Russia is on the verge of defaulting on its foreign debt for the first time since the Bolshevik Revolution more than a century ago.
Over the past week, the country faced two payment deadlines on bonds it previously sold to foreign investors. The combined interest was worth nearly $650 million, and Russia was supposed to have made the payments in dollars, according to the terms of the bond contracts.
But citing severe sanctions imposed by the U.S. and its allies, Russia made the payments in rubles.
That led credit-rating agency S&P Global to announce that Russia is now in a "selective default," often a harbinger of a full default.
Russia does have a 30-day grace period, which gives it a little breathing room. But S&P Global isn't optimistic that circumstances will change, and if Russia doesn't make the payments in dollars by early May, the country will default.
Here's what to know as the clock ticks down.
Is a default now inevitable?
It's looking increasing likely.
Russia says it wants to pay foreign investors, but it argues it can't do that in dollars because of the sanctions.
The U.S. and its allies have imposed a number of wide-ranging sanctions on Russian financial institutions and have prevented many global banks from working with Russia. They have also restricted Russia's ability to tap its more than $600 billion in foreign exchange reserves.
So the U.S. has indeed made it exceedingly difficult for Russia to make those scheduled payments in dollars, as part of its efforts to isolate the country from the global financial system.
The Biden administration argues that Moscow can still find ways to pay, by using its earnings from energy exports, for example. Many EU members and other countries continue to buy Russian oil and natural gas.
There are also non-sanctioned financial institutions that Russia could turn to in order to facilitate debt payments.
"The Russian government has the ability, if they choose, to pay their debt obligations in the correct currencies stipulated in their contracts," said Morgan Finkelstein, a Treasury Department spokeswoman, in a statement.
But Russia argues its hands are tied, and the country's Finance Ministry has threatened to sue over its inability to access dollars to pay foreign investors.
What would be the impact of a default?
A default would make Russia more of a pariah in the global economy.
Selling bonds is a critical way that countries raise foreign currencies to fund projects and raise reserves of foreign currencies, among other purposes.
But the European Union is considering a ban on energy imports from Russia, which would further limit Russia's ability to raise money in foreign currencies.
Countries that have defaulted on their bonds have eventually been welcomed back to global debt markets, but memories of a default linger and Russia may have to pay more to borrow from foreign investors in the future.
A default would also be historically significant and fraught with symbolism. It would mark the first time Russia has defaulted on foreign bond payments in more than a century (though it did default on local currency debt in 1998).
Russia's predicament is yet another consequence of its invasion of Ukraine, according to Tim Samples, a professor at the University of Georgia who specializes in foreign investment.
"This is a reflection of just how far and how fast Russia has fallen from favor in Western capital markets," he said.
So will foreign investors now lose their money?
Not necessarily, but most investors will need to go through a protracted legal battle to try to get the money they are owed.
Although Russia was not a big seller of foreign debt, major hedge funds and asset managers, including Invesco and PIMCO, bought bonds. Russia has 15 bonds outstanding that are denominated in dollars and euros, and altogether, they are worth around $40 billion, according to Morgan Stanley.
Much of Russia's debt was registered in the United Kingdom, which is where it's likely that most of the court fights will take place.
It can be a complicated process, and it will take a long time to resolve. After Argentina defaulted in 2001, several efforts were made to restructure the country's debt. All told, negotiations lasted longer than a decade.
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