Tensions between Russia and Ukraine will not erupt into a direct military conflict, as Russia would then incur huge military and economic costs, the international rating agency Moody’s Investors Service said in its assessment.

“Our baseline assessment is that heightened tensions will continue but will not lead to a direct military conflict,” Moody’s said in a review quoted by RBC.

“Russian military intervention would be a material credit-negative event and would likely cause us to immediately place Russia’s sovereign ratings on a downgrade review list,” Moody’s added, indicating that such an option is not the agency’s baseline scenario.


Russia now has a sovereign investment-grade rating from Moody’s (Baa3) with a stable outlook, a level the agency raised in February 2019.

Any attack on Ukraine will lead to new Western sanctions against Russia, the rating agency believes. Moody’s has examined in detail the potential consequences for Russia from three US sanctions measures: sanctions on the secondary market for government debt, restrictions on Russian banks’ access to international payment systems and the inclusion of Russian financial institutions on the SDN sanctions list.

Sanctions on government debt

The current restrictions allow US investors to buy and sell Russian federal loan bonds (OFZ) in the secondary market. Even in an extreme scenario, when all non-residents will be forced to completely withdraw from Russian currency and ruble government debt, Moody’s expects that Russian banks will be able to absorb such an increased supply of government securities.

According to the agency’s review, the Bank of Russia has also expressed its readiness to provide the financial sector with additional liquidity if necessary. However, full U.S. sanctions on Russian government debt will still lead to an increase in the cost of borrowing for the government, Moody’s believes. Current market yields on OFZs of various maturities are 8.5-9.5%, and annual interest costs for servicing government debt amount to about 1% of GDP.

Access to payment systems

Restrictions on Russian banks’ access to the SWIFT international financial communications system will not stop cross-border Russian payments per se, but banks will be forced to look for alternative means of financial communications, Moody’s points out. Although Russia is developing its own SPFS system, the representation of foreign banks in it remains insignificant, the SPFS will not be able to compensate for the loss of access to SWIFT in the short term, the agency says.

Economic outlook

Moody’s forecasts that Russia’s GDP growth will slow to 2% in 2022 (from an expected 4.5% in 2021) and 1.5% in 2023. With the given structural and institutional constraints and the risk of tougher Western sanctions, the Russian economy cannot grow faster than 1.5-2% per year, the agency says.