Well-known senior industry analyst Pranay Narvekar discusses the possible fall out of prolonged conflict in the Middle East*.
Q1. The ongoing conflicts in the Middle East have severely impacted supply chain logistics and business travel. What has been the short term effect of this disruption on the diamond industry?
A month after the war began, do any alternative supply channels and routes seem likely to emerge?
The impact of the Middle East conflict can be understood in 2 ways. Firstly, the Middle East was a market which had been steadily growing in the last couple of years, in a period when the US and China demand for diamonds was declining. While the latter 2 markets seem to have just stabilized, the conflict is expected to severely affect the demand in the market, as people are less keen to shop for jewellery when prices of other necessities are much higher and the tourist footfalls have reduced significantly. Secondly, Dubai had become an increasingly important trading centre and shipment hub. The conflict has also disrupted that part of the business. Trading centres thrive on a free flow of buyers and sellers, and people are less likely to travel to Dubai, unless they reside there, which in turn affects business.
Q2. Over the last decade and more, Dubai has emerged as a key hub for trading in both rough and polished. It connects many of the smaller miners / mining countries in Africa directly to mid-stream manufacturers, and also serves as a centre for polished distribution. How is the war impacting this segment of the pipeline?
The rough market, especially for smaller African producers had started to rely on Dubai for their distribution. That has been affected by the conflict and the hesitation of both buyers and sellers to travel to the conflict area.
It is still too early to speculate about other supply channels, but Antwerp would likely be the biggest gainer if rough trading needs to be moved around.
On the polished distribution, the demand from GCC countries was met mainly through Dubai. Anecdotal evidence suggests that GCC customers are requesting goods on memo to avoid travel.
When 50% tariffs were imposed by the Trump administration in 2025 on India, Dubai had also gained as a polished trading and shipment center. After the court ruling, flat tariffs were introduced and any incremental benefits we negated.
Overall, this is still a developing scenario. Companies with infrastructure and personnel are still trying to do business as usual in Dubai, but the sentiment has been affected.
Q3. What has been the impact on prices of rough and polished. Is there increased volatility, an across the board drop, or have specific segments of goods reacted differently?
The Middle East or GCC, while an important source of demand, was still limited to a below single digit percentage demand at the retail level. Hence the impact from a demand perspective is limited for a short term conflict.
On the wholesale level, some of the stocks have been moved to other centres, namely Antwerp and Hong Kong. Some inventory had been moved for the Hong Kong show and that did not return. As a trading centre the inventory in Dubai will be easily accommodated in other centers. If the conflict persists beyond a couple of months, the impact will start becoming more serious and it will start being felt in polished and eventually rough demand.
Q4. The war has further weakened the rupee vis-à-vis the dollar. How will this impact India’s diamond imports-exports?
This one is a little counter intuitive. Whenever the rupee weakens against the dollar, the profitability of the polishing companies in India looks better as sales are in dollars but the polishing costs are in rupees. However, customers also start pushing companies for better prices. Additionally, if the dollar strengthens against other currencies the global demand for diamonds weakens. Overall, it has been observed that a weakening rupee helps support the Indian industry, and by extension reduce the pressure on the overall market. Exports in dollar terms might be under slight pressure, but the rupee exports will surge!
Q5. Soaring prices of oil will push up prices of most goods and services. What will be the fallout on consumer demand for diamonds and jewellery? To what extent is it likely to impact the nascent recovery that was seen in major markets last year?
Diamonds and diamond jewellery remain a discretionary purchase. Inflation, caused by disruptions in oil prices has a negative impact on discretionary income and in turn on the diamond demand.
Higher oil prices affect consumers who spend a higher portion of their income on petrol and this means the middle class consumers in the US and the Chinese consumers. Both these consumers will be hit by fuel inflation and in turn the demand for the US jewellery at the lower price spectrum will be affected, leading to pressure on small goods of lower qualities. Consumers who shop for higher priced jewellery will feel a lesser impact and those qualities should do better. I see a significant impact on Chinese market as well.
Q6. Please suggest some steps can Indian manufacturers and traders take to mitigate the impact of the war on their businesses?
The Indian manufacturers and traders account for nearly 80% of the overall diamond midstream market. This means that there is little scope for companies to hide or try to diversify markets. The lessening attractiveness of Dubai as a trading market is less of a concern and more of a one time impact of some stocks being moved. A longer more drawn out conflict can raise inflation globally while suppressing growth, which is a classic stagflation scenario. In such an event the impact on demand will be much more catastrophic.