Bloomberg: russia's default will not end the war since russia's main vulnerability is oil and gas exports
Continued financial pressure on putin's regime is justified, but it will not change the rules of the game. russia's main economic vulnerability remains its oil and gas exports, which the United States and its allies need to focus on.
This opinion is stated in the Bloomberg editorial column.
The news agency notes that Biden recently tightened financial sanctions against russia another notch, bringing it closer to debt default.
The day before, russia failed to pay investors interest of $1.9 million and caused an insurance payment; however, the amount was not enough to cause a cross-default on other instruments.
"Keeping up this pressure on President Vladimir Putin's regime is justified—but it's no game-changer. Russia's main economic vulnerability remains its exports of oil and gas. That's where the US and its allies need to keep their focus," Bloomberg said.
It is noted that russia is working hard to pay off its debts, arguing that putin sees default as another blow to his authority.
"His officials had been able to exploit a sanctions loophole that allowed the payments to be made, but the US has now closed this channel. Even creative alternatives, like allowing foreign creditors to open accounts in Russian banks in rubles and hard currency, appear unlikely to stave off the inevitable," the agency wrote.
However, the publication editors emphasize that the sums at stake are modest.
Forced default will not hit creditors harder than they have already suffered because most debt has already been sold or written off. russia has been abandoning dollar debt for most of the past decade, reducing its debt burden to less than 20 percent of GDP. And it is already blocked from new borrowings.
The agency adds that the default could affect putin's authority directly in russia. He boasted for a long time that he saved russia from the financial chaos of the 1990s, including the 1998 domestic debt default. This hard-earned reputation for financial stability has been shattered, Bloomberg editors write.
However, they emphasize that russia's default, unfortunately, will not end the war.
"To advance that goal, the alliance needs to concentrate on halting Russia's imports of industrial components and, above all, curbing its exports of oil and gas. There's been progress on both. Flag carrier Aeroflot, for instance, has been cut off from foreign manufactures, while the latest industrial production figures show a sharp contraction anywhere that outside components are required. And this week, the Europe Union has agreed to ban seaborne purchases of Russian oil while also targeting maritime insurance for tankers with Russian crude, which makes it far harder for Moscow to divert supplies to other buyers. In due course, with the UK joining in, that will be a body blow," the column said.
"Unfortunately, the oil embargo will take months to kick in, punishing Europe immediately as prices rise in anticipation while allowing Russia to continue funding its war machine. Alongside speedier action, far more needs to be done to bring alternative buyers onside if Moscow is to be cut off. Concentrated work needs to begin on curtailing European gas purchases, which infrastructure makes far harder to replace.
Embarrassing Putin with a formal debt default would be well and good. But stopping the war demands a renewed commitment to economic isolation," Bloomberg reported.
Reference
Despite some effectiveness of the Western sanctions, the complete oil and gas embargo is a step that can significantly damage the russian economy and stop or shorten russia's war in Ukraine. Oil and gas are still the primary income sources for russia's economy that finances putin's war machine.
Earlier, Josep Borrell, the EU's foreign policy chief, made the comparison in a characteristically blunt speech to the European parliament, stressing that the EU has given €35bn to vladimir putin for energy supplies in the first month of russia's war and €1bn to fund Ukraine's defense.
