Stopping the last remaining channel in Moscow to pay off its debts. So much so that a Russian default now seems inevitable. The United States announced that it would close Russia’s last avenue to repay international investors on Wednesday, May 25th. As the Russian-Ukrainian conflict continuesThe US Treasury said in a statement that it had no plans to renew the concession that allowed Russia to continue paying investors through US banks. all in all, The Russian government will have to repay about $20 billion in bonds, mostly in dollars, and about $500 million in interest in the next month.

Waiver and soft words

Since the first rounds of sanctions, the Treasury Department has in effect granted banks a kind of exceptional license to manage payments on Russian dollar bonds. So far, the Kremlin has actually used JPMorgan Chase and Citigroup as a channel to pay its investors. The franchise system will expire at midnight on May 25th. The American move was expected. Treasury Secretary Janet Yellen said last week that the concession is in place to allow for a smooth transition and to allow investors to sell the securities. The expectation was to be limited in time.

Defaulting on foreign debt

The consequences of the decision are important for Moscow. Without a license to use US banks to pay their debtsRussia will not be able to repay international bond investors And it risks defaulting. According to Jay Auslander, a sovereign debt attorney, most institutional investors have sold their holdings at this point, knowing the deadline is imminent. And those who still carry debt are investors in distress or willing to wait for the dispute to be resolved in the coming years. Most of those who wanted out got out. The only problem, he adds, is finding buyers.

Moscow strategy

The Kremlin has prepared for the possibility that the United States will attach the concession to the payments. It is not surprising that the Russian Ministry of Finance on Friday, May 20 Prepaid bonds maturing this month to bring the US license expiration on May 25. Russia’s next debt repayment is due on June 23. These are reliable bonds with what is called a grace period of 30 days. Which makes one announce Russia defaulted at the end of July, Unless the war between Russia and Ukraine ends soon.

Chances of default

However, the countdown to Russia’s months-long default has begun. Estimated insurance contracts covering Russian debt 80% probability of default and in April the rating of Russia’s long-term foreign-currency debt was downgraded by S&P from CC to SD, ie in the selective default. It will be a historic thud of the Russian economy. Moscow has not defaulted on its international debt since the 1917 revolution, when the Russian Empire collapsed and the Soviet Union was established.