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U.S. sanctions on Russia are putting the squeeze on the diamond market

The FTC is warning diamond marketers about how they sell lab-grown gems to consumers

Diamonds on table
Photo (c) Scott Kleinman - Getty Images
Much of the consumer talk around the strict sanctions the U.S. and others have imposed on Russia due to its invasion of Ukraine is about the impact on goods like gas and food. Interestingly enough, though, one consumer segment that's experiencing some fallout from that decision is the U.S. jewelry market. 

Despite all the marketing spiel about Antwerp, Belgium, being the “diamond capital of the world,”  Russia and Botswana actually hold the world’s largest diamond reserves. In Russia, the Kremlin-controlled diamond producer Alrosa mines 90% of the country’s stones. With Alrosa having no way to supply buyers outside of Russia with diamonds because of the sanctions, the availability of precious stones has dropped precipitously. That, in turn, has sent prices soaring by double-digits. 

The story doesn’t end there either. Alrosa may be taking on additional risk because it could be further sanctioned or prevented from providing diamonds to the jewelry market via its African operations if it’s hit with individual jewelry store sanctions. If that happens, the world’s diamond supply would be choked even further, which could send prices even higher. 

Alrosa is putting on its best game face, though. The company told Diamonds.net that its interactions with international partners would continue despite the sanctions and that it was working to avoid any impact.

“Alrosa is carefully studying new working conditions in connection with the imposed sanctions,” a spokesperson for the company said. “We intend to offer all our stakeholders the best possible service. We do our best to fulfill our obligations so that their businesses [will] continue to operate as usual.”

Lab-grown diamonds may be an alternative

For people who have engagements, weddings, anniversaries, and the like coming up and are counting on a diamond as a gift, all is not lost. One way a consumer can get around the Russian diamond dilemma is by buying lab-grown diamonds, also known as LGDs or synthetic diamonds. Companies that produce LGDs include Blue Nile and Brilliant Earth. Even diamond-faithful DeBeers has jumped on the grown diamond bandwagon.

At the moment, lab-grown gems only make up about 10% of diamond sales. But since the stones aren’t mined, they’re considered to be eco-friendly and of comparable quality. The best part for buyers is that their prices can be as much as 40% lower than a diamond coming from a mine.

“Unlike other commodities such as oil, aluminum and platinum which have comparable Russian-invoked supply chain constraints, diamonds have high-quality substitutes in lab-grown gems which are real and identical in carbon chemical composition,” Bill Rieke, who teaches Supply Chain Management at Xavier University, told ConsumerAffairs.  

FTC gets tough on diamond marketers 

Despite some potential upsides, there are some drawbacks when it comes to lab-grown diamonds. For one, many “fine jewelers” have pushed back against these gems because they’ve staked their reputations on the real thing. The resale value of lab-grown diamonds is also a sticking point.

But perhaps the biggest drawback might be the Federal Trade Commission’s view on the hype that lab-grown producers give their products. In fact, the agency thought the advertising zeal on LGDs was so overblown that it issued guidance on how diamonds and LGDs can be marketed so consumers had at least a little layer of honesty to protect them. 

The FTC’s updated rules warn companies that they must never use the word "diamond" to describe a lab-created product as real unless it has the “same optical, physical, and chemical properties as the named stone, and an equally conspicuous ‘laboratory-grown,’ ‘laboratory-created,’ ‘[manufacturer name]-created,’ or ‘synthetic’ disclosure immediately preceding the gemstone name.”

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