Throughout the existence of the diamond market - from the end of the 19th century to the present day, political processes have constantly been part of the market mechanism and largely determined the vectors of its development. Attempts to analyze this market, excluding the political component, were obviously not fruitful as they could not explain many of the most important documented events, for example, the supply of rough diamonds to the Third Reich throughout World War Two, or the huge supplies of USSR's rough diamonds from 1951 to 1953 bypassing the Coordinating Committee for Multilateral Export Controls (CoCom) decisions. Today, political intervention in the diamond market is unprecedented and overshadows all previous cases: rough diamonds mined in Russia are declared ‘bloody’ and ‘unethical’ and their circulation in the G7 countries may be banned from 2024. So, over 60% of polished diamond consumers are ‘cut off’ from the Russian diamonds and every third rough diamond mined on the planet is outlawed through a non-market procedure, solely and exclusively for political reasons.
Of course, it is impossible to analyze the nature of such decisions and predict their consequences without establishing the causes of the conflict that served as the basis for making them. And the question of the causes of any armed conflict, especially the one as large-scale as the current Russian-Ukrainian conflict, is inevitably connected with determining its true beneficiary. So, what country is the beneficiary? It’s obvious that Russia is not the beneficiary because of its significant losses, great sanction pressure in almost all sectors of the economy, expulsion from many international institutions, etc. - no gains at all! Ukraine also does not look like a beneficiary because of its significant losses, destruction of its infrastructure and the economy as a whole, de facto loss of a significant territory. For taxpayers in the countries that are allies of Ukraine, the conflict looks like a bottomless pit for nonrecoverable loans and volunteer donations that may or may not be compensated some time in future with the help of ‘frozen’ Russian assets, but the mechanism for such a compensation has not yet been determined, so there are no gains in this case, either.
However, a clear beneficiary exists and its profits - both gained and future ones - significantly exceed all the costs of direct participants in the hostilities. This is the military-industrial complex of the North Atlantic Alliance’s countries. The military budgets of the leading NATO countries are record high in the North Atlantic Alliance history, the giants of the defense industry of the USA, Great Britain, Germany, France, etc. receive contracts they could not even dream of in the previous 30 years, new production facilities and jobs are being created at a furious pace, a large number of engineering and scientific schools are growing, and production and research cooperation projects are growing by leaps and bounds, there were no so much research and development work on defense topics in their history. We are witnessing an amazing recovery of the military-industrial complex of the Western countries in all components of this multi-level network system. And this ensures not only the budget’s hundreds of billions of dollars directly invested in the defense orders, but also a substantial bonus due to getting rid of the Russia’s supplies through the sanction mechanism used by the global arms market where Russia occupied about 20%, being second only to the United States. All these trends are confirmed by numerous open sources and are obviously related to the Russian-Ukrainian conflict; it cannot go unnoticed.
It is obvious that situational beneficiaries of the conflict from the countries that provide anti-sanction transit commodities and financial corridors to Russia, or the countries that benefit from purchasing the Russia’s sanctioned hydrocarbons, can receive their profits only during the hot phase of the conflict. But it takes decades to create modern types of weapons - from setting the technical specifications’ requirements to their mass production. So, unlike situational beneficiaries, the Western military-industrial complex received a profit that shows up on the surface of the conflict, and also has already ensured its sustainable development for at least next generation.
Well, the writer of this article has identified the main beneficiary of the current conflict. The question remains to be answered whether the emergence of this beneficiary is a consequence or a cause of the conflict. Has this beneficiary occurred by chance or been ‘designed’ from the beginning?
Before answering this question, let’s look at a historical example. In 1948, when the Cold War already gained momentum, Great Britain supplied the USSR with samples of the latest Nene I and II and Derwent V turbojet engines, as well as the technology and equipment for their large-scale production. Only thanks to these supplies, the USSR was able to create front-line jet aircraft fleet in the shortest possible time, and the aircraft compared favorably to the best NATO ones. During the Korean War of 1950 to 1953, the 64th Fighter Aviation Corps of the USSR Armed Forces (taking into account the rotation of 12 fighter divisions) with their MiG-15 jet fighters equipped with the engines copied from British ones did not allow the UN air forces to gain the air superiority, which played a decisive role in the fact that the conflict ended ‘in a draw’ and the front line was fixed along the 38th parallel. This result allowed the military-industrial complex lobbyists in the Western countries to claim that the USSR has the most advanced technologies in the combat aircraft manufacturing and it is necessary to immediately invest significant sums in the corresponding NATO programs to curb the ‘Soviet threat’, which was brilliantly accomplished and instigated a new round of the arms race.
This mechanism for the development of the military-industrial complex, known as the ‘controlled adversary concept’ was used by the NATO countries throughout the entire post-war period of the USSR and it included the supply (sometimes open supply, but more often through ‘gray’ and ‘black’ schemes) of the latest Western technologies used in the weapons manufacture to the Soviet bloc’s countries, the subsequent demonstration of the result of the deliveries in various local conflicts and, finally, they demanded investments to overcome identified ‘new threats’ and even a ‘technological gap’. Those interested in confirming this information can see Anthony Sutton’s famous monograph (Sutton A.C. “The Best Enemy Money Can Buy” - USA, Liberty House Press, 1986) showing several similar facts.
