For the first time since 1998, Russia has defaulted on its foreign debt, further alienating the country from the global financial system.
According to Bloomberg, the country missed a Sunday night deadline for making interest payments of $100m (£81.2m) on two eurobonds due on 27 May.
It was reported on Monday that some Taiwanese investors in Russian eurobonds had not received their interest payments.
International credit rating agencies are expected to confirm the default officially.
Moscow's efforts to avoid default hit an insurmountable roadblock in May when the US treasury department's OFAC effectively blocked Moscow's ability to make payments
“Since March we thought that a Russian default is probably inevitable, and the question was just when,” Dennis Hranitzky, head of sovereign litigation at law firm Quinn Emanuel, told Reuters. “OFAC has intervened to answer that question for us, and the default is now upon us.”
In spite of the fact that Russia cannot borrow internationally at the moment and does not need to due to abundant oil and gas export revenues, a formal default would probably increase Russian borrowing costs in the future.
Although Russia has offered to pay its debts in roubles, it considers any default artificial because it has the money to do so, but says that sanctions have frozen its foreign reserves overseas.
“It’s a very, very rare thing, where a government that otherwise has the means is forced by an external government into default,” said Hassan Malik, senior sovereign analyst. “It’s going to be one of the big watershed defaults in history.”
The Russian government owes about $40bn in foreign bonds. The country had about $640 billion in foreign currency and gold reserves at the start of World War I, most of which was held overseas, and many of which is now frozen.
Russian investors have been expecting a default for months. Russia has been priced as 80% likely to default since weeks, and rating agencies such as Standard & Poor's and Moody's have rated its debt as junk.
After a country defaults, it can no longer borrow on the bond market until the default is settled and investors regain confidence in the government's ability and willingness to pay. As Russia has already been cut off from western capital markets, a return to borrowing is unlikely.
The Kremlin still has access to roubles at home, where most of its bonds are purchased by Russian banks.
The sanctions against Russia due to the war have forced foreign companies out of the country and disrupted its financial and trade ties with the rest of the world. Default would only exacerbate the isolation and disruption.
Analysts are cautiously asserting that a Russian default would not have the same impact on global markets and institutions as its default in 1998. At the time, the US government stepped in to bail out Long-Term Capital Management, a US hedge fund whose collapse could have shaken the wider financial and banking sector.