The diamond cartel The cartel isn't for ever Jul 15th 2004 | JOHANNESBURG AND WINDHOEK >From

The Economist print edition Reuters

An Israeli tycoon is helping to force De Beers to surrender its control of the world's diamond market HOW much turmoil can the diamond industry sustain without shattering? On July 13th in an Ohio court De Beers, the world's largest producer of rough stones, finally pleaded guilty to charges of price-fixing of industrial diamonds and agreed to pay a $10m fine, thereby ending a 60year-long impasse. De Beers executives are at last free to visit and work directly in the largest diamond market, America. A few days earlier, on July 9th, the first case of successful industry self-regulation against trade in so-called "conflict diamonds" took place when Congo-Brazzaville was punished for failing to prove the source of its diamond exports. And on June 28th Lev Leviev, an archrival of De Beers, opened Africa's biggest diamond-polishing factory in Namibia. Behind all these events lies sweeping change in an industry that sells $60-billion-worth of jewellery alone each year. For generations it has been run by De Beers as a cartel. The South African firm dominated the digging and trading of diamonds for most of the 20th century. Yet the system for distributing stones established decades ago by De Beers is curious and anomalous-no other such market exists, nor would anything similar be tolerated in a serious industry. De Beers runs most of the diamond mines in South Africa, Namibia and Botswana that long produced the bulk of world supply of the best gemstones. It brings all of its rough stones to a clearing house in London and sorts them into thousands of grades, judged by colour, size, shape and value. For decades, if anyone had rough diamonds to sell on the side, De Beers bought these too, adding them to the mix. A huge stockpile helped it to maintain high prices while it successfully peddled the myth that supply was scarce. De Beers has no interest in polishing stones, only in selling the sorted rough diamonds to invited clients (known in the trade as "sightholders") at non-negotiable prices. Sales take place ten times a year. The favoured clients then cut and polish the stones before selling them to retailers. With its near monopoly as a trader of rough stones, De Beers has been able to maintain and increase the prices of diamonds by regulating their supply. It has never done much to create jobs or generate skills (beyond standard mining employment) in diamond-producing countries, but it delivered big and stable revenues for their governments. Botswana,

Namibia, Tanzania and South Africa are four of Africa's richest and most stable countries, in part because of De Beers. One family got extremely rich too. The Oppenheimers created the "single-channel marketing" system of shovelling all available stones to the clearing house. They came to dominate De Beers after Ernest Oppenheimer took control of most of Namibia's diamond mines nearly a century ago. He formed a mining conglomerate called Anglo American, before grabbing the chairmanship of De Beers. The family is thought to be worth around $4.5 billion today; Nicky Oppenheimer, Ernest's grandson, is Africa's richest man. The family still owns a more than 40% direct stake in De Beers, and its members-Nicky Oppenheimer and his son, Jonathan-run the firm. It may own more De Beers shares held indirectly through Anglo American's 45% stake. But this stable, established and monopolistic system is now falling apart. Three things have happened. First, other big miners got hold of their own supplies of diamonds, far away from southern Africa and from De Beers's control. In Canada, Australia and Russia rival mining firms have found huge deposits of lucrative stones: BHP Billiton, Rio Tinto and Alrosa have been chipping away at De Beers's dominance for two decades. De Beers once controlled (though did not mine directly) some 80% of the world supply of rough stones. As recently as 1998 it accounted for nearly two-thirds of supply. Today production from its own mines gives it a mere 45% share. Only a contract to sell Russian stones lifts its overall market share to around 55%. That is a painful shift, but De Beers is still the biggest diamond producer. And rival mining firms do share one big interest with it: high prices for the stones they dig from the ground. That is why, although it is under pressure, the central clearing system that sustains high prices could yet survive a bit longer. Rather than controlling a pure monopoly, De Beers might be able to run a quasicartel that stops the market from opening fully. De Beers says the price of rough stones is still rising; the price of polished stones has risen by 10% this year, according to polishedprices.com, an independent diamond website that tries to track such things.

