Russian authorities have embarked on a significant shift in diamond procurement strategies, purchasing Alrosa diamonds for the first time in 15 years using funds from the federal budget.

This initiative aims to support the state corporation “Alrosa,” which has fallen under the sanctions and embargoes imposed by Western nations.

According to Reuters, citing a source familiar with the situation, the Russian Ministry of Finance and Alrosa, which is 34% owned by Rosimushchestvo and another third by the government of Yakutia, have agreed on diamond purchases through Gokhran.

The first transaction for the acquisition of diamonds took place in March, with plans for regular purchases throughout the year.

Alrosa, controlling 95% of Russia’s diamond production and over a quarter of global output, found itself included in the EU’s restrictive sanctions list in January 2024 and faced sanctions from Switzerland.

Subsequently, G7 countries prohibited direct imports of Russian diamonds, with a phased embargo on processed diamonds of Russian origin from March onwards.

The challenges for Alrosa began to emerge last year, with unsold diamond stocks on the company’s balance sheet increasing by 1.6 times, from 52 to 84 billion rubles in monetary terms.

The company reported a 15% decrease in profits (85 billion rubles) and a 9% decline in revenue (322 billion rubles), with a 3% reduction in diamond production to 34.6 million carats.

India remains the largest buyer of Russian diamonds, processing 90% of global diamond production. However, even this market encountered issues for Alrosa towards the end of the year, with local regulators requesting a halt to imports citing an excess of raw materials.

The EU estimated Russia’s loss of revenue from the partial loss of the diamond market at 4 billion euros.

Kremlin spokesperson Dmitry Peskov warned the West of a potential “boomerang effect,” asserting that Alrosa would find ways to circumvent sanctions and tap into new markets.

The last time the state purchased diamonds mined in Russia was during the global financial crisis of 2008-2009 when Gokhran acquired stones from Alrosa worth $1 billion.

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