Belarus, Kyrgyzstan, Tajikistan, Moldova and Armenia have the most exposure to an escalation in Russia-Ukraine tensions, Moody’s said.

The agency said that the Commonwealth of Independent States (CIS) sovereigns could be affected given their economic, financial and energy ties with Russia, as well as their generally weak liquidity and external positions.

“The credit profiles of the CIS sovereigns may be affected if tensions between Russia and Ukraine lead to further military conflict and subsequent Western sanctions on Russia,” it said in a report.

Moody’s said that among the region’s sovereigns that it rated, Belarus (B3 Negative), Kyrgyzstan (B3 Stable), Tajikistan (B3 Stable), Moldova (B3 Stable) and Armenia (Ba3 Stable) were most exposed to an escalation in tensions.

“An increase in tensions could impact CIS sovereigns through a number of channels given their economic, financial and energy ties with Russia, though this isn’t our baseline scenario,” Evan Wohlmann, VP-Senior Credit Officer at Moody’s said.

He added that credit pressure would only develop in the unlikely event of a significant economic slowdown in Russia or major disruption to energy supplies.

An escalation of tensions would likely weaken Russian gross domestic product growth, with a knock-on effect for countries that rely the most on Russia for remittances (Kyrgyzstan and Tajikistan) and in some cases trade.

According to Moody’s, a severe drop in remittances could also undermine the external positions of some sovereigns. The credit implications for CIS sovereigns through this channel are likely to be most acute in the event of a sharp downturn in Russia, which we think is unlikely even if tensions were to escalate.

“If growing tensions cause a marked weakening in the ruble, there may be negative spillovers for currencies in the region which could raise liquidity risks, particularly for sovereigns such as Belarus, Tajikistan and Georgia (Ba2 Stable) with a high share of FX denominated debt, large external refinancing needs and or weak reserves. High levels of dollarization in the banking sector would also weigh on asset quality if currencies depreciate, although systems are generally well capitalised,” the agency said.