Russian default risk surged as investors began to digest the possibility that the Biden administration will fully block bond payments from the country to U.S. investors from next week.

The move, if confirmed, may be the final straw in Russia’s debt saga after almost three months of war in Ukraine, pushing the country into its first foreign default in a century.

Insurance on Russian sovereign debt -- used to protect investors against non-payment -- jumped on Wednesday, signaling a 90% chance of a default within one year. That probability rose from 77% on Tuesday, according to ICE Data Services.

The heightened risk is linked to a decision by the Treasury Department’s Office of Foreign Assets Control, which is expected to let a temporary exemption lapse once it expires on May 25, according to people familiar with the matter. The waiver, issued shortly after the U.S. levied sanctions on Russia, has given Moscow room to pay coupons, and ending it would create a major hurdle for future payments.

Trading on credit-default swaps skyrocketed earlier this year as investors wagered on Russia defaulting due to payments being made in rubles rather than the currencies specified in bond documents, or because of money getting held up in the banking system.

But Russia has managed to meet all its debt obligations so far, weaving through the tangle of sanctions that closed off some avenues. That includes an 11th-hour escape earlier this month, when blocked payments were eventually allowed through after Moscow tapped its domestic dollar reserves. Russian corporations haven’t been so fortunate, with billions of dollars of debt now in technical default.

Finance Minister Anton Siluanov reiterated on Wednesday that Russia has no intention of defaulting on the almost $20 billion of sovereign debt it owes to foreign investors, and will pay in rubles if transfers are blocked, according to the Tass news service.

In April, Siluanov pledged to sue if Russia is forced to break its obligations.

Moscow’s next debt transfers are due May 27, on foreign bonds maturing in 2026 and 2036.

The 2026 note was down by 33% on Wednesday at 16 cents on the dollar, according to CBBT data compiled by Bloomberg. It’s at its lowest level since mid-March, when Russia succeeded in making the first external debt payment since the invasion of Ukraine thanks to the OFAC carveout. The bond maturing in 2036 was little changed.

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