Moody's downgrades Russia's debt

Russia eyes China after Europe snub
Russia eyes China after Europe snub

Oil, war and sanctions are weighing on Russia's credit ratings.

Moody's downgraded the country's debt by one notch Friday, citing the ongoing conflict in Ukraine, capital flight and falling oil prices. The debt rating is now Baa2, just two notches above "junk" status.

Ongoing tensions with Ukraine led to international sanctions against Russia earlier this year. That has reduced foreign investment and further slowed economic growth, spurring inflation and higher interest rates.

Related: Ruble's headlong plunge shows Russia hurting

"The longer the conflict in Ukraine and sanctions against Russia last, the more significant will be the damage to investors' confidence in Russia as a source of profitable investment opportunities," the agency said in a statement.

A recent slide in oil prices isn't helping things, either. The commodity is down nearly 12.5% in the last month.

The country relies heavily on oil to bankroll its budget -- over half of the government's 2012 revenues came from oil and gas, according to the latest data from the U.S. Energy Information Administration.

Related: Crashing oil prices could crush Vladimir Putin

The ratings agency said the debt's outlook would remain negative, and it is also considering a separate downgrade of Russia's sovereign credit rating if its economy continues to slow.

Standard & Poor's issued its own sovereign downgrade in April, to just a single step above junk.

The World Bank forecasts anemic Russian economic growth of just 0.5% in 2014 and 0.3% in 2015. A more pessimistic scenario foresees the Russian economy slipping into recession this year and contracting further in 2015 and 2016.

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