Russia’s debt default: what impact will it have on the Putin regime?

Last week, the country was pushed into official default for the first time in decades

Russian President Vladimir Putin with finance minister Anton Siluanov
Russian President Vladimir Putin with finance minister Anton Siluanov during the EEU Summit meeting on 20 December 2019 in Saint Petersburg, Russia
(Image credit: Mikhail Svetlov/Getty Images)

For months, Russia has found paths around “ever tougher Western sanctions that shut down payment routes to overseas creditors”, said Bloomberg. It has finally run out of road. Last Sunday, the grace period on about $100m of eurobond interest payments, due on 27 May, expired – pushing the country into official default.

The more pressing point for Vladimir Putin’s opponents, said Lex in the FT, is that “Moscow has so far circumvented the West’s efforts to drain its coffers”. Russia earned nearly $100bn from oil and gas exports during the first 100 days of the war with Ukraine – largely thanks to Europe’s continued reliance on Russian gas, and its ability to find new buyers for its oil in India and China.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE
https://cdn.mos.cms.futurecdn.net/flexiimages/jacafc5zvs1692883516.jpg

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

The solution proposed at this week’s G7 meeting is “a price cap for Russian oil sales”, which theoretically would be a win-win for the West, since it would keep Russian oil flowing into the world economy, while reducing “the country’s ability to pay for its war in Ukraine”. In practice, though, the difficulties inherent in tracking the “provenance” of fuel exports would make any cap “devilishly hard” to enforce.

Meanwhile, a retaliatory cut-off in natural gas supplies to Europe would cause havoc. All the more so, said The Economist, since “the threat of gas rationing” is already “looming” in the EU’s economic powerhouse, Germany.

Emboldened by the recovery of the rouble, and strong oil and gas revenues, Putin has claimed that sanctions are “a double-edged sword” that will prove more painful for the West than for Russia, said Ben Marlow in The Daily Telegraph. But even this supposedly “symbolic” debt default could deal “a heavy blow” to his plans. “A regime that thrives off propaganda” will be desperate to avoid any scenario that adds to the impression that Russia “has been weakened by sanctions”.

The default could also have wider ramifications, since it could affect the country’s debt ratings for years – making it difficult to access financing and more costly to borrow, even when hostilities end. Ultimately, “Moscow could effectively be shut out of the global financial system for years”.