Description
Diamond trade governance is managed via the Kimberley Process, an international certification regime designed to prevent conflict diamonds from being traded, with a focus on traceability and origin. Because the Kimberley Process was not designed to be linked to a particular state, G7 countries have developed a parallel system to address sanctioned states, which specifically focuses on Russian diamonds. How do sanctions reshape global trade networks, and what role might intermediary states play in facilitating trade diversion?
This paper is located within the sanctions literature but looks beyond compliance and economic coercion to focus on sanctions’ effects on geopolitical alignment: recent scholarship shows that sanctions often lead to diversion and adaptation for the target state, as opposed to a straightforward exit and exclusion from a typical market. Hence, using Evelyn Goh and Cheng-Chwee Kui’s understanding of hedging, the paper considers the role of intermediary states such as India and the United Arab Emirates, and their relations with Russia and the G7 in the diamond trade.
The paper first looks at the relationship between the Kimberley Process and the G7 sanctions architecture. It then traces trade flows within the Russian context by developing an event-study design based on UN Comtrade, Eurostat, and national customs data. Finally, it draws on the hedging literature to assess the role of intermediary states and to evaluate how the Russian diamond trade flow might have been reconfigured rather than eliminated.