Worth fighting for The next challenge might be manageable too. De Beers's system is highly secretive. Nobody knows the ultimate source of particular diamonds it sells, as all are mixed together in London. But De Beers faced extraordinary public-relations pressure after it emerged that rebel armies in Africa were funding their wars by selling what became known as conflict diamonds. Since 2000 almost 70 countries and all of the big industry players (under the threat of consumer boycotts and activist campaigns by, among others, a London-based group called Global Witness) have adopted standards designed to prove the origins of their diamonds. The socalled Kimberley Process is now in force: governments must issue certificates of origin for the stones they export, and the stones can then be tracked.

It was under this agreement that Congo-Brazzaville was punished last week by being expelled from the Process (the first country ever to be thus censured). As a result, legal trade in its diamonds should cease. It is a test case for the industry. The introduction of the Process could have threatened De Beers, which wanted to maintain the right to buy diamonds anywhere it pleased and to keep its purchases secret. Eli Izhakoff of the World Diamond Council, an industry body based in New York, says the new rules mean "the industry is changing-it is nothing like it was four or five years ago." But although the regulations make it easier to track the flow of rough diamonds, they have not required De Beers to open all its books to public scrutiny. Most of those diamond-fuelled African wars are over. And the firm has a declining interest in buying up any rough stones that appear on the market. It knows that its ability to control world supplies is dwindling. It is the third challenge that is much more troublesome. This is a threat to break up entirely the way De Beers organises the industry. It can best be summed up in two words: Lev Leviev. Like the Oppenheimers, Mr Leviev has made himself very rich over the past three decades. An Israeli of Uzbek descent, he is reputedly worth around $2 billion. Though he has interests in transport and property, his real love is diamonds. His Lev Leviev Group is the world's largest cutter and polisher of them. He has mining interests too: his fleet of clanking mining ships began operating off Namibia's coast earlier this year, sucking up diamonds from the sea bed. He boasts it is the world's second-largest fleet; only De Beers has a bigger one. And Mr Leviev recently moved into diamond retailing. He claims that he is the only tycoon with interests in every stage of production from "mine to mistress" (a canard in the industry holds that men buy more diamonds for their mistresses than for their wives). But his real power lies in the cutting and polishing businesses.

Mr Leviev says he is the only tycoon with interests in every stage of production from "mine to mistress" He has factories in Armenia, Ukraine, India, Israel and elsewhere. These give him power to challenge De Beers's central clearing house and seek instead to channel stones directly, and at a lower price, to his own polishers. There is a more personal explanation too. Mr Leviev long worked as one of those De Beers sightholders, buying unseen parcels of stones at non-negotiable prices. Even as recently as last year he was among De Beers's clients in South Africa. Being forced to take or leave the stones granted by the diamond cartel infuriated him. He was eager to strike back. His breakthrough came in Russia. Mr Leviev has cultivated close ties with Russian politicians, including Vladimir Putin long before he became president. Already well known as a cutter and polisher of

diamonds in the 1980s, Mr Leviev was asked to help the Soviet stateowned diamond firm set up local factories 15 years ago. He agreed and formed a joint-venture with the state firm, now called Alrosa. But he insisted that stones for the factories be supplied directly from Russian mines, rather than diverted through De Beers's central system. De Beers was furious at the loss of supply, but the factories got their local stones. When the factories were privatised, Mr Leviev somehow emerged as the exclusive owner. What happened in Russia set a pattern for clashes elsewhere. Mr Leviev has found that governments welcome factories that create jobs and add value to the diamonds they export; it is a smart way to snipe at De Beers.

Can Lev levitate?

Angola was next. Angola's diamonds are among the world's best when measured by value per carat (see chart) and promise a lucrative return for anyone who can market them. De Beers has had a long interest there. Mr Leviev first invested $60m in the country in 1996, financing a mine at a time when civil war was raging. And just as he cultivated Russia's governing elite, he struck up warm relations in Angola. It was a well-timed move. The Angolan government despised De Beers. In the days when its monopoly was secure, De Beers regularly bought up any supply of rough diamonds that appeared on the market. It was accused of helping, indirectly, to fund UNITA, the rebel army in Angola, which sold huge quantities of diamonds. In 2001 De Beers ended a spat with the government by quitting the country. By then Mr Leviev had already moved in, eager for another supply of good stones. By the time the government won Angola's war control of all the country's diamond mines, with Mr Leviev (ie, those lost by De Beers) sum greater even than that lost by De Beers in 2002, thereby getting the contracts it had struck were worth $850m a year, a in Russia.

