The U.S. Treasury Department is expected to tighten sanctions this week on Russia, threatening about $1 billion owed to bondholders for the rest of this year and putting the country once again on the edge of default.

Treasury Secretary Janet Yellen said last week she’s unlikely to extend an exemption expiring Wednesday that allows Russia to make payments on its foreign-currency bonds to U.S. investors. That decision will close all loopholes allowing any such transactions, according to a person familiar with the matter.

So far, the world’s biggest energy exporter has been able to send funds through the plumbing of the international financial system, staving off Russia’s first foreign default in a century. But every step in the transactions has become more complicated since Russia’s foreign-currency reserves were frozen as punishment for Vladimir Putin’s invasion of Ukraine at the end of February.

“The intent of letting the general license expire and not renewing it is essentially to force a default scenario,” Brian O’Toole, a former adviser to the head of Treasury’s Office of Foreign Assets Control, said in a phone interview. “I can’t imagine they will avoid the default conversation for longer than two months.”

With Russia earning billions of dollars a week from its energy exports to Europe, the chance of a failed payment would be slim if the license is extended. On Friday, the Finance Ministry said it paid about $100 million of foreign-currency bond coupons a week ahead of schedule, in an apparent bid to avoid complications if the loophole expires.

“There would not be the same fervor around the renewal of a license for sovereign debt service if Russia did not have energy revenues to finance the debt,” O’Toole said.

Still, it’s not clear if the Treasury ban would close all routes for investors to get their money, and bondholders outside the U.S. may still be able to receive the funds.

Because most holders of Russian bonds are in Europe, there wouldn’t be enough creditors left short to declare a default, according to ITI Capital, one of Moscow’s biggest brokerages. The threshold is usually holders of 25% of the outstanding bonds. ITI even says Russian bond prices look “extremely attractive to buy” and the discount fully covers possible risks.

Russia’s 2026 note jumped almost 5% to about 16 cents Friday after the Finance Ministry announced the coupon payment. A euro-denominated bond maturing 2036, which also had a coupon due, climbed 22% to 13 cents. The shorter-maturity debt extended gains Monday, while the longer bond was little changed.

Now attention turns to almost $400 million of coupons due toward the end of June.

The first two, due June 23, have clauses that allow payment in euros, pounds sterling or Swiss francs. One day later, $159 million comes due that can only be paid in dollars, via a unit of JPMorgan as foreign paying agent.

Yellen’s comments on the exemption were partly intended as a red flag to investors who might consider Russia’s distressed assets a buying opportunity if the license is extended, according to Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security.

“They’re pushing back against the Russian narrative that all is well in Russian financial markets,” Ziemba said. The comments are “designed to remind investors about the significant financial risks for Russian assets.”

The twists and turns in Russia’s bond story have served up plenty of warnings in the past three months.

In Russia’s first test, a $117 million coupon payment due March 16 was delayed as banks sought approval to process the transfers from authorities. The money eventually arrived in investors’ accounts about two days late.

But after the Treasury narrowed its waiver to exclude transfers from the Russian government’s U.S. accounts, a similar payment at the start of April was rejected. That set the clock ticking on the grace period, and culminated in an eleventh-hour payment out of the Finance Ministry’s domestic dollar pot via an unsanctioned local bank.

If Russia ultimately fails to get future payments through, the nation will be in default vis-a-vis its foreign creditors for the first time since the Bolsheviks under Vladimir Lenin repudiated Czarist Russia’s vast debt load more than a century ago.

By some measures, the Czar’s debts approached a trillion dollars in today’s money and were unmanageable regardless of the politics of the people in power, according to Hassan Malik, Boston-based senior sovereign analyst on Loomis Sayles macro strategies team and author of ‘Bankers and Bolsheviks: International Finance and the Russian Revolution.’

Today, by contrast, foreign investors hold less than 50% of Russia’s sovereign Eurobonds, equivalent to about $18.6 billion as of April 1.

Sanctions imposed since Russia’s annexation of Crimea in 2014 “forced Russia to deliver,” Malik said. “The financial footprint of Russian bonds is relatively small relative to previous crises, and certainly 1918.”

Should Russia’s creditors declare a default, the work-out would likely be lengthy and could involve the courts. Finance Minister Anton Siluanov has already threatened to sue, arguing that Western nations are trying to force Russia into default when it has the money, and the desire, to pay.

“It’s a very rare situation when you have default risk coming from two or more sovereign entities,” Malik said. “You have both the Kremlin and the U.S. Treasury potentially driving this to default. This could be a long process indeed.”

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