De Beers Can No Longer Buy From Russia

In a surprising blow for De Beers and an unprecedented boost for the open market, the European Commission has ruled that 40 years of dealings between De Beers and Russian diamond mines will soon cease.

The European Commission has ruled that De Beers should not be allowed to buy Russian rough after 2009. Russia is the second-largest diamond producer in the world, accounting for an estimated 25 percent of the world’s production by value. For years, Russia sold nearly all its production through De Beers’ Central Selling Organisation.

Originally, De Beers and Russian diamond producer Alrosa submitted a contract where De Beers would buy $275 million a year from Alrosa after 2009. But the Commission decided to phase out those purchases entirely.

“For the first time in the history of the diamond market there is an opportunity for genuine competition,” said EC competition commissioner Neelie Kroes. “De Beers’ long-running primacy can now effectively be challenged by its biggest competitor, Alrosa. The Commission’s decision frees up a viable alternative source for supply of rough diamonds, which will ultimately benefit consumers.”

The EC statement noted: “For much of the 20th century De Beers held an unrivaled position in the diamond market. Its grip over alternative sources of supply will now be broken. This creates a new opportunity for competition in the worldwide rough diamond market.”

The Commission also noted that it was “reviewing” complaints against De Beers’ Supplier of Choice policy.

De Beers’ original contract with Alrosa was opposed by some in the diamond industry, including price-sheet publisher Martin Rapaport and the Diamond Club West Coast.

There were signs that the EC was taking a hard line on compliance. The statement noted that if De Beers were to be discovered buying from Alrosa, “the Commission could impose a fine amounting to 10 percent of De Beers’ total worldwide turnover.” An independent trustee will monitor the agreement.

The EC has said that De Beers can buy $600 million from Alrosa in 2006, $500 million in 2007, and $400 million in 2008.