Mr Leviev has not had it all his own way. Last year Angola's government abruptly cancelled three-quarters of his deal. Some observers accused Mr Leviev of using underhand means (he is close to the daughter of Jos Eduardo dos Santos, Angola's president) to win them in the first place. Yet, however he did it, Mr Leviev showed in Angola that he could barge aside De Beers in a valuable area near its southern African heartland. Mr Leviev has been inspired to take another swipe at his rival. On June 28th he took the arm of Sam Nujoma, Namibia's president, and guided him around a sparkling new diamond-polishing factory in Windhoek, Namibia's capital. "For years we have been told this could not be done," commented various Namibian politicians.

Now Mr Leviev, saviour-like, strode around his factory, showing off row upon row of workers, who wore uniform green overalls and fiddled with chrome machines and modern flat-screen computers. Mr Leviev boasts that, with its capacity for 550 workers, the factory is Africa's biggest. Jonathan Oppenheimer, affable heir to the Oppenheimer dynasty, says he does not understand what Mr Leviev is up to in Namibia: "And when we don't understand, we worry." He is right to be concerned. Mr Leviev's obvious next step in Namibia is to challenge De Beers directly. De Beers's mines are run in a joint venture with the government called Namdeb. A 1999 mining law lets the government force any miner to supply stones locally. If Mr Leviev demands it, the government could tell De Beers to provide stones directly to Mr Leviev's new factory, a repeat of the Russian blow.

Clearing up More important, if Namibia is able to establish a viable cutting and polishing industry using its own stones, then why not every other diamond-producing country too? That would seriously threaten De Beers. Mr Nujoma all but dared his neighbours to follow suit. "To our brothers and sisters of neighbouring states, Angola, Botswana, South Africa, I hope this gives you inspiration to try to imitate what we have here," he said at the factory opening. Mr Leviev is building another factory in Luanda, Angola, partly hoping to curry favour with the government. More important, he is offering to build a factory in Botswana, the jewel in the crown of De Beers's empire. De Beers has close ties with the Botswana government: they share a joint venture, Debswana, that exclusively mines the country's diamonds; Botswana gets a huge share of its foreign currency and a large part of its national income from diamond revenues. It is a similar arrangement to that in Namibia. In an interview in Windhoek last month, Mr Leviev said he had offered Botswana's government a factory to employ "tens of thousands" of people, a scale vastly larger than in Namibia. A senior civil servant from Botswana toured the Windhoek factory with Mr Leviev. As Mr Oppenheimer concedes, this is a delicate time for Mr Leviev to be courting in southern Africa. De Beers is still renegotiating the terms of an 18-year lease on the Jwaneng mine, in southern Botswana, which is due to expire at the end of this month. The mine is thought to be worth $1.3 billion a year, producing stones of a quality that would have Mr Leviev salivating. More broadly, De Beers must renegotiate the terms of all its marketing operations in Botswana and in Namibia every five years. These talks are also due. While no-one expects Mr Leviev to break up De Beers's relationships in these countries-Mr Oppenheimer is confident that the government will not do anything to risk its big revenues-his appearance on the scene puts pressure on De Beers. The obvious step for De Beers now would be to take on Mr Leviev at his own game. In Botswana and Namibia there have been a few diamond-

polishing factories backed by De Beers. But De Beers does not want to be involved in that stage of diamond production. It is first a miner and only belatedly a retailer of diamonds. But it is blocked from the production steps in between as long as it remains the major supplier of stones to the whole industry, says Mr Oppenheimer. Buyers of its stones would suspect De Beers of holding back the best diamonds for its own manufacture and would revolt. Nor does Mr Oppenheimer think a polishing industry is viable in many diamond-producing countries, whatever Mr Leviev says. In Namibia just a few hundred people work as polishers and cutters. There are few skilled workers, the scale of production is small and wage costs are roughly ten times that of India, which dominates the world market and where 900,000 people work as basic polishers. Nor are small countries, such as Namibia, likely to develop the toplevel skills needed for the very highest-quality stones. Those skills are concentrated in a few cities, such as Antwerp, Tel Aviv and New York. Within southern Africa, only South Africa has a long-established cutting and polishing industry, to which De Beers supplies some goodquality stones ("specials" in the language of the trade). But Mr Leviev probably does not care. A few factories may be uneconomic, but if they allow him to get hold of direct supplies of diamonds, then so be it.

