The United States is reconsidering the harshest elements of a ban on imports of Russian diamonds from the Group of Seven countries after it was opposed by African countries, Indian gem cutters and New York jewelers.
The sanctions package agreed in December, which included a European Union-wide ban, was one of the biggest shocks to the industry in decades.
Two sources familiar with the talks said the US had pulled out of the G7's tight control working groups, with one calling US representatives "present but not participating".
A senior Biden administration official said Washington had not changed its position and that the United States would continue to work with the G7.
“We want to make sure we find the right balance between hurting Russia and making sure everything is workable,” the official said, speaking on condition of anonymity because they were not authorized to speak publicly about the negotiations.
The G-7 sanctions are aimed at undermining another source of income for the Kremlin's war effort in Ukraine, although diamonds generate only a small portion of the income, about $3.5 billion, according to Russian state mining company Alrosa. from the income that Moscow receives from oil and gas.
Since March, importers to G7 countries must independently confirm that diamonds do not come from Russia. Sanctions on direct imports of Russian precious stones were introduced in January.
Starting in September, the EU ban will require diamonds weighing 0.5 carats and above to undergo blockchain-based traceability certification in Antwerp, Belgium's centuries-old diamond hub.
The G7 countries agreed that Antwerp would be the logical first hub, with others added later, the sources said.
However, three sources said that Washington has cooled on strengthening traceability and that discussions about implementing traceability have stalled.
A Biden administration official said the pledge to implement a tracking mechanism by Sept. 1 was for the European Union, not the U.S., citing language in a December statement by G7 leaders.
“We need to do this in a way that takes into account the concerns of African partners and African manufacturers, takes into account partners from India and the UAE … and makes sure that we can also make it suitable for U.S. industry,” the official said.
In February, the presidents of Angola, Botswana and Namibia wrote a letter to G7 leaders expressing concerns that a predetermined entry point into the G7 market would be unfair, infringe on freedoms and jeopardize revenues. These three countries account for 30% of diamond production.
Italy, which holds the G7 presidency, declined to comment on the US position.
Any easing of the phased ban risks creating loopholes and the possibility of Russian diamonds entering boutiques in New York, London and Tokyo. This threat became especially noticeable when Belgian authorities seized millions of dollars worth of suspected Russian stones in February.
Proponents of sanctions say a tracking mechanism is necessary to ensure a credible ban and that it cannot be effective without the full participation of the United States, which accounts for 50% of the G7 diamond jewelry market.