But it should be noted that the ‘controlled adversary concept’ did not come from the primitive desire of arms business owners and their lobbyists to increase profit margins. Unfortunately, this is the only way to preserve and develop high-tech corporations that can receive orders for the development of new weapons only in the presence of a competitive enemy. Indeed, why new, more advanced weapons are required if you are surrounded by allies and peaceful partners and your real enemy is just a bearded ‘international terrorists’ with a suicide bomber’s belt? To fight them, you don’t need the 6th generation jet fighters, hypersonic missiles, new submarines or antimissile weapons systems. To receive an order for such advanced weapons, a real ‘evil empire’ is needed; not an insignificant outcast with communist or religious rhetoric, like North Korea and Iran, but a strong aggressive adversary using high technology and having large resources and trained personnel. And the trade balance with it should be negligibly small (unlike China) so that not to make an impact on your own weapons manufacturers. And if there is no such an enemy, it must be ‘created’, otherwise Lockheed Martin, Raytheon, Rheinmetall, Dassault Aviation and other giant corporations, critical for the Western economy and possessing the most advanced technologies, will simply cease to exist; a suspension of their development, an attempt to fix the current level, apply the ‘conversion’ mechanism, etc. was and will be unacceptable, which the actual practice showed many times during a number of “detente” periods.
The assessment of the Russian-Ukrainian conflict from the point of view of the ‘controlled adversary concept’ is completely justified and consistent. The conflict is of a ‘project’ nature; its main beneficiary was set initially. There is simply no other clear explanation. Of course, there is a multi-voiced propaganda chorus on both sides, but the content of the theses boils down to the formula like “The elite of the opposite side has gone crazy and unleashed a conflict for the sake of their mean-spirited ambitions and prodigious lust for power.” This explanation is not constructive for two reasons: firstly, anything can be ‘explained’ by the madness of the elites at any time, and secondly, such an explanation has a zero predictive potential as it’s a thankless job to predict any actions of madmen. But we do not live in the Game of Thrones series, and it seems that Russia is once again destined to play the role of an ‘evil empire’ mainly to give an impetus to the development of the most advanced high-tech sector of the Western economy. If this is true, movements in the diamond market can be predicted based on historical analogies and the ‘controlled adversary concept’ practice of the post-war decades.
Based on the position of the real beneficiary, this conflict should not end in a victory for either side; on the contrary, it should be prolonged for as long as possible. A ‘hot’ phase can be replaced by ‘freezing’, then become ‘hot’ again, etc. The parties need resources to ensure such a result, but only in quantity allowing to maintain the status quo. That is why Ukraine will not receive weapons, the quality and volume of which could radically change the situation in its favor, and Russia will not be deprived of its revenue sources and the technologies that will allow the country to maintain its current situation. The diamond market is one of the revenue sources, and a forecast should be made from this perspective.
The G7 decision establishing a sanction barrier for the circulation of the Russian rough and polished diamonds in these countries will divide the diamond industry into conditional ‘democratic’ and ‘totalitarian’ sectors, comparable in their volumes. But this will be a formal fragmentation. This will result in an explosion in the number of ‘gray’ and ‘black’ markets’ dealers promoting the Russian products to the G7 markets and it will be almost impossible to resist this process. Tracing the diamonds in the form it exists today can be more or less effective if the relevant interstate agreements are observed. But the sanctions imposed on the Russian diamonds by the G7 will likely force Russia to leave the Kimberley Process and the World Diamond Council, and classify its data on production, reserves and distribution channels. Of course, in the absence of Russia, these diamond market’s organizations will become absolutely useless and cease to exist. At the same time, an attempt will be made to create its own certification body, possibly with the participation of China, India and a number of African countries where the influence of Russia and China is significant.
The Russian diamond producers will not stop mining, actual export operations and operating activities. Moreover, the diamond production will grow, and new alluvial deposits will be put into operation because their potential profitability is quite high. These measures will be aimed at compensating for dumping as an inevitable payment for the distribution of the Russian diamonds through anti-sanction channels and maintaining the current level of revenue.
The division of the diamond market into ‘democratic’ and ‘totalitarian’ sectors creates an interesting opportunity for a new competition of marketing models: a model creating a diamond image more appropriate to the conflict time can be set off against the Natural Diamond Council’s sluggish and fruitless promotion, clearly inferior to lab-grown diamond’s marketing. Perhaps, the De Beers’ current attempt to return to the marketing model of the 1950s - during the peak of the Cold War - and revive the slogan “Diamonds are forever’ is fueled by anticipation of this process.
We find ourselves at a new round of the arms race and, apparently, we will face a new cold war. Comparing it with the previous one can be of interest.
Sergey Goryainov for Rough&Polished