A polished act Mr Oppenheimer is worried that a more fragmented industry will not just damage De Beers, but that the whole industry might collapse. Consumers believe diamonds are valuable largely because of decades of clever marketing by De Beers and its clients. De Beers itself spent $180m on advertising last year, its clients a further $270m. That sort of spending could not be co-ordinated and sustained, he suggests, if the industry were to fragment. That is a risk; but there are opportunities for De Beers too. As it has lost market share, the old goliath has become nimbler. No longer focusing exclusively on defending a cartel, De Beers is freer to make decisions according to commercial interest. For instance, it now buys fewer stones at uneconomic prices; profits matter more than market share. A trimmer De Beers, with a pared down list of clients, might even be able to make bigger profits than the old giant. Last year it produced healthy profits of $676m on sales of $5.5 billion. But its decision to settle American antitrust charges laid against it in 1994 points to how much it is feeling the pressure. De Beers executives should now be free to travel to America to conduct business without fear of arrest. That should make it easier to promote De Beers LV, a hitherto disappointing partnership with the luxury-goods firm LVMH to market De Beers-branded diamonds. That venture may prove essential for De Beers's long-term health, as more producers bet on getting a presence in profitable diamond retailing. Already rivals are moving: Canada's Ekati mine markets its stones directly to consumers; Mr Leviev's firm struck a deal in May with Bulgari, an Italian jewellery maker, to market Leviev-branded

stones. De Beers's days of market dominance are clearly drawing to a close. But consumers should not get too excited just yet. Whether a duopoly or oligopoly emerges, diamond prices are not going to plummet. Mr Leviev will be among those putting a stop to that. ================================================= THE DIAMOND BUSINESS Glass with attitude Dec 18th 1997 >From The Economist print edition The preciousness of the diamond is perhaps the world's most sophisticated illusion-a feat of marketing more dazzling than the gem itself

THE entrance to the local office of De Beers, the world's diamond barons, in the Angolan capital of Luanda is hidden in an unmarked shady passage off a foul-smelling street. Outside, litter clogs the gutters and battered, low-slung cars honk their horns at hawkers of peanuts, pineapples and bright plastic rucksacks. Inside the passage, the lift broke down long ago. To reach the office you must climb seven dark flights of narrow steps, which stink of stale urine. And then, upstairs, a bright new world unfurls. Behind thick steel doors, and watched by security cameras, is harmony in black leather and chrome. A receptionist speaks through bullet-proof glass via a telephone system. She accepts business cards through an electronically operated slot in the counter. At the touch of a button, she unlocks what looks like a decompression cell to admit the visitor to the waiting room, a chamber which is also overlooked by video cameras. >From the hermetically sealed calm of this office, the men from De Beers >are on a mission to impose order on the chaos of the Angolan diamond fields. So far, they have had to keep running just to stay still. In the diamond valleys of the remote north-east, UNITA guerrillas still control many of the richest diamond deposits. There, garimpeiros (illegal diamond diggers) and army officers, buccaneers and foreign fortune-hunters compete for a patch, scraping at the ground with tin cans and fingernails, or plunging underwater from wooden canoes to dig out the gems from the gravel beds of the Cuango river. It is a modern-day vision of the 1870s diamond rush at Kimberley, South Africa. There are no rules. Guns are rife, and for hire. Murders, ambushes and kidnappings are common. "It's like the Wild West," says one buyer. Last year, De Beers spent some $15m each week mopping up Angolan diamonds, mostly in Antwerp, no questions asked. Recently, De Beers's man in Luanda was shot and wounded by armed robbers while driving in the diamond area with a huge stack of cash.

