Energy Price Moderation Returns Pressures; Budget Deficit Grows

KSE Institute has published the August edition of its Russia Chartbook, “Energy Price Moderation Returns Pressures; Budget Deficit Grows.” Russia’s oil export earnings continued to decline in July, the federal budget deficit grew, and options for financing it became increasingly constrained. The macroeconomic outlook also remains fragile.

Russia’s oil export earnings fell to $13.8 billion in July, down from $15.8 billion in June. This time, the main driver was a substantial decline in export volumes, while Russian oil export prices remained largely stable. The average export price stood at $63.9 per barrel, compared with $65.2 in June, while total crude oil and petroleum product exports fell from 7.6 to 7.0 million barrels per day. Crude exports declined due to temporary closures of the Novorossiysk port, while petroleum product exports were affected by continued Ukrainian strikes on Russian refineries and associated export bans on diesel, gasoline, and gasoil.

After two months of relative stability, the federal budget deficit grew again. The cumulative deficit reached 6.5 trillion rubles in January-July, increasing by around 600 billion rubles in July alone. Non-oil and gas revenues fell by 22% compared with June, while expenditures rose by 13%, pushing the deficit higher. It is now 40% larger than in January-July 2025 and 34% above the Ministry of Finance’s revised full-year target of 4.8 trillion rubles. Fiscal challenges are also increasingly visible at the regional level: in the first half of 2026, 56 out of 89 regions, including annexed territories, were running budget deficits.

Options for financing the deficit are becoming increasingly constrained. OFZ issuance in July fell to its lowest level since September 2022 after auctions were fully suspended because the Ministry of Finance failed to secure acceptable terms. The situation also reflects growing liquidity struggles among Russian banks. According to the authorities, auctions are not expected to resume until at least September. Alternative funding sources are also under pressure: the value of the National Wealth Fund’s non-liquid assets fell by around 500 billion rubles in one month as share prices of state-owned companies, primarily Sberbank, declined.

The macroeconomic outlook remains fragile. Russia reported 1.3% real GDP growth in Q2 2026, rebounding from a contraction in the first quarter. However, these figures should be treated with caution, as Rosstat data are frequently subject to revision. Headline inflation remained unchanged at 6% year-over-year in July, while inflation expectations among enterprises and households surged to 20.2% and 14.7%, respectively, from 15.9% and 12.4% a month earlier. Price pressures are broadening across consumer categories, while strikes on key infrastructure continue. Long-term macroeconomic forecasts for 2026-2027 remain weak.