Why is Russia's invasion of Ukraine causing rough diamond prices to soar?

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By Anna J. Park

Prices of diamonds have been rising steeply recently amid continuing geopolitical uncertainty surrounding Russia's invasion of Ukraine. Lesser known in Korea is that Russia is one of the key global producers of the precious stone.

According to an analysis report published by Meritz Securities, diamonds are one of the key exports of Russia, along with its variety of natural resources such as petroleum, gold and palladium.

Russia was a top exporter of rough diamonds, beating four other countries on the list of the top five ― Botswana, Canada, Congo and Australia ― as it accounted for 29.3 percent of global diamond production in 2020. Diamonds were also Russia's 12th most exported item in 2021, as it took up 0.8 percent of the country's entire export volume.

However, as a string of recent U.S. government sanctions included Alrosa, Russia's state-owned diamond miner, concerns over the strained global supply of diamonds have pushed the global price of a one carat diamond to $230.3 in March, which is a 7.5 percent jump from December.

“The current bullish move of diamond prices could continue, even if the supply concern would be alleviated, due to a deepened wealth divide as well as an increase in the consumption of luxury items,” Jung Eun-soo, analyst at Meritz Securities, explained.

While the pandemic shock impacted the global diamond market in 2020, resulting in a double-digit fall year on year in both jewelry, wholesale and retail and rough diamond mining, the industry recovered to its pre-pandemic level in 2021, thanks to increased demand for luxury goods.

The analyst said that various value chain sectors of the global diamond industry are expected to benefit from the increase in rough diamond prices.

“As the supply of diamonds is limited, the rising trend in its prices will continue as long as there is a steep fall in demand,” he added.