Far from the mayhem in Africa, on the other side of the world, a helicopter lands on the roof of a building in Charterhouse Street, on the edge of the City of London. It ejects a man in a suit, Nicky Oppenheimer, soon to be chairman of the De Beers empire that his grandfather, Sir Ernest, built into an international company and a global cartel. From the roof he descends to his hushed, wood-panelled offices, to preside over an operation of which the Soviets would have been proud. Every five weeks, his men meet in this building to sell to diamond brokers the precious stones that De Beers has gathered from the world's diamond mines. Here the visitor finds no free-for-all scramble. This is an exquisitely controlled, polite operation. Each broker has already placed his orders for the stones on behalf of his clients, the cutters and polishers. The men from De Beers meet for an entire day to discuss who should get what. Not to discuss the price: this they have already fixed, based on their reading of the market "and on our intelligence". This time, the decision is about which stones to give out-big ones, small ones, clear ones, pink ones-and in what combination. The result is parcelled up secretly into little brown boxes, sealed with tape, and handed out to the brokers when they fly into London. A broker inspects his box, and can reject it altogether; but he cannot start quibbling about the selection he has got. Welcome to the mad world of De Beers, where James Bond meets the Wild West and manages to turn the raw, lawless frontier world of diamond digging and dealing into the most smoothly manipulated business in the world-"all", as Lord Randolph Churchill famously observed when he visited the South African diamond mines in the 1890s, "for the vanity of woman" (and, today, of man). It is not merely gems that De Beers is selling, but symbols, myths, magic. As a worldwide dealer in enchanting illusions, Disney has nothing on De Beers: for the preciousness of the diamond is not a fact but a triumph of modern marketing.

A cartel's best friend The allure of diamonds rests on one illusion above all: that "a diamond is forever". That clever marketing slogan, first invented in 1947 by De Beers's American advertising men and still used today, sells two dreams in one: that diamonds bring eternal love and romance, and that diamonds never lose their value. Like magic, the dream has come true. Unlike such other precious commodities as gold, whose price has yo-yoed over the years, the average price of diamonds has maintained a relentless upward creep. Between 1986 and 1996, average prices of diamonds grew by 50%. Again like magic, this took place despite the fact that over the same period more and more diamonds flowed onto the market. How? The answer lies in the little brown boxes handed out in Charterhouse Street. Through such allocations, De Beers controls the supply of about three-quarters of the world's rough (uncut) diamonds via its marketing arm, the Central Selling Organisation (CSO). It mines half the world's

diamonds itself, in South Africa, Namibia and Botswana. The rest it sucks into its system through contracts made with other diamond producers, and by dispatching its buyers, whose clipped British accents and pressed cotton shirts mark them out as the sort who might otherwise be employed by Her Majesty's secret service, to vacuum up diamonds that seep onto the market in such places as Angola and Congo-Kinshasa. The system today works in much the same way as it did when Cecil Rhodes first hatched his plans for a diamond empire a century ago. He observed that, uncontrolled, the industry dug out too many diamonds, flooded the market and prompted a collapse in prices. Apart from low-quality industrial diamonds, the stones had no practical use that would help prop up their price. The answer was to support prices artificially by seizing control of all the mines. In 1888 Rhodes founded De Beers Consolidated Mines, merging two of the biggest mines in South Africa (De Beers and Kimberley). From there, he went on buying up the country's diamond mines until he controlled 90% of the world's gemstones, most of them extracted by pitifully paid African workers under fierce surveillance. From that point, market control derived from a monopolist's rule-book: when times are bad, hold back diamonds to support the price; when times are good, release the gems and clean up. More or less the same principle, institutionalised by Sir Ernest Oppenheimer, who set up the CSO in 1934, is followed today. De Beers varies its stocks of diamonds, and forces its partners to hold theirs back too, depending on market conditions. In 1977, for instance, a boom year, it held just $253m of the stones. By June this year, however, a turbulent time for the industry, the diamond stocks stashed away in the De Beers safes were worth a staggering $4.1 billion-a treasure trove made possible by the company's financial strength. Such manipulation of the market-De Beers prefers to call it "management" or "stabilisation"-does not mean that no diamonds are genuinely scarce. "Fancies", or unusually coloured diamonds, in such shades as pink or purple, can be extremely rare and fetch huge prices. Small, plain diamonds, however, are in fact not all that scarce. Their reputation for rarity comes in no small part from man, not nature. Anybody who doubts that the diamond cartel has sustained a remarkable illusion need look no farther than the recent troubles at the bottom end of the market. Argyle mine, Australia's diamond producer, used to sell its stones via the CSO. It digs out more diamonds than anybody else in the world, but the quality of its stones is poor. By value, it turns out just 5% of the world's total. In July 1996, grumbling that the CSO was not giving it a fair deal, Argyle quit. Since then, and also thanks to the continued leakage of low-quality Russian diamonds, the price of low-quality diamonds has done the unthinkable and collapsed. One Antwerp dealer says that, on the open market, the price of such gemstones has plunged to just over a third of what they fetched before the Australians pulled out. De Beers argues that these troubles vindicate the work of the cartel, or the "single-channel marketing" system, as the company prefers to call it. "My belief", says Nicky Oppenheimer, "is that if the Australians had signed a contract with us, the fall in prices that one

