Research & Insights #19

Foreign debt. Russia is getting closer to a potential default on its foreign currency debt. The Ministry of Finance recently stated that it was forced to make payments in rubles to holders of dollar-denominated bonds. For the first time, the attempt to settle the US$649.2 million payment was rejected by a US financial institution on orders from Washington. Russia has a total of 15 international bonds outstanding, with a face value of about US$40 billion. Moscow managed to secure several foreign currency coupon payments on its Eurobonds before Washington stopped the transactions. According to international rating agencies, Russia has a 30-day grace period to make the dollar payment. The Kremlin has rejected the idea of a default by the country, saying that Russia has the necessary funds and is ready to pay its debt. Indeed, Moscow has described the blocking of payments as a failure of the West to meet its financial obligations to Russia. According to the Kremlin spokesman, the freezing of foreign exchange reserves in February was an attempt to push it into an “artificial default”.

Domestic Politics. Some 83% of Russians approve of Vladimir Putin’s actions, gaining twelve points compared to February, according to a survey published on 31 March by the independent Russian institute Levada. This is the first poll since the beginning of the offensive in Ukraine that has not been carried out by pro-government institutes. Only 15% of Russians say they do not approve of the president’s actions (-12% in one month) and 2% have no opinion. Among respondents who support the actions of the Russian Armed Forces in Ukraine, the dominant opinions are that Russia launched a “special operation” to: protect the Russian-speaking population and civilians in Donbass (43%); prevent an attack on Russia (25%); get rid of nationalists and bring order (21%). Vladimir Putin justified Russia’s military offensive against its Ukrainian neighbour by accusing it of having orchestrated a genocide of Russian speakers, and of serving as a springboard for NATO, an existential threat to Russia. Since the beginning of the conflict, Russia has banned some of the largest social networks (Facebook, Twitter, Instagram, TikTok) accused of having a Russophobic line.

Dedollarization. One of the main counter-sanctions taken by Russia against the West was to order, on March 23, that Russian gas exports be paid for in rubles. In fact, the system now allows buyers to pay in the contract currency which is then changed into rubles by Gazprombank. “It is obvious that – even if this is currently a distant prospect – we will come to some new system – different from the Bretton Woods system,” Peskov said.The West’s sanctions on Russia, he said, had “accelerated the erosion of confidence in the dollar and euro.”The Kremlin wants a new system to replace the contours of the Bretton Woods financial architecture established by Western powers in 1944. The government spokesman said the West’s decision to freeze US$300 billion in central bank reserves was a “robbery” that had already accelerated the move away from using the US dollar and the euro as global reserve currencies. The decision to impose payment in rubles has boosted the Russian currency, which fell to record lows after the February 24 invasion, but has since recovered.

Russia-India relationship. Since Russia’s military intervention in Ukraine and subsequent Western sanctions, India has purchased at least 13 million barrels of Russian crude oil, benefiting from deep discounts. By comparison, India had imported in 2021 about 16 million barrels for the whole of last year, according to data compiled by Reuters. Russia is India’s largest supplier of defence equipment, despite increased purchases from the United States over the past decade. Defence analysts say Russian supplies are more cost-competitive and vital to India, which faces a superior Chinese military. As a result of the sanctions, Russia has offered a US$35 per barrel cut from price levels prior to the start of the war in Ukraine to the world’s third largest oil importer and consumer. Indian Oil Corp, the country’s largest crude refiner, has the option to buy up to 2 million tons, or about 15 million barrels, of Urals-grade crude oil from Russia’s Rosneft this year. India and Russia are also trying to work out a rupee and ruble payment mechanism to maintain their trade.