In the face of increasing international sanctions, Russian investors are increasingly turning to diamonds as a means of preserving and increasing capital. Russia, the world’s second-largest diamond producer after Botswana, produced $3.55 billion (USD) annually in 2022 with significant potential in the sector.
However, sanctions imposed by the G7 and the EU prohibit the direct purchase of rough Russian diamonds. In turn, investors seek alternative ways to protect their assets.
Diamonds: A Investment Instrument
Diamonds are traditionally considered a reliable store of value due to their rarity, durability, and high liquidity. During periods of economic instability and inflation, investors turn to precious stones to diversify their portfolios and protect capital from depreciation.
Unlike other assets such as gold or real estate, diamonds have a high concentration of value in a small volume, making them easy to store and transport.
Impact of Sanctions: The Russian Diamond Market
The introduction of sanctions against the Russian diamond mining industry significantly changed the structure of the market. Since 1 March, 2024, the United States banned the import of Russian diamonds weighing more than 1 carat. Since 1 September of the same year, the U.S. extended this to stones more than 0.5 carats. Such measures are aimed at limiting Russia’s income from the export of precious stones.
However, the sanctions have certain loopholes: diamonds mined in Russia but cut in other countries, such as India, are not subject to the ban. This allows Russian companies to bypass the restrictions by sending rough diamonds abroad for cutting.
Russian Investor Strategies
Faced with sanctions, Russian investors are using several strategies to preserve and increase their capital. One of the key methods is re-exporting diamonds through countries that do not support sanctions, where the stones are cut and certified and then supplied to world markets under new labels.
The development of the domestic cutting industry allows for minimising dependence on foreign partners and keeping added value within the country. The domestic market is also becoming a priority; demand for rough and polished diamonds is growing because of their positioning as a reliable investment asset and a symbol of luxury.
These measures allow Russian investors to adapt to the new economic conditions and continue to profit from the diamond sector.
Parallels with the United Arab Emirates
The UAE experience can serve as an example for Russia in developing the diamond industry.
Dubai has become one of the world’s leading diamond trading centres in recent years, thanks to favorable tax policies, developed infrastructure, and a strategic location. In 2024, the UAE’s diamond trade volume exceeded $40 billion, making the country the third largest in the world after India and the United States.
Key factors of the UAE’s success include:
- Tax Incentives: The absence of VAT on gold and diamond trading attracts investors and contributes to the growth of the sector.
- Developed Infrastructure: The presence of modern trading platforms such as the Dubai Diamond Exchange ensures the convenience and security of transactions.
- Flexible Regulation: Transparent and efficient procedures for registering and licensing companies facilitate rapid business development.
In the context of economic uncertainty, Russian investors are turning to diamonds as a “diamond shield” to protect their assets. Using re-export strategies, developing domestic infrastructure, and studying the experience of countries such as the UAE, investors are trying to adapt to the new reality and ensure the stability of their investments.
At the same time, it is important to consider the risks and conduct a thorough analysis before investing in this sector.
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