In a significant move reflecting the economic strain of Western sanctions, the Russian government has embarked on a novel strategy, earmarking funds from the federal budget to purchase diamonds. This initiative aims to bolster the beleaguered Alrosa state corporation, which finds itself ensnared in the restrictive grip of international embargoes.
In a collaborative effort between the Russian Treasury and Alrosa, wherein 34% of the latter is owned by the Russian State Property and another third by the government of Yakutia, an agreement has been reached to procure diamonds for Goskhran, the state-controlled repository for precious metals and gems.
Sources privy to the matter, as reported by Reuters, disclosed that the first of such agreements for diamond procurement was formalized in March, with further similar agreements anticipated throughout the year.
Alrosa, a dominant force in the diamond industry, commanding 95% of the Russian and over a quarter of the global diamond production, has recently found itself in the crosshairs of international sanctions. In January 2024, it was added to the EU sanctions list and concurrently sanctioned by Switzerland.
Subsequently, the G7 nations imposed a ban on direct diamond imports from Russia and resolved to institute a phased embargo on diamonds of Russian origin processed in third-party nations.
The Moscow Times highlighted the challenges Alrosa confronted in the preceding year, citing a substantial increase in unsold diamond reserves on the company’s balance sheet, climbing from RUB 52 billion (approximately US$563.6 million) to RUB 84 billion (about US$910.4 million) in monetary terms. Additionally, the company reported a 15% decline in profit, amounting to RUB 85 billion (US$921.2 million), a 9% reduction in revenue (RUB 322 billion, or nearly US$3.5 billion), and a 3% dip in diamond production to 34.6 million carats.
Despite India maintaining its position as the primary purchaser of Russian diamonds, handling 90% of global diamond production, Alrosa encountered hurdles in this market segment towards the end of 2023. Local regulatory authorities pressed for a halt in deliveries, citing an oversupply of raw materials.
The EU approximated Russia’s foregone earnings resulting from the partial loss of the diamond market at €4 billion. Dmitry Peskov, Kremlin spokesperson, issued a warning of potential repercussions for the West, asserting that Alrosa would explore avenues to circumvent sanctions and seek out alternative markets.
Notably, during the global financial crisis of 2008-09, the Russian government facilitated the purchase of domestically produced diamonds. Goskhran, at that time, procured gems worth US$1 billion from Alrosa.