The Oppenheimers using all colonial connections of the British Empire, succeeded in weaving all the later discoveries in Africa, the colonial administrators in Angola, the Congo, Sierra Leone and with Dr. Williamson in Tanganyika. It was fully backed the Belgian and French governments, and it was recognized by every other government concerned as the official channel for the diamond trade. New diamonds mines in Russia, Australia and new flood of smuggled diamonds from African countries is threatening De Beers' century-old grip on the world diamond trade.
Throughout its history, the company has been committed to keeping diamond prices as stratospheric levels. More than anything, it feared that if prices began to fall, diamond owners around the world would start unloading tons of gems and the market would not be able t bear the price fall and would collapse. So De Beers made sure that gems remained secure. It could do this because of the tremendous leverage it had over the world's diamond miners, who had a very few other outlets. As Ernest Oppenheimer established it, one of the cardinal principles behind the diamond inventories was that the demand for diamonds was fixed each year and waived only with the number of engagements (Read - Can De Beers its Hammerlock? by Richard A. Mechler and Deborah Stead, Business Week, September 21, 1992). Any sudden increases in the production of diamonds would therefore be added to De Beers stockpile rather than its profit...
A flood from new sources like Russia is threatening to finally crack the De Beers cartel. Thousands of kilometers from Moscow in the new autonomous republic of Sakha (formerly known as Yakutia) lies a huge open pit in the Siberian permafrost, called Mirny (peaceful). With Russia's large output of high quality diamonds that is second to the South African company's. De Beers is struggling to control the world diamond market by making payments to the Russian mining industry.
It has lent billions of dollars against a collateral held in London (Read - International: South Africa's De Beers To Open Moscow Office, Wall Street Journal, January 23, 1992). Russian mines at least 20 million carats of diamonds each year in Yakutia on the kola peninsula. A few years ago, it would have been unthinkable that the Russians and South Africans - the two largest producers of gold and diamonds would be openly doing business together. In July 1990, De Beers announced $5 billion agreement to sell the former Soviet diamonds over the next 5 year period. Since the collapse of Moscow's central control, rumors tell that smuggled diamonds from Russia are leaking into the open market. The disarray engulfing the Russian diamond industry poses a long term threat to the flow of gems that the cartel ultimately wants to protect. Russian officials both inside and outside the Kremlin harbor suspicions that the country's current contract with De Beers favors the South Africans. Though De Beers claimed that it charges only 10% markup as its sales fee for other nations diamonds, many Russians suspect that its fee is 30% or higher.
The Russian government is sure to demand a bigger piece of the action next year when it is expected to begin negotiations on a new contract. Moscow's dominance over the its diamonds is also being boldly challenged by the newly assertive republics. Local leaders in Sakha have tussled with Moscow over control of the region's mines since the 1991 Kremlin putsch. Some Russians are talking about creating their own cartel to better enforce terms upon outside buyers (Read - Precious No More, A Global Diamond Glut Rattles the De Beers Cartel - Newsweek, November 9, 1992).