The Dark Core of a Diamond

The

odds were excellent that the diamond in the engagement ring I gave my fiancée had passed through the De Beers chain. At the time I bought it in 2000, the cartel controlled up to 75% of the world's rough diamonds. The most likely point of origin—statistically speaking—was the mine at Orapa in Botswana. But the symbol of my love also could have come from Russian Siberia or the Premier Mine in South Africa or from the war spoils of Angola. There was no way to trace its history, except to say De Beers' office in London was the probable point of transfer to America. The diamond easily outlasted my busted engagement, but retracing its trip from the mine to me would reveal a world of conflict, competition, bloodshed and a remarkable global-marketing machine.

The Cartel
The address is 17 Charterhouse Street. Ten times every year, near the open-air stalls of Smithfield Market in central London, about 80 of the diamond world's most powerful men meet here. Each client is led into a second-floor room. Coffee and tea are offered. An attendant comes back with what looks like a yellow-and-black plastic lunchbox. Inside are gem diamonds of all varying types and sizes. There are no negotiations over price, only an implied choice: Take it or leave it. These events are called "sights," and the host is De Beers Consolidated Mines Ltd. The stones passed out here represent slightly fewer than half the total carats released to the world every month. To be a "sightholder" means you have convinced De Beers you will not make waves by selling too much from the box at wholesale or by protesting the quality of your allotment. You are virtually guaranteed to make a healthy profit from your box, whose cost can range from $1 million to $30 million.

De Beers has managed the remarkable feat of operating a 17th century economic model in a 21st century world. Fluctuations of supply and demand are not tolerated. Three floors beneath us are a series of vaults that contain the world's largest stockpile of unpolished diamonds—the best estimates put it at half a billion dollars. To De Beers, they remain much more valuable right where they are. The continuing stability of the diamond industry depends on an artificial scarcity that De Beers has worked hard to create.

Most spectacularly, after geologists in the Soviet Union came across a huge field of diamonds in the Siberian tundra in 1956, De Beers made an unprecedented offer: it would buy the entire run at a guaranteed price. The profits—estimated at $25 million a year—bolstered the Kremlin's treasury and helped fund the buildup of nuclear arms. The Russian gems went into the vaults under Charterhouse Street. When the Soviet Union unraveled in 1990, De Beers went back to Moscow, offering the transitional government $1 billion in exchange for part of the nation's stockpile of Siberian diamonds. Diamonds were a $40 billion retail business by the 1990s. Only one thing could threaten its position—a large supply of stones outside the grasp of the cartel.

In a corner of the Australian Outback, it finally happened. At the bottom of a tunnel near Barramundi Gap, warm water was seeping from the rocks. That was a clue to a find that now produces about 100,000 carats of dull-brown rough every day and has about 1 trillion carats left to give. The Argyle Diamond Mine is the richest in the world in terms of the sheer number of stones, but they are small and dingy, mostly the color of breakfast tea. They seemed destined to end up as knife blades, dental tools and drilling bits.

Like every other new diamond mine of consequence, it was co-opted by De Beers. Trouble erupted almost immediately. The cartel's directors started telling Argyle to stockpile a good portion of its diamonds to counterbalance a wave of smuggled stones coming in from the Angolan civil war. The agreed price per carat also dropped from $12 to around $9 in the first year of the partnership. By 1996 the Australians had had enough. Argyle would try to sell directly to Indian manufacturers through a Bombay office. The cartel tried a power play: it dumped $400 million of cheap rough into India to undercut the price of Argyle's diamonds.