Crippling Sanctions Push Russia into Default on Billions in Debt

Russia has defaulted on roughly 37.8 billion euros, or $40 billion—in international debt, the effects of mounting and crippling international sanctions four months into its invasion of Ukraine.

Russia had originally faced a May 27th deadline to hand over the interest payment on its foreign debt but was granted a thirty-day extension, which came due Sunday night, according to Reuters.

The country has not previously defaulted on its foreign debt since 1917, the time when a different Vladimir was in power, Vladimir Lenin.

Now, Russian President Vladimir Putin is in power, and the Kremlin claims it has not legitimately defaulted on that debt. The West, it said, is the culprit, according to the report.

After Russia invaded Ukraine in late February, the United States government severed Russia’s ability to pay the billions it owes international investors through US banks.

Despite the default, Russia does have the money to make the payments because of its substantial control on oil and gas exports. In May, the European Union softened its stance on the purchase of Russian gas and oil, as it released a series of guidelines for European companies to purchase fuel from the country and avoid breaching sanctions. The bloc proposed a total ban on Russian oil imports in a large packet of sanctions on May 4th, but the proposal was blocked by a number of countries, including Hungary, the Czech Republic, Bulgaria, and Slovakia, all of which rely on gas and oil from Russia.

Greece PM Kyriakos Mitsotakis said shortly after the February 24th invasion that his country was in a race to reduce energy dependence on Russia. In April, however, the number of tankers carrying Russian fuel that arrived in Greece reached record-breaking highs, indicating that the country’s waters have become a top destination for transporting Russian fuel.

Greece has been a strong supporter of Ukraine, however, sending weapons and other aid to the country and freezing assets of selective Russian citizens. In response, a Russian government official last week alleged without evidence that Greece is no longer a safe place for its citizens.

Russia Debt in Junk Status

Meanwhile, Russia’s debt default did not come as a surprise to investors, who had been expecting the move for weeks. Reuters said rating agencies have already labeled Russia’s debt far into junk territory.

About half of the amount Russia owes in foreign bonds is to foreigners, the report noted. The government still borrows rubles from Russian banks, which purchases its bonds.
The default put borrowers in new territory because, unlike other defaults in which settlements can be worked out, international sanctions prevent any interaction with Russia’s finance chief.

Governments around the world, including Greece, have imposed sweeping sanctions against Russia and its citizens for the invasion. In mid-March, Greece began freezing assets of Russian citizens identified on an international list for sanctions sent to all European Union countries in the wake of the invasion.