Russia starts selling diamonds to itself due to sanctions

For the first time in 15 years, the Russian government will start buying diamonds at the expense of the federal budget in order to support the Alrosa state corporation, which currently suffers from the effects and embargo of the Western sanctions.

Source: Reuters and The Moscow Times

Details: Russian Treasury and Alrosa, 34% of which belongs to the Russian State Property and another third to the government of Yakutia, agreed to procure diamonds for Goskhran, state-owned precious metals and gems repository.

A source of Reuters reported that the first agreement on the purchase of diamonds was signed in March, and such agreements will be regular throughout the year.

Alrosa, which controls 95% of Russian and over a quarter of the global diamond production, was added to the EU sanctions list and sanctioned by Switzerland in January 2024.

Then the G7 countries banned direct import of diamonds from Russia and decided to implement a gradual embargo on the delivery of the diamonds of Russian origin, processed in third countries.

"Last year Alrosa already faced problems with sales: the reserves of unsold diamonds on the company’s balance almost doubled from RUB 52 billion (approx. US$563.6 mln) to RUB 84 billion (about US$910.4 mln) in money equivalent. At the end of the year the company reported about the loss of 15% of profit – RUB 85 billion (US$921.2 mln), 9% of revenue (RUB 322 billion, or  almost US$3.5 bn) and the drop in diamond production by 3% to 34.6 million carats," The Moscow Times stated.

India remains the largest buyer of Russian diamonds, processing 90% of global diamond production. But in late 2023, Alrosa faced problems even on this market: a local regulator asked to stop the deliveries, explaining it with surplus of raw materials.

The EU estimated Russia’s lost income from losing a part of the diamond market to be €4 billion. Dmitry Peskov, spokesperson of the Kremlin, threatened the West with the "boomerang effect", stating that Alrosa would find ways to evade the sanctions and new markets.

The Russian government reportedly bought the diamonds produced in Russia during the global 2008-09 financial crisis. Then Goskhran purchased a US$1 billion worth of gems from Alrosa.

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