In its strictest since, a monopoly is a market in which there’s just one seller servicing every buyer, allowing that seller to exercise undue influence over the price, supply, and quality of whatever service or commodity they control. The product or service has to be unique, with no close substitute available. Diamonds are a good example. Consider also TeleMex, the Mexican national telephone company, before the rise of cell phones; the American utilities markets before deregulation; or the U.S. Postal Service before Fed-Ex and UPS. All were essentially monopolies, supported by the governments of their respective countries.

In this sense, the South African firm De Beers, which has dominated the world’s diamond trade for a century, can’t be said to be a monopoly. However, since they control 60% of the world’s diamonds, there’s absolutely no doubt that De Beers is the thousand-pound gorilla of the modern diamond market. But even half-ton primates have their predators. The European Trade Commission recently knocked the diamonds giant down a notch, when it ordered De Beers to cease trading with the Russian diamond producer Alrosa — or face fines equal to 10% of its yearly revenue. Since this amounts to billions of dollars, De Beers has hastened to oblige, much to Alrosa’s annoyance.

The reason for the Commission’s decision stems from the fact that Alrosa is, unlike De Beers, a classic monopoly. It controls every diamond produced in Russian, which amounts to about 20% of the world’s supply of rough diamonds, and has for more than fifty years. Despite the Russian government’s recent attempts to take control of and ultimately break up the diamond monopoly, Alrosa has managed to retain its tight control over Russian diamonds, and De Beers remains a major trading partner. The EU Trade Commission has long found this unamusing, and in February 2006 slapped De Beers and Alrosa with an antitrust ruling intended to open up the Russian diamond market to competition.

As part of the ruling, De Beers must cease purchasing Russian diamonds by the year 2009; after that, direct trade between the two companies will be banned. Ideally, Alrosa and De Beers could tell the Commission to go soak its collective head, since Russia isn’t an EU member; however, De Beers controls a great deal of the European diamond business, and it would be tantamount to corporate suicide to ignore the ruling. This assumes, of course, that the ruling will be upheld when it comes before the European Court of Justice sometime in 2007. Unsurprisingly, Alrosa has contested the Commission’s diamond-trading decision decision, since it will deprive them of a major source of revenue. At the moment an appeal is inching its way through the Court, and it’s possible that the initial decision will be overturned in the next few months. Meanwhile, however, De Beers is proceeding as though their access to Russian diamonds will soon be cut off, and has already begun scaling back its diamond purchases as ordered.

Alrosa, which is the second-biggest diamond mining company in the world, could very well acquire new trading partners after De Beers withdraws, but that remains to be seen. The company is already fighting an attempt by the Russian government to gain control of it, possibly with an eye to merging it with other state-owned mineral companies. Alrosa’s management remains upbeat, however, recently predicting that they will win their appeal within six months, thus maintaining the status quo.