San Diego Law Review


Lev E. Breydo

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The Russian Federation stands on the edge of financial abyss—excommunicated from the world economy and facing its first foreign currency sovereign default in over a century. Just deserts.

This Article is the first comprehensive, multi-disciplinary analysis of Russia’s sovereign debt and the consequences of a default. It makes a number of critically important findings with immediate implications for policy makers and practitioners navigating these wholly unchartered waters.

Based on an in-depth analysis of a quarter-century of Russian debt contracts, this Article posits a clear, geopolitically-driven evolutive patten and corresponding taxonomy. Starting with relatively “standard” terms in late-1990s vintage bonds, as Russia’s foreign relations deteriorated, its contracts grew unusual, bordering towards lawless—aggressively incorporating provisions calibrated for counteracting future sanctions. Indeed, it is difficult to parse the contractual evolution without inferring premeditation.

Yet, the aggressor badly underestimated both Ukrainian valor and global resolve. An “unprecedented” sanctions regime froze over $300 billion of Russian reserves—and, as atrocities worsened, the United States leveraged global financial infrastructure to effectively “force” a Russian sovereign default.

A sanctions-driven sovereign default raises novel legal issues, much complicated by Russia’s jurisdictionally unmoored bonds. Yet, while the contracts’ idiosyncrasies—and defenses predicated on U.S. actions—may strengthen Russia’s arguments against non-payment, as the Article details, the sovereign has more likely than not breached other covenants, giving creditors multiple legal avenues. The bigger challenges, undoubtedly, will be enforcement and ultimately resolution of claims.

Beyond the legal issues, a Russian default raises profound normative and policy implications. First, as a result of Russia’s war, additional sovereign defaults—including Ukraine and Belarus—closely followed. Second, the “weaponization” of global financial infrastructure to effectuate Russia sanctions raises questions regarding the future efficacy of such measures, as nations consider preemptively hedging their exposure, including by reducing dollar reliance. Finally, and perhaps most ominously, a Russian default may create a distributive conflict over Russian assets, pitting opportunistic investors against a devastated nation desperate for the restitution needed to rebuild—a morally unacceptable outcome that must be prevented.



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