Hess argues that western sanctions on Russia's government and on many of the county's major enterprises have caused Russia "to adjust borrowing practices, currency management and reserves allocation.” Eurobonds, the main device for Russia's borrowing of foreign currency, "have been altered to allow repayment in various currencies, including ... the ruble.” As sanctions on sovereign debt pose a particular risk of severing "Russian-Western financial flows, as seen in Venezuela," placing sanctions on sovereign debt would allow Russia to "turn to such debts to replace Eurobonds."

Calling a complete ban on Russian sovereign debts the “nuclear option,” the author suggests that sovereign debt sanctions may end up "cement[ing] Russia and China’s geopolitical partnership." Sovereign debt sanctions may ultimately determine much of "the future of Russia’s political and economic relationship with the rest of the world."

Read the full report at the Foreign Policy Research Institute website. 

Photo by Mos.ru.