GEMS : Diamond Deal Not Forever, Russia Seems to Say : Moscow’s pact with DeBeers cartel on foreign sales is up for renewal. The Kremlin wants to foster its domestic industry.

In the gem industry version of “The Clash of the Titans,” Russia and the DeBeers diamond monopoly are locked in economic combat that could diminish one of this country’s most promising revenue prospects and break the marketing stranglehold of one of the world’s last cartels.

Russia’s long-standing agreement to sell all of its exported rough diamonds through DeBeers’ Central Sales Office in London expires with the new year, and 18 months of negotiations appear to have made little progress toward a new deal.

No longer satisfied with its traditional role as raw-material supplier, Russia wants to sell more of its output directly to cutters and polishers to bolster domestic finishing and boost revenues by sidestepping the cartel.

DeBeers, predictably, prefers the current arrangement and warns that by dumping diamonds on a hungry market, Russia is reducing their value.

Talks aimed at a new agreement resume next month, and the two sides have promised to respect the current sales conditions through Feb. 1, according to a Finance Ministry statement issued after negotiations broke off three days before Christmas.

Russian government negotiators and those representing DeBeers say they are obliged to keep details of the talks confidential, and they publicly express confidence a new contract will be forthcoming.

“Both sides see the merit of prolonging an agreement that has been to their mutual benefit for 40 years,” says Raymond Clark, head of the Moscow DeBeers office.

Sergei I. Mariyev, deputy chief of the Finance Ministry’s hard-currency department, insists, “The biggest stumbling block was a lack of time.”

But the interim posturing of the powerful rivals and leaked details of their dispute suggest a new contract is hostage to a stubborn standoff.

DeBeers officials have complained often of Russian diamonds appearing in large quantities at cutting centers around the world, in contravention of the exclusive agreement.

Industry sources say most of the rogue sales are from Russian government strategic stockpiles amassed during the Soviet era that are being sold off now to feed empty government coffers or to line the pockets of corrupt officials.

Under the agreement with DeBeers, Russia provides up to 26% of the cartel’s global sales stock--a share that last year earned Russia $1.1 billion.

Government officials admit to an additional $800,000 in income from direct sales to fledgling domestic polishers--a figure analysts dismiss as woefully underestimated by officials trying to cover the tracks of illegal foreign sales.

Yevgeny P. Bychkov, head of Russia’s powerful State Committee on Precious Stones and Metals, dismisses the accusations as “pure propaganda” circulated to weaken Russia’s position in the talks.

But Russia’s own Interior Ministry concedes that smuggling and illegal sales are fast-growing problems. More than 748,000 carats of rough diamonds have been sold illegally since July 1994, it reported.

DeBeers moved to counter the flood of cheap Russian diamonds on the global market by reducing its prices for lower-quality gems by 15% in July, effectively matching the black-market price.

The government gem committee, known by its bulky acronym, RosKomDragMet, wants the right to keep more of its higher-quality stones for polishing by Russian workshops and sale directly to the international jewelry market, bypassing DeBeers. Industry analysts suspect that Moscow is leaking strategic gem stocks to give the South African cartel a taste of what could happen if Russia decides against renewing the agreement.