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After a deadline expires next week, the Biden administration is likely to entirely limit Russia's ability to pay US bondholders, perhaps pushing Moscow closer to default.
When a temporary exemption expires on May 25, the US Treasury Department's Office of Foreign Assets Control is likely to let it lapse. The waiver, which was granted immediately after the United States imposed sanctions on Russia for its invasion of Ukraine in February, has allowed Moscow to make previously required bond payments avoiding defaulting on its government debt.
However, after nearly three months of war in Ukraine, the termination of the carve-out could be the final straw in Russia's debt drama. It has so far made all its payments to creditors, despite the labyrinth of financial sanctions that have closed off some options. This includes an 11th-hour escape earlier this month when Moscow raided its domestic dollar reserves to pay bondholders.
Some argue allowing Russia to pay its debt will further drain its coffers and draw down resources that might otherwise be spent on weapons and military activities in Ukraine. Nevertheless, the US government has decided not to prolong the waiver to maintain financial pressure on Moscow. In the end, any financial impact from payments to creditors is overwhelmed by the money Russia earns every week from oil, gas, and other commodity exports.
Moscow's next debt payments on foreign bonds due in 2026 and 2036 are scheduled for May 27. The former is denominated in US dollars but allows for payments in euros, Swiss francs, or pounds, as well as interest payments in US dollars to accounts in Switzerland, the United Kingdom, or the European Union. A condition in the euro-denominated 2036 bond allows for payment in rubles.
After the May 27 payment, the next sovereign transfer requiring payment in dollars is due on June 24, when the interest on a 2028 sovereign note is due. By the end of June, Russia will owe creditors more than $490 million in foreign-currency bond payments.
