On Wednesday, March 16th, Russia will be due to make $117 million in payments on the two of its dollar bonds. However, after the many sanction rounds which the West imposed against the country, much of the $643 billion in foreign reserves is inaccessible to the country. This leaves Russia with few options. Either, it can keep paying its interest, hoping the situation will improve; default on its debt, which would hurt not just Russia but also its rivals; or opt for an unconventional and highly unpopular move – to proceed with its payments but in roubles. The Russian Finance Minister, Anton Siluanov warns Russia will opt for the last option. The impact of such a move would be two-fold. Firstly, investors would be negatively affected, as the value of the rouble has been tumbling to extreme lows and this would only make it go lower. Secondly, Russia would still de-facto go into default, as the two contracts do not allow it to make the payments in roubles. On March 8th, the credit rating agency Fitch cut Russia’s rating to C and said it is expecting imminent default. This would not be the first time in the country’s history.

In 1918, after the Bolshevik revolution, the new Soviet government defaulted on the Tsarist debts to external investors. In 1998, Russia faced another debt crisis which resulted in the Russian financial crisis, but which only affected its domestic bonds. Still, some international investors thought not much of the situation and overleveraged their portfolios which ultimately led to their and their clients’ financial doom. Most notorious in this downturn was Long Term Capital Management, an investment fund composed of Nobel laureates and other geniuses who put all their money on mathematical formulas that made the firm billions but that could not anticipate an event of the scale of a sovereign debt default. Whilst today’s Russian debt should not be as overleveraged as more than two decades ago, a default on external debt, combined with an already weak economic situation in the west, could again result in the unanticipated. If the worst comes to the worst, the world could experience a shock as sudden and unexpected as the one which came after the fall of Lehman Brothers in 2008.