Posted BY: Naveen Athrappully

Following Washington’s decision to end a key sanctions exemption, Russia’s chances of defaulting on its debts have increased.

Back in February 2022, the U.S. Treasury had stated that it would allow Russia to make sovereign bond payments to American investors despite strong financial sanctions imposed on Moscow for its aggressive incursion into Ukraine. But on May 24, the department’s Office of Foreign Assets Control (OFAC) announced that it will not be renewing this exemption.

The sanction exemptions ended at 12:01 a.m. Eastern time on May 25. This means that U.S. individuals and entities will no longer be able to receive bond payments from Russia without breaching government sanctions.

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“If the bondholders don’t get their money when the money is due, factoring in any grace periods that apply, Russia will be in default on a sovereign debt,” Jay Auslander, a partner at law firm Wilk Auslander, said to Reuters. “With the waiver gone, there seems to be no way for bondholders to get paid.”

Though the exemption-lapse only applies to American citizens, it is expected to make things tougher for Russia as it seeks to pay other debt holders, owing to the critical role U.S. financial institutions play in the global financial system.

Moscow is due to make bond coupon payments worth $71 million and 29 million euros ($31 million) on May 27. Russia has already transferred a part of the money, anticipating the end of the U.S. exemption, according to Business Insider.

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