Ratings agencies say Russia is on the verge of defaulting on government bonds following its invasion of Ukraine, with billions of dollars owed to foreigners. That prospect recalls memories of a 1998 default by Moscow that helped fuel financial disruption worldwide.

Ratings agency Fitch said today that “a default or a default-like process has begun” because Russia missed a March 2 payment to foreign investors, such as funds that invest in emerging market bonds. That set off a 30-day grace period before the country would officially default.

A look at possible consequences from a Russian default:

WHY ARE PEOPLE SAYING RUSSIA IS LIKELY TO DEFAULT?

Today, Russia faces another interest payment, this for $117 million on two bonds denominated in dollars.

Western sanctions from the war in Ukraine have placed severe restrictions on banks and their financial transactions with Russia, and have frozen much of the government’s reserves of foreign currency. Finance Minister Anton Siluanov says the government has issued instructions to pay the coupons in dollars but added that if banks are unable to do that because of sanctions, the payment would be made in rubles. There’s a 30-day grace period before Russia would be officially in default.

So Russia has the money to pay but says it can’t because of the sanctions that have restricted banks and frozen much of its foreign currency reserves. The move, however, also is in line with efforts to restrict the outflow of foreign-currency reserves that have become scarcer due to the sanctions.

Siluanov today said there are risks the payment will not reach investors, claiming the decision was up to the U.S. to allow it to go through in dollars, according to Kremlin-funded media outlet RT. The U.S. Treasury Department’s website says the sanctions permit Russia to continue to make debt payments.

Ratings agencies have downgraded Russia’s credit rating to below investment grade, or “junk.”

WHAT DOES THE FINE PRINT SAY?

Some of Russia’s bonds allow payment in rubles under certain circumstances. But these bonds don’t. And indications are that the ruble amount would be determined by the current exchange rate, which has plunged, meaning investors would get a lot less money.

Fitch said payment in local currency on the bonds in question would “constitute a sovereign default” after a 30-day grace period.

Russia also would be in default on payments to foreigners on ruble-denominated bonds that were due March 2 after a similar grace period. Those payments were made into a state depositary fund but were not sent on to foreign investors because of Russian central bank restrictions.

“This will constitute default if not cured within 30 days of the payments falling due,” the ratings agency said.

Even for dollar bonds that allow ruble payments, things could be complicated.

“Rubles obviously aren’t worthless, but they’re depreciating rapidly,” said Clay Lowery, executive vice president at the International Institute of Finance association of financial institutions. “My guess is, it could be a legal issue: Are these extraordinary circumstance or were they brought on by the Russian government itself because the Russian government invaded Ukraine? That could be fought out in court.”

HOW DO YOU KNOW IF A COUNTRY IS IN DEFAULT?

Ratings agencies can lower the rating to default, or a court can decide the issue.

Bondholders who have credit default swaps — derivatives that act like insurance policies against default — can ask a “determinations committee” of financial firm representatives to decide whether a failure to pay should trigger a payout, which still isn’t a formal declaration of default.

It can be complex. “There will be a lot of lawyers involved,” said the IIF’s Lowery.

WHAT WOULD BE THE IMPACT OF A RUSSIAN DEFAULT?

Investment analysts are cautiously reckoning that a Russia default would not have the kind of impact on global financial markets and institutions that the 1998 default did. Back then, Russia’s default on ruble bonds came on top of a financial crisis in Asia.

The U.S. government had to step in and get banks to bail out Long-Term Capital Management, a large U.S. hedge fund whose collapse, it was feared, could have threatened the stability of the wider financial and banking system.

This time, however, “it’s hard to say ahead of time 100%, because every sovereign default is different and the global effects would only be seen once it has happened,” said Daniel Lenz, head of euro rates strategy at DK Bank in Frankfurt, Germany. “That said, a Russian default would no longer be any great surprise for the market as a whole. … If there were going to be big shock waves, you would see that already. That doesn’t mean that there won’t be significant problems in smaller sectors.”

Impact outside Russia could be lessened because foreign investors and companies have reduced or avoided dealings there since an earlier round of sanctions imposed in 2014 by the U.S. and the European Union in response to Russia’s unrecognized annexation of Ukraine’s Crimea peninsula.

Head of the International Monetary Fund, Kristalina Georgieva, said that while the war has devastating consequences in terms of human suffering and wide-ranging economic impact in terms of higher energy and food prices, a default by itself would be “definitely not systemically relevant” in terms of risks for banks around the world.

Holders of the bonds could take serious losses. Moody’s current rating implies that creditors would experience losses of 35% to 65% on their investment if there’s a default.

WHAT HAPPENS WHEN A COUNTRY DEFAULTS?

Often investors and the defaulting government will negotiate a settlement in which bondholders are given new bonds that are worth less but that at least give them some partial compensation. It’s hard, however, to see how that could be the case now with the war going on and Western sanctions barring many dealings with Russia, its banks and companies.

In some cases, creditors can sue. In this case, Russian bonds are believed to come with clauses that permit a majority of creditors to agree to a settlement and then force that settlement on the rest, forestalling lawsuits by minority holdout creditors.

Once a country defaults, it can be cut off from bond-market borrowing until the default is sorted out and investors regain confidence in the government’s ability and willingness to pay. Russia’s government can still borrow rubles at home, where it mostly relies on Russian banks to buy its bonds.

Russia is already suffering severe economic impact from the sanctions, which have sent the ruble plunging and disrupted trade and financial ties with the rest of the world.

So the default would be one more symptom of Moscow’s wider political and financial isolation as a result of its invasion of Ukraine.