By Marc Jones

LONDON, (Reuters) – The economic consequences of Russia’s aggression on Ukraine were fully revealed Wednesday when Vladimir Putin’s sanctions-ravaged country teetered at the edge of its first international default on debt since the Bolshevik revolution.

Moscow would pay $117million in interest on its two sovereign bonds in dollar denominated that it sold in 2013. It was to make $117 million payment on interest for two sovereign bonds in dollar denominated that Moscow had purchased back in 2013.

One person described it as one of the most closely-watched government debt payments since Greece’s default during the worst eurozone crisis. Some suggested that Russia could be granted an additional 30 days for the emergency payment.

Guido Chamorro from Pictet Emerging Market Portfolio Manager said, “The problem with defaults is they aren’t always clear cut. This is not an exception.”

He said, referring to the scenario in which no coupon payments are made. “There’s a grace period so we don’t really know if this is a default until April 15.” There is no grace period. “Anything can happen during the grace period.”

The Russian debt default was impossible until the “special military operations” that Putin described in Ukraine in February, when it became possible.

It had nearly $650 billion of currency reserves, coveted investment-grade credit ratings with S&P Global (NYSE:), Moody’s (NYSE:) and Fitch, and was raking in hundreds of millions of dollars a day selling its oil and gas at soaring prices.

After the tanks were launched, the United States of America, Europe, and their Western Allies responded with unimaginable sanctions. These included freezing two-thirds Russia’s foreign reserves, as it was later discovered, and imposing severe penalties on Europe, the United States and Europe.

The head of emerging market debt, Aegon Asset Management Jeff Grills said “I believe the market now expects Russia (bond payments) not to be made.” He added that conflict was one the very few events in emerging markets capable of causing serious disruptions on global markets.

This is due to Russia’s position as one of the top global commodity producers, which has driven prices up and increased inflation globally.

It has made Russia an almost pariah country, with sanctions stifling its economy and hundreds of large corporations leaving the country to avoid being displaced.

(Graphic: Russia international debt default looming, https://fingfx.thomsonreuters.com/gfx/mkt/zgvomznxovd/Pasted%20image%201646220845544.png)

DEFAULT SENARIOS

Russia’s government bonds in distress are being sold for 10%-20%.

Two payments were made Wednesday, the first in a series of six, including $615,000,000 due for the remainder of March and the first principal – final payment on a bond – on April 4. This is a total of $2 billion.

Experiential investors can see three possible scenarios as to how Wednesday’s important deadline will play out.

First, Moscow pays fully and in dollars. This means that default worries are gone for now.

Gazprom and Rosneft, the two largest Russian energy companies (MCX:), have made international bond payments over the past 10 days. This shows that there’s still hope it can be done if Moscow believes it is in its best interests.

There is another possibility: Moscow may not pay. This would start the countdown clock for 30 days until default.

Another option, where Russia pays in roubles but Russia pays it back is possible. However, the legal terms of bonds could make that seem like a default. This would mean that the 30-day grace rules would apply.

Pictet’s Chamorro stated that “Maybe” we would know today if they paid, but it is possible we wouldn’t. Although his firm does not hold these bonds, it holds other Russian bonds. When a country defaults in one of its bonds, it tends that all its bonds are ‘cross default’.

It’s best to be prepared for the unexpected in situations such as these. “You can’t rule out any possibility.”

(Graphic: Fortress Russia crumbled under sanctions, https://fingfx.thomsonreuters.com/gfx/mkt/xmvjoemeepr/Pasted%20image%201647389240048.png)