It comes after US President Joe Biden cut the Kremlin off from paying its bondholders after allowing an exemption which enabled Moscow to pay international creditors to lapse. In effect it means that US banks and individuals are banned from receiving bond payments from Russia.
Despite the decision Moscow is due to make a payment of around $100 million(£808 million) this Friday.
The Office for Foreign Assets Control said on Wednesday it “will not renew” the provisions which allowed Moscow to continue to meet certain financial obligations.
It means that the clock is now ticking on the possibility of Russia defaulting on its foreign debts for the first time since the aftermath of the Bolshevik Revolution in 1918.
On Thursday the Kremlin announced that it would pay its dollar debt in rubles, an option that has previously been rejected by international lenders.
Russia’s finance minister Anton Siluanov said the current situation has “nothing in common” with 1998 when Russia defaulted on $40 billion (£32 million) of domestic debts due to a lack of “sufficient funds”.
He said Russia was facing an “artificial situation created by an unfriendly nation”, adding: “We have the money and the willingness to pay.”
Moscow is due to make coupon payments on three bonds this Friday.
However the majority of owners are outside the US meaning a settlement may be possible.
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Timothy Ash, an emerging markets strategist at BlueBay Asset Management, told The Telegraph it is “only a matter of time” before Russia defaults.
He said: “Russia will lose almost all market access – even to the Chinese – because of this default.
“It will mean no financing for Russia [and Russian companies] except at exorbitant rates of interest.
“It means no capital, no investment and no growth.”
If this happens it will further dent Russia’s status as a borrower and international investors who bought bonds will also be out of pocket by millions of dollars.