The US has cut off another financial route to Russia for Russia’s international debts. This could lead to the country defaulting.

The US Treasury Department announced that it would terminate a waiver which allowed bondholders to accept payments and tighten sanctions in response to the war in Ukraine.

Russia is rich in oil and gas resources, but has the money to pay.

It has already indicated plans to contest any declarations of default.

Nearly $2 billion in payments are due to the country on international bonds.

Although the new rules are only applicable to US citizens, it will be difficult for Russia to make payments to other countries due to the importance of US banks within the global financial system.

Russia was already prohibited by the US from using its banks to send payments.

Janet Yellen, US Treasury Secretary, warned that the waiver for investors is likely to be canceled. She stated that the exemption was intended to facilitate an “orderly transition”.

Analysts say they don’t expect any major consequences from Russia’s move. Kristalina Georgieva, chief of the IMF, stated in March that Russia’s exposure to its holdings was “not systemically important”.

Major rating agencies had already reduced Russia’s debt to “junk status” in March. This disqualifies Russia from major investors buying its securities, making it more difficult to raise capital on international markets.

Professor Philip Nichols of Wharton School at University of Pennsylvania stated that it is not clear what Western holders of Russian bonds did in the weeks following the invasion. He said that they didn’t know if they were rushing to get rid of them or if they just kept waiting for the situation to improve.

Russia’s default would be the first time it has not paid its debts since 1998, the economic crisis that ended the term of President Yeltsin.

This would likely open Russia up to legal proceedings, which could lead to Russia being able to recover its creditors’ debts.

Prof Nichols stated that any economic impact in Russia would only be felt over the long-term because of Russia’s wider economic isolation.

He stated that Russia has “just a lot oil and gas, and that translates to a lot money, but in long-term, this is part a web that is designed to make Russia’s war on its neighbors far, far harder.”

Professor Nichols stated, “It’s going be really interesting to watch what happens.”