, chairman of the Gems and Jewellery Export Promotion Council (GJEPC), a body supported by India’s Ministry of Commerce and Industry.
Mr Shah said it is already troubled by reduced demand as buyers in recession-hit Western countries, particularly the US, minimise luxury spending. Major markets such as China have also not fully opened up for trade since they imposed pandemic restrictions. The soaring price of gold, the primary metal used to set diamonds, has further depressed global demand for jewellery, he added.
The supply of Russian diamonds has also shrunk in India since March 2022, when Western sanctions cut Russia off from the Swift international payment network.
“There is no payment going to Russia, no clearing done in the past six months since banks don’t approve transfers. The Indian government identified some banks with rupee vostro accounts, but it’s not working out,” said Mr Shah.
Around 20 Russian banks, including Gazprom and Rosbank, have opened rupee vostro accounts with authorised dealer-banks in India to enable rupee-based trade. But amid India’s 400 per cent jump in merchandise imports from Russia (a third of it from record crude oil purchases of 1.6 million barrels per day in February), Russia does not seem to want excess rupees piling up.