MIRNY, Russia -- The future of the dazzlingly rich world diamond market balances today on wounded Russian pride and the fragile national aspirations of 300,000 Sakha people, who live in frozen poverty here in the remote province of Yakutia.
Deep in this cold ground lie billions of dollars' worth of diamonds.
"A diamond is forever," the South African De Beers Co. advertises, and for the past 60 years the secretive, privately owned company has succeeded in keeping diamonds valuable by controlling how many get to market from an expanding world supply.
Thanks to the De Beers cartel, impecunious suitors and fabulously rich movie stars alike can be confident that a diamond will stay among the world's most glamorous, and reliable, investments.
But this trust is under heavy assault from Russia, which generates 26 percent of the diamonds sold worldwide by the cartel and wants a bigger share.
A five-year contract signed in 1990 between De Beers and the former Soviet Union expires at the end of this year, and a palpable air of foreboding and suspicion hangs over the renewal negotiations.
If the Russian compact with DeBeers is breached, the value of diamonds from Baltimore to Botswana could fall precipitously.
"Frankly," says Ray A. Clark, who oversees De Beers interests in Russia, "it's something too horrible to even contemplate."
Russian nationalists speak darkly of foreigners wanting to cheat Russia of its national resources. Russia is bargaining for a bigger slice of the market, more profit and a share in the De Beers-controlled Central Selling Organization in London, where diamonds are parceled out as De Beers sees fit to buyers from around the world.
In the province of Yakutia, the vast frozen landscape on the northern edge of Siberia where Russia's diamonds are mined, the local politicians want a bigger share of the pie for their own people, ethnic Russians who work and manage the mines and the once-nomadic Sakhan minority -- about 300,000 of the province's 1 million.
Many of these people live and work against a landscape of poverty and frozen desolation. Thousands of them do not have )) indoor plumbing.
The pressure among them for greater autonomy has intensified since the collapse of the Soviet Union.
Yakutia's share
In 1993, hoping to mollify the local people, President Boris N. Yeltsin gave Yakutia a 20 percent share in diamond profits and a 32 percent share in Almazy Rosii-Sakha, the Russian mining company.
But a member of the Yakutia Parliament, Anatoly Antonov, said there is a definite sentiment to keep even more diamonds under the control of the republic.
"The Moscow bureaucrats want to sell all the diamonds themselves," he said, "because they want to keep all the bribes. It's very simple."
"We want 40 percent of the diamonds," said Vitaly P. Artamonov, foreign minister of the newly named Sakha Republic.
Cooperation and security have to be a consideration for Russia in facing the demands of Yakutia.
Only last month, Russian police and counterintelligence agents seized more than 88 pounds of stolen diamonds valued at $4.5 million. Those diamonds are believed to have been slipped out of Yakutia.
The seepage and the theft would have been unthinkable in the security of the old Soviet system.
"The old central command system had a certain amount going for it," Mr. Clark said, slightly ruefully.
Lev Safonov, who oversees Russia's diamond mining operations from headquarters in Mirny, well understands that De Beers and diamond merchants the world over have been getting nervous.
"They are worried, and I think they are right," said Mr. Safonov, first vice president of Almazy Rosii-Sakha. "They understand that the market can be destroyed if Russia does not behave."
De Beers grows testy
De Beers, which last fall appeared publicly conciliatory toward Russia, is beginning to sound testy.
Because of a government shake-up and the Chechen crisis on FTC the other side of Russia, a round of talks scheduled last November still hasn't been held.
"We're not satisfied with the contract either," said Alan Campbell, deputy general manager of the Moscow office of De Beers Centenary, the Swiss-registered company that handles all De Beers' operations outside South Africa.
De Beers is impatient and anxious about Russian diamonds showing up on the market outside of the cartel, threatening complex worldwide arrangements that keep the price of diamonds rising.
Last spring, there were rumors that up to $500 million worth of Russian diamonds had leaked onto the market outside of the cartel, possibly from the government stockpile in Moscow.
Moscow has been selling its uncut diamonds to De Beers since 1959, shortly after the diamond lode was discovered in Yakutia.