has seen at the lower end would not have taken place." A cautionary tale: quit, and suffer the muscle of De Beers. Stay, and the fantastic illusion is sustained. De Beers's executives, naturally, deny that there is an illusion at all. "I don't think it is a bubble that can be burst," declares Mr Oppenheimer. But they rely on curiously circular logic. De Beers insists that it does not keep diamond prices artificially high. Diamonds, goes the argument, are special: they have a mystique tracing back to times of Indian maharajas and Arabian princes; they are the hardest substance on earth; and "they simply sparkle more". In which case, why do diamonds need De Beers and the CSO? Ah, comes the reply, we need to maintain price stability in order to support the mystique. At the end of the day, this is no longer a matter of logic but of faith. Spending any length of time with De Beers managers can feel like a visit to a religious sect. Nobody questions their conviction. Only true believers remain in the temple of the faithful. One former De Beers man recalls a video shown in the 1980s as part of his initiation into the firm; at the end, six words of baptism appeared on the screen: "Now you are one of us." The company's executives exude a missionary zeal. They even speak inadvertently in evangelical terms. "We have the fervour of the converted," jokes Mr Oppenheimer.

Bankrupt him all over again However ingenious the men from De Beers, their grand scheme would come to nothing were it not for the depths of human folly. Ruling the diamond empire requires not only control of the supply of diamonds to the market, but clever manipulation of desire too. In this respect, the diamond people have proved to be among the greatest salesmen of the century. The supposedly precious nature of diamonds, and their association with romance and Hollywood, with James Bond and Elizabeth Taylor, have such a hold on the modern imagination that it is sometimes easy to forget how much of the glamour was the product of a professionally designed marketing campaign. For it, Harry Oppenheimer, father of Nicky and son of Sir Ernest, can take most of the credit. By the end of the 19th century, a time when the discovery of diamonds in South Africa led to a glut, diamonds were already changing from exclusive trophies for royalty into more accessible ornaments for the burgeoning nouveaux riches, especially in America. It was not until the end of the Depression years, however, that the diamond king concocted his scheme to sell the gems more widely. His idea was to turn diamonds into an essential middle-class accessory, a statement of aspiration to luxury, yet within the reach of bourgeois pockets. To do this, he concentrated on fixing in the public imagination the instant association of diamonds with romantic rites of passage: engagements, weddings, anniversaries. In 1939, he launched the first American advertising campaign. By 1941, the sales of diamonds in the United States had jumped by 55%.

