RUSSIA

A History of Diamond Production: Russia: Siberian Splendors

When Stalin sent a team of geologists into the barren, sub-zero ice flats of Siberia in 1947 to look for diamonds, he was desperate for the gem. His quest had nothing to do with diamonds as a means of earning much-needed foreign exchange. He wasn’t looking to cater to the pent-up demands for luxury goods among his war-weary people. Without diamonds, the Soviet Union could not rebuild its ravaged industrial infrastructure, could not ready itself for its coming Cold war face-off with the United States. To Stalin, diamonds were an industrialist’s best friend. Women would have to wait.

Ironically, when Russian geologists finally found significant diamond deposits in Yakutia in 1953, they were of extraordinary high quality—too beautiful to waste on drill bits and dye cutters. Besides, General Electric had already introduced affordable synthetic diamonds that could meet many, if not most, of industry’s needs. In the years ahead, Russia would join GE, De Beers and later China as a major producer of man-made diamonds suitable for industry.

Once the Soviet Union met the brutal challenges of Arctic diamond mining, it had to develop a distribution system for them. In one of the stranger Cold War alliances, it found a way to clandestinely do business with arch-nemesis capitalists at De Beers. Around the same time, it started selling cut stones from its own Moscow and Kiev factories directly to select New York and Antwerp firms. These diamonds were astonishingly well crafted. Russian cutters were told to cut for beauty and perfection rather than weight and volume. So their stones had a cookie-cutter precision that led some to falsely accuse them of being man-made in origin and robot-cut in manufacturing. The truth is the Russians were just marching to a different drummer.

Today, Russia is still a giant among producers, responsible for 25% (39.8 million carats) of all annual production in 2004 worth $1.9 billion, or 20% of total value. Of that prodigious volume, De Beers had an agreement to buy $800 million worth of stones. But, in 2003, European Union regulators said that was anti-competitive and ordered Russia to stop all sales of rough to De Beers by 2009—or face stiff fines. De Beers has agreed to phase out rough purchases from Alrosa, Russia’s state-run diamond monopoly, by that date. Russia will be forced to sell direct to cutters as well as develop its own polished cutting industry.