The West's uphill battle to sanction Russian diamonds

Rough diamonds displayed in an Alrosa Diamond Sorting Center in the town of Mirny, Russia in July 2019. Photo: Alexander Nemenov/AFP via Getty Images

Since Russia invaded Ukraine, the U.S. and its allies have imposed sanctions on Moscow's energy exports, banks, and oligarchs. But one luxury good has largely escaped the glare of international sanctions: diamonds.

Why it matters: Russia counts diamonds as one of its top 10 non-energy exports by value, with exports totaling over $4.5 billion in 2021, according to the U.S. Treasury Department.

What's happening: Actions taken by the U.S. so far have not affected the bulk of Russia's diamond supply.

Yes, but: The current U.S. ban on Russian diamonds excludes those that have been "substantially transformed" in third countries, such as through cutting and polishing — an exemption that accompanies many U.S. import prohibitions, a Treasury Department spokesperson told Axios.

A senior State Department official told Axios that the initial sanctions were part of a plan of "strategic escalation" because sanctioning polished diamonds "is not something that can be done quickly."

The big picture: Despite calls from Ukraine and some European Union countries, successive EU sanctions packages have excluded Russian diamonds.

One of the reasons sanctioning polished diamonds is hard is that they're difficult to trace amid the sprawling tapestry of actors that comprise the diamond industry.

The G7 vowed in February that it would "work collectively on further measures on Russian diamonds, including rough and polished ones."

The State Department official said that it's possible to have an import ban that is based on a due diligence declaration, as was previously done with rubies from Burma.

Both an import ban and a traceability scheme would be necessary to effectively target Russian diamonds, Merket said.

The European Commission did not respond to Axios' request for comment.