Quotes of the Day

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.

De Beers' fear tactics failed. The Australians had managed to fashion a new branding identity for their brownish stones. Attractive phrases were coined to describe unappealing goods: "champagne diamonds," "cognac diamonds." This was an ironic rehash of an unsuccessful De Beers campaign in the 1940s to unload brown diamonds on the U.S. market. A globalization drama played out on a grand scale as millions of Australian gems were pressed into rings in Indian factories and shipped to America, Japan and elsewhere.

By the end of 2004, the legendary "single channel" instituted by the British imperialist Cecil Rhodes had sprung so many leaks that De Beers controlled slightly less than half the world's supply of rough diamonds, down from 80% just a few years before. Now it was seeking to reinvent itself again as a branding tool. It still had half a billion rough in the vaults, plus a brilliant advertising team and the power to bend its remaining sightholders to its will.

Angola
Jonas Savimbi died in a way that might almost have pleased him. It took 17 bullets to bring him down. The Maoist-trained guerrilla leader who had bankrolled his army with millions of illicit diamonds was dead. The government of Angola signed a peace treaty with Savimbi's rebel army less than two months later. The news was greeted with quiet celebration in the diamond quarters of Antwerp and New York. Angola had virtually invented "blood diamonds"—the stones used to finance civil wars in Africa. Savimbi and his movement had been responsible for up to half a million carats a year, bartered for AK-47s and rocket-propelled grenades. Savimbi's death in the spring of 2002 paved the way for Angola's entry into the plan for gem certification known as the Kimberley Process, which the diamond industry had been forced to create the year before under pressure from the U.N.

"We didn't want to become another fur," a diamond executive told me. Any nation that exports diamonds is required to seal the stones inside a tamperproof container with a document certifying that they were not mined in the midst of a war. Angola was brought into the system 11 months after Savimbi's assassination. But Savimbi's death brought no peace to the diamond fields. In some ways, it made things worse. Poorly paid government troops, as well as defeated rebel veterans, were suddenly left without an enemy to fight, though they had their weapons.

Just before I arrived in Angola, the bodies of four men were pulled out of the Cuango River. All had been eviscerated. The assumption was that the killers had been searching for missing stones in the dead men's digestive tracts. "Of course, these are 'blood diamonds,'" said Rafael Marques, a researcher with the Open Society Initiative for Southern Africa who is trying to document the human-rights abuses. "In some senses, it is even more bloody than a war diamond. It used to be one enemy attacking another. Now you have private security firms and government soldiers literally slaughtering people."

India
What India offers is sweat. It was at least 90° at midday inside the Sanghavi Diamond Co. plant in the northern India city of Surat, where hundreds of men were grinding stones on spinning metal wheels. Four men were assigned to each wheel, hunched around it like poker players around a pot. I watched a young man named Manesh Amvalin putting facets into a tiny stone. His hands were covered with perspiration. He had already done 25 diamonds that day, and he would be paid the equivalent of a dime each. "If you have patience, this is easy," Amvalin told me.

There are more than 4,000 workers in this factory, which is the largest one in Surat and claims to be the largest diamond-polishing facility in the world. The owner, Chandrakant Sanghavi, told me he moves more than 10 million diamonds out of his plant every year. Diamonds were the revolution India needed, he said. They were bringing jobs and housing to people who had nothing before. In less than a decade of wild growth, the stones had affected the household economies of 10 million people in the state of Gujarat—meaning that person, or somebody in his or her family, had a job polishing diamonds 12 hours a day at 10¢ a stone. This was a mass of people equivalent to the population of Los Angeles. "We are doing something big here," said Sanghavi. "This will change India."

This was the genius of India. It takes in the garbage of the diamond world, slaps 58 facets on it, sets it in gold and sends it on. These tiny specks are now the fifth most valuable export of a nation that hasn't mined diamonds from its own soil for more than a century. India's factories, processing an astonishing 92% of the world's diamonds today, have stolen the majority of business away from the old master craftsmen of New York City, Israel and Belgium.

Japan
The Japanese had no need for diamonds. The engagement ring had no place in their historical notion of romance. No rings were ever exchanged. But in the mid-1960s, the De Beers cartel looked at Japan and saw potential. The J. Walter Thompson advertising agency was hired to flood the Japanese media with advertising touting the rings as a symbol of Western sexuality and prosperity. In 1966 less than 1% of Japanese women received a diamond ring when they married. By 1981 that figure had rocketed to 60%. And after another decade of sustained advertising, close to 90% of Japanese brides got diamond rings when they married. Japan had become the world's second largest consumer of diamonds.

How do you get rid of something like this? A friend suggested that I post it on eBay. I could hurl it into the Atlantic Ocean. I could sell it back to a jeweler. But then I would be contributing, in a tiny way, to a trade that brings misery to millions of people across the world. In the end, this seemed my only option. The jeweler, a gregarious man, chatted with me as he worked on the gold prongs that held the diamond in place. "What's going to happen to it?" I asked. "I'll put it into a new setting, try to sell it in the store," he said. I looked at it for what I knew would be the last time. Its memory would be erased the second I walked out the door.

• Tom Zoellner
• A broken engagement sends one man on a revealing trek through the gem trade in this exclusive book excerpt