The De Beers marketing people have never let up. Today, the United States still accounts for more than a third of world diamond jewellery sales. But now the company spends no less than $200m a year on marketing diamonds in 34 countries around the globe. It sells the dream to every new generation of impressionable young women and men. De Beers maintains an army of marketing people to keep the dream alive, sponsoring women's magazines, hosting celebrity auctions and design competitions, and planting diamonds on television. One recent coup was to persuade "Baywatch" to devote an entire episode to a story about the purchase of a diamond engagement ring. Naturally, De Beers did not miss the chance to drive home the crude message that a man really should spend two months' salary on his fiance's rock. Creating such traditions has become something of a speciality. To reinvent the dream for those who have already bought it once, De Beers revived the languishing American custom of the "eternity ring": a band of diamonds bought to celebrate the tenth wedding anniversary. The slogan they came up with: "Show her you would marry her all over again." Since this tradition's reinvention in 1988, the share of women wearing a diamond anniversary band has jumped more than fourfold, to more than one in ten. Finally, De Beers aggressively sells the dream to the uninitiated. The best example is Japan. In the 1960s, before De Beers muscled in, barely one in 20 Japanese brides wore a diamond engagement ring. The company then advertised the diamond ring as combining the modern western look with an embodiment of purity that fits the Shinto aesthetic. Today, diamond engagement rings are sported by some 70% of Japanese brides, helping to make Japan the second-biggest diamond-jewellery market after America. Nevertheless, for as long as the CSO has existed, outsiders have been predicting its demise. One day, they say, whatever the conviction of Mr Oppenheimer and his missionaries, the bubble must burst, and the fanciful hallucination will come to a sober end. Will the diamond then become common?

Forever, for now Certainly, these are turbulent times for the diamond barons. Thanks to their economic troubles, the hard-up Japanese, who currently buy a hefty quarter of the world's diamond jewellery, are buying fewer diamonds than they used to. Sales in Japan could fall by a fifth in 1997 compared with last year. Other Asians, who buy about 18% of the total, will probably also hold back. Already, Japan's sluggish market pushed down the world's total diamond-jewellery sales to $52 billion in 1996, a bit below the level of 1995. However cunning the De Beers marketing people may be, they are peddling-indeed have in part createda luxury good that gets struck from the shopping list when times are tough. Their grip on supply, moreover, is not altogether watertight. The cartel will continue to work only if most producers belong to it, and if most do not cheat. Thanks to a recent deal, the Russians are now back on board, bringing an end to nearly a year during which De Beers,

accusing Russia of leaking diamonds, refused to buy their stones at all. But the deal also allows the Russians to sell more of their diamonds on the open market than before. Millions of dollars' worth of diamonds are still leaking out of Angola. The Australians are now outside the cartel. And, starting next year, Canada will be digging diamonds too. It expects to produce about $300m-400m a year at first, or the same amount (by value) as Australia. There is no guarantee that Canada will sell through De Beers. Should all these rebels desert the fold, the difficulty for De Beers will be less its ability to control prices-it will still extract at least half the world's diamonds from its African mines, which ooze with the stones-than to justify its costly marketing effort. Why should De Beers spend all that money if diamond producers outside the cartel also benefit at no cost to themselves? Already, De Beers has made thinly veiled threats that, should the rebels continue to ride for free, the company would have to rethink the way it advertises diamonds altogether. Branding its own diamonds-"the De Beers diamond ring", saywould be one option. But do not underestimate the diamond kings of Kimberley. They have withstood turbulence before, not least in South Africa this century, from the Boer war to anti-apartheid sanctions. Each time their downfall has been predicted, the masters of control have emerged as strong as ever. Few competitors have picked a fight with the mighty De Beers and won. The company has even managed to slip out of reach of the American trust-busters. Cartels are illegal in America. But, thanks partly to a cleverly disguised international maze of company registrations, and to diamond dealers' frightened reluctance to testify, the Americans have never successfully pursued a serious antitrust case against De Beers. The threat is enough to keep the company, and its barons, out of that country; but it is not enough to dent their global empire. Vanity, greed, envy, desire, even love: the diamond barons could scarcely appeal to more common human instincts. In whose interest, they repeatedly ask, would it be to destroy the magic? Surely not the jeweller's, the cutter's, the dealer's, or the miner's. Above all, does not the bride-to-be want the immortal and the incomparable to shine in her ring? The diamond myth lives in a world a bit outside of logic, outside of ordinary economics: a world where there are still a few talismanic substances whose magic rubs off on the bearer. Thus do the sorcerers of Charterhouse Street concoct glamour from carbon, and fool us all.