Russia, which has been hammered by sanctions, is on the verge of defaulting for the first time in its history.

Reuters, LONDON, March 16 - On Wednesday, the economic cost of Russia's aggression against Ukraine was made clear as Vladimir Putin's sanctions-ravaged government teetered on the verge of its first international debt default since the Bolshevik revolution.

Moscow owed $117 million in interest on two dollar-denominated sovereign bonds it issued in 2013. Even seasoned investors were left guessing about what would happen because of the restrictions it now faces in making payments and suggestions from the Kremlin that it would pay in roubles - risking a default regardless. 

It was the most keenly watched government debt payment since Greece's default at the height of the euro zone crisis, according to one analyst. Others have suggested that an emergency 'grace period,' which gives Russia another 30 days to pay, might prolong the situation.

"The trouble about defaults is that they're never clear cut," Pictet emerging market portfolio manager Guido Chamorro explained.

"We won't really know whether this is a default or not until April 15," he said, referring to the situation if no coupon payment is made. "In the grace period, anything may happen."

A Russian government debt default was unimaginable until late February, when Putin launched a "special military operation" in Ukraine.

It had nearly $650 billion in cash on hand, coveted investment-grade credit ratings from S&P Global, Moody's, and Fitch, and was making hundreds of millions of dollars per day selling oil and gas at skyrocketing prices.

Then the tanks arrived, and the US, Europe, and their Western allies retaliated with unprecedented sanctions, freezing two-thirds of Russia's reserves, which were discovered to be stored abroad.

"I believe the market now expects Russia to default on the (bond) payments," said Jeff Grills, head of emerging market debt at Aegon Asset Management, who said that the crisis was one of the few emerging market events capable of truly unsettled global markets.

Because Russia is one of the world's top commodities producers, prices and worldwide inflation have skyrocketed.

Simultaneously, it has rendered Russia a virtual pariah state, crippled by sanctions and witnessing hundreds of the world's top corporations leave the nation after determining that their presence there is no longer viable.

SCENARIOS BY DEFAULT

The majority of Russia's battered government bonds are currently trading at only 10% to 20% of their face value.

The two payments on Wednesday are the first of several, with another $615 million due in March and the first 'principal,' or final complete payment of a bond, due on April 4 for a total of $2 billion.

There are three possible outcomes for Wednesday's key deadline, according to experienced investors.

The first is that Moscow pays in whole and in dollars, putting any concerns about default to rest for now.

Gazprom and Rosneft, two major Russian oil companies, have both completed international bond payments in the previous ten days, so there is still a glimmer of optimism that it could be done if Moscow believes it is in its best interests.

The second scenario is that Moscow fails to pay, triggering a 30-day grace period before default.

A third option, in which Russia pays in roubles instead of dollars, is also possible, albeit the legal conditions of the bonds would still make it a default. The 30-day grace period would still be in effect.

"We might know today (whether they pay), but we might not," Pictet's Chamorro remarked. His company does not hold the bonds, but it does hold other Russian bonds, and when a country fails on one of its bonds, all of its bonds tend to 'cross default.'

"It's best to expect the unexpected in situations like these. Nothing can be ruled out completely ".