A Russian default looms – part of the penalty Vladimir Putin is imposing on his own people

It isn’t only Vladimir Putin who had plenty of time to prepare his next move following his unlawful annexation of Crimea in 2014.

Western financial institutions did too. They might not have expected that this would eventually involve an invasion of Ukraine. But they saw the way the wind was blowing, even if the initial sanctions that were imposed were tepid, and they took steps to reduce their exposure to the country. In that respect, they were a good deal sharper than some western governments.

The looming Russian default is technically more serious than the one that occurred in 1998 under Boris Yeltsin – in that it looks set to involve debt denominated in foreign currency as well as in roubles. Attempting to pay coupons in the latter won’t wash with holders of bonds denominated in dollars or euros. It will be considered a default if this is the path down which the nation chooses to go.

However, it is unlikely to create the same sort of widespread knock-on effects. The previous default followed the unexpected decision to devalue the rouble and renege on local and some Soviet-era debt. It sent shockwaves through global financial markets and the economy, which had already been buffeted by the Asian financial crisis. It contributed to the near-collapse of hedge fund Long Term Capital Management, even though Russia kept up with the coupon payments on its dollar bonds.

It isn’t just because of the reduced importance of Russia to western investors that this time will be different. The last default came out of the blue. This one has been on the cards since it became clear that western sanctions were going to bite. That’s not to say there won’t be impacts, and potentially unpredictable ones. Sovereign defaults are rare. Countries do their best to avoid them because of they carry a high price. “Second order” effects present a very real danger and are wholly unpredictable, especially in this case.

There are many – and I am talking here about people who are not in Putin’s camp – who argue that this is a “forced default” as a result of the sanctions. The sanctions have made a substantial chunk of Russia’s foreign currency reserves inaccessible to it, and thus made paying its foreign currency debt challenging. This is not a situation for which there is a readily available playbook, or a similar event from the past to look at for pointers.

It is also not to say there won’t be drama, as Russia and its creditors face each other down, courts get involved and sabres get rattled. At least they will only be financial ones. But the relative calm in the face of this potential default serves as a sorry mark of where Russia has moved and of its greatly reduced economic and financial relevance outside of its natural resources.

While there may be some pain to be shared around, it is Russia that will ultimately suffer the most as a result, as it has from so many of Putin’s policies, and nationalistic fantasies. It will further cement the country’s reputation as a place to avoid for investors, a destination of interest only to gamblers with very strong stomachs for years to come.

Russia will at some point have a different leader and it will at some point want, and need, to raise money when sanctions are eased. A default, even a forced one, will make that complicated.

Putin has actions to answer for within Russia as well as Ukraine, even if the savagery isn’t so obvious because it doesn’t involve the bombs and shells his forces have rained down upon his country’s neighbour. His weapons at home involve crackdowns and economic mayhem. This is ultimately just another part of that.