Russia is on the verge of a huge debt default that could ripple through financial markets. Here's what to expect.

The last time Russia failed to pay its foreign-currency debts was in 1918.

The economy is in crisis and the government is on the verge of another default because of President Putin's invasion of Ukraine.

Such an event would cause a domino effect in global financial markets. The 1998 debt crisis in Russia raised memories of Wall Street.

Here is what you need to know.

Why is Russia facing default?

Western governments imposed strict sanctions on the country after Putin unleashed war in February.

The government's foreign currency reserves have been cut off because of sanctions. That makes it more difficult to pay its debts.

Russia's once investment-grade credit rating was slashed by a major credit ratings agency last week, and the country's bonds have collapsed to trade at 20%.

When might Russia default?

Russia faces its first big test on Wednesday when $117 million in interest is due on two dollar bonds. The key date to watch is 15 April, when Russia has a 30-day grace period.

Siluanov said the government is able to pay but may have to use Russian rubles because of the sanctions. The investors signed up to be paid back in dollars, so most analysts said this would be a default.

It could be the beginning of a long chain of defaults for the Russian government and other companies.

A leading commodities analyst predicts that oil will double by summer and that the stock market will plunge.

Around $20 billion was held by foreign investors and the government owed around $39 billion through foreign currency bonds at the end of the year.

Russian companies had around $98 billion of foreign-currency debts, of which $21 billion was held by foreigners, according to analysts at the bank.

Who will be hurt?

Russia's debt crisis is likely to be less dramatic than people thought.

Russia's foreign debts are small compared to other countries. The country has been under some form of Western sanctions, which has deterred many would-be investors.

If Russian companies are sucked in, the financial centers of the world will feel a default. Sanctions will make any restructuring agreements difficult, meaning investors may have to absorb their losses until the conflict is over.

According to a February report, the biggest exposure to Russian dollar debt was by BlackRock. Capital Group, Legal & General, and Fidelity Investments held more than $200 million.

Russian debt was included in funds and indexes owned by institutions, as well as some retail investors.

The collapse in the value of Russian assets over the past two weeks has caused most of the damage.

Will it cause a crisis?

Russia did not default on its foreign-currency debt in 1998. The US financial system was shocked by the event. The Long Term Capital Management had to be rescued by the government.

According to analysts, a Russian default would have a much smaller impact this time around.

Melanie Debono, senior Europe economist at Pantheon Macroeconomics, told Insider that financial links are small.

There is a risk that some companies could be overexposed and cause bigger problems in the complex and opaque world of modern finance. It is clearly an important story to watch, according to Jim Reid ofDeutsche Bank.

Russia's economy is already in a major crisis and a default is unlikely to make things worse.

Andrew Kenningham, chief Europe economist at Capital Economics, told Insider that he doesn't think it will have a huge impact because the economy is already cut out of international capital markets.

The Russian economy is expected to shrink by 12% this year as sanctions bite, war costs mount and foreign companies and capital flee the country.

Russia's government is expected to be able to meet its domestic obligations thanks to energy revenues.

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