In the 1960s, when official Soviet solidarity with black South Africans made it impossible to continue the relationship in the open, the Soviet Union sold secretly to De Beers.
Now Russian politicians are complaining that De Beers is treating Russia like a colony for raw materials, taking profit that should remain in Russia.
They want to expand the domestic polishing industry, to add value to this natural resource in Russia and to cut into a business that now flourishes in New York; Tel Aviv, Israel; Antwerp, Belgium; and Bombay, India.
"We're interested in developing our own polishing industry because polishing will give additional profit on diamonds," said Yuri K. Okoyomov, first deputy director of Almazy Rosii-Sakha.
Mr. Campbell of De Beers Centenary says he understands the desire to reap the full reward.
But he warns: "Diamond polishing and marketing is highly entrepreneurial and complex. The successful ones have been small, dynamic, family businesses that can respond quickly to fashion and wide divergence in tastes."
While the contract negotiations themselves are secret, the diamond world has felt the tension. And it is not happy.
"As the man sitting in the Moscow office, I have to remain optimistic," Mr. Clark said, "but there are a lot of hurdles and it's not going to be easy."
"I don't see how they [De Beers] can come out of this without being hurt," said Hilton Ashton, a diamond industry analyst in Johannesburg.
"Either they will have to spend a lot of money buying diamonds, lose some control of the market, or give the Russians something they want, such as some equity in the Central Selling Organization."
Gamble for both sides
The negotiations are essentially a high-stakes game of poker; both sides are gambling, and neither wants to blink.
De Beers has years of experience in selling diamonds on its side, and long-term relationships with 160 select buyers all over the world.
On its side, Russia has a rich supply of diamonds and the ability to destroy the market and inflict great financial harm on De Beers.
Both sides are wary of the risks.
"If prices ever fall, it will undermine confidence," said Sergei A. Oulin, a trained diplomat who now is director of Almazy Rosii-Sakha, which mines nearly all of Russia's diamonds.
"And that will be suicide for the diamond business."
However much more Moscow decides to share with the Sakha Republic, the Russians are determined to raise the 26 percent overall share they are allocated in worldwide diamond sales by the De Beers cartel.
"We want the quota to be not less than 30 percent, maybe more," said Mr. Safonov.
Last year, De Beers sold $4.4 billion worth of diamonds; Russia's share was $1.1 billion.
In handling the sales, De Beers takes a 10 percent commission,3 percent of which is used to advertise diamonds.
Leonid Gurevich, deputy head of Russia's Committee for Precious Stones and Metal, intensified the pressures on the negotiations by asserting that Russia loses $300 million out of every $1 billion sale to De Beers.
Mr. Gurevich complained that the De Beers practice of mixing high-quality Russian diamonds with others in the parcels distributed from London lowers the profits for Russia.
"Russian diamonds are what sells the others," Mr. Gurevich asserted.
Recently, Oleg Davidov, Russian minister for foreign economic relations, said that Russia was considering holding back 20 percent of its diamonds to sell itself.
Under the current De Beers agreement, Russia can sell only 5 percent of its diamonds on its own.
This is done as a price check -- to make sure De Beers is selling Russian diamonds for what they're worth.
"We do not want to give up cooperation with De Beers," Mr. Davidov said. "We want greater protection of Russian interests."
Gains and losses
Under the De Beers monopoly, Russia could increase its world share only at the expense of another diamond-producing nation.
If Russia sells more, someone else has to sell less.
Actual shares are secret, but it is generally believed in the industry that De Beers' share of the sales from its own mines is greater than its proportionate production.
Russian mining officials have tried to minimize the possibility of Russia's bolting from the cartel.
"Amateurs and over-exaggerating politicians are the main threats the diamond business," said Almazy's Mr. Oulin.
Such threats can be real, indeed.
"Even a rumor of a split between Russia and De Beers can damage the market," De Beers' Mr. Campbell said.
No one is predicting the outcome yet, except to say that some shift is inevitable.
"Every empire has a time to live," Mr. Oulin said, "and a time to be changed."