When most people think about Russia, they think about vodka. The clear elixir is not the only thing produced in the former Soviet Union that is highly sought after. In fact Russian diamonds are some of the highest quality stones in the world…
The history of Russian diamonds is a tumultuous one. That is because during the Soviet Union era, Russian diamonds existed but they were not well-publicized because of control of the communist regime. When the Soviet Union broke up and became Russia, that was the time that the diamond trade in that country exploded. Unlike other countries, one of the main characteristics of the Russian diamond industry was its vertical integration. Russian diamonds were process from start to finish in the country. Unlike other parts the world like South Africa where the stones were shipped to India to be cut, some of the highest quality diamond cutters in the world sit in this Eastern European country.
This means that a buyer of Russian diamonds receives an end to end final piece, when purchasing a gemstone from this country.
In 1990 the CSO, a DeBeers company, acquired exclusive marketing rights for all of the country’s future diamond production for five years, in return for a billion-dollar loan to Moscow. There were certain “carveouts” for industrial diamonds, but jewelry quality diamonds were not included in that agreement.
However, the Russians found a number of loopholes in the agreement simply by qualifying gemstone quality diamonds as industrial quality diamonds. This effectively allowed the Russians to circumvent the agreement and produce and sell its diamond wares into the open market. By the early 2000s the Russians had established 90 diamond polishing factories throughout the country. This was a sign of the beginning of change in the former Soviet Union. In 2001 DeBeers in Russia reached a new five-year agreement, however by 2005 the European Union accused the Russians and DeBeers of collusion to control diamond prices. In late 2007 the courts favored Russia and DeBeers, but it was clear that certainty over that relationship was far from obvious.
When the world collapsed in 2009 and DeBeers and other mining companies reduce production to adjust diamond demand to keep prices up, Russia continued to produce diamonds and became the world’s largest producer (by volume), passing even DeBeers.
The company that was formed in Russia, Alrousa, did not sell its diamonds into the open market, but rather sold them to the Russian government who stockpiled them for a rainy day.