Mahesh Patel, 41, has been cutting and polishing diamonds for nearly two decades for various companies in the city of Surat, one of the world's largest polishing hubs in India's western Gujarat state.
His years of experience and keen eye for detail used to bring him a decent income working in crowded markets of Surat's Mahidharpura region.
But the war between Russia and Ukraine has left Patel and thousands of his peers without work or with just minimal working hours. The local diamond industry sources most of its rough stones from Russia, and as they become less available, diamond factories face a growing crisis.
"The short supply of diamonds has led many factory owners to lay off workers. We have been hit hard and work is hard to come by. Small diamond units have shut down," Patel told DW.
Not enough diamonds, not enough work
The diamond bazaars have gone quiet in recent months. According to industry estimates, Surat houses roughly 6,000 diamond polishing units that employ over half a million workers and clock up an annual turnover of U$21-24 billion (€19-22 billion). But a rough estimate by the Surat Diamond Workers union says around 10,000 diamond workers have lost recently their jobs.
"There are not enough diamonds. Because of that, there is not enough work," Chander Bhai Suta, a seasoned diamond trader in Surat told DW.
At the same time, the diamonds are "not fetching the right price," trader Paresh Shah told DW.
"No one knows when or how this situation will play out. Though production costs have increased, many units are somehow sustaining themselves despite facing losses," he said.
Russia's Alrosa, a diamond-mining business partially owned by the Russian state, supplies approximately 30% of the rough diamonds globally. It is a critical source for India, which imports, cuts and polishes 80-90% of the world's roughs. It is believed that India gets 60% of its roughs from Alrosa.
Amid the war in Ukraine, sanctions imposed by the Western bloc have disturbed overall rough diamond supply and spilled over into India's Surat. The United States is the largest market for India-processed diamonds, but several large American companies now refuse to buy goods of Russian origin.
India's 'vostro' accounts not enough to bypass sanctions
Vipul Shah, chairman of the Gem and Jewellery Export Promotion Council (GJEPC) told DW that his industry is facing a "challenge."
"The sanctions have seen the volume of diamonds drop by over 30% and the volume of exports is down by 35%. There is certainly a slowdown in the past few months, and we hope things get better," he said.
Diamond suppliers also pointed out that the sanctions have removed Russia's central bank and two major banks from the global SWIFT payment system. Last November, India had given nine banks approval to open "vostro" accounts (an account held by one bank on behalf of another — ed.) to help facilitate trade in rupees with Russia. The idea was to get around Western sanctions against Russia by carrying on trade in rupees.
However, this move has not solved the issue. Though India wants to promote trade denominated in rupees, it has yet to see any major international trade deals settled in its domestic currency.
"Trade settlement has become difficult, and this has led to supply disruptions. Not many companies are making use of the Vostro accounts," said Shah.
Lab-grown diamonds as a plan B
Diamond traders have now realized the difficulties of compensating for the drop of raw stones from Russia. The prices for the finished product are also rising. Industry insiders point out the international rate for high-quality polished diamonds is 20-30% higher than before the invasion of Ukraine.
"The disruption is definitely there, and I see things stabilize only in the second half of this year, if not later. The lack of availability of roughs has led some companies to get into laboratory-grown diamonds,” Sanjay Kothari, a leading jewelry industrialist and vice chairman of KGK Group, told DW.
Lab-grown diamonds are identical to mined diamonds in every way, except for their origin. They have the same chemical, physical, and optical properties as mined diamonds and exhibit the same fire and sparkle.
However, the industry believes that lab-grown diamonds might not prove to be an immediate replacement if US sanctions on Alrosa continue.
The majority of the diamonds processed in Gujarat are of Russian origin. While some diamond units have begun procuring raw material from African countries, this comes at a higher price. According to ratings agency Crisil, the ongoing conflict is also likely to lead to a rise in the prices of rough diamonds, which are set to increase by 10 to 12% in this financial year.