Russia Ramps Up Domestic Borrowing After a Two-Month Break as Fiscal Pressures Persist Despite Higher Oil Prices

KSE Institute has published the September edition of its Russia Chartbook, “Russia Ramps Up Domestic Borrowing After a Two-Month Break as Fiscal Pressures Persist Despite Higher Oil Prices.” Higher oil prices lifted Russia’s oil export earnings in August even as physical export volumes fell to their lowest level since the start of the full-scale invasion. The federal budget deficit narrowed seasonally but remained well above the annual target, while the Ministry of Finance returned to domestic borrowing in September. At the same time, signs of weakening are becoming more visible across the real economy.

Russia’s oil export earnings rose to $13.9 billion in August from $13.5 billion in July, driven by higher export prices. The average Russian export price increased to $68.4 per barrel from $59.5, while the discount to global benchmarks narrowed to $22.3 per barrel from $23.9. Yet total oil exports fell from 6.8 to 6.5 million barrels per day — the lowest level since the start of the full-scale invasion. Crude shipments declined from 5.5 to 5.2 million barrels per day due to temporary closures of the Novorossiysk port, while petroleum product exports remained at a record low amid continued attacks and export bans. The shadow fleet’s share of seaborne oil exports rose from 57% to 62%. With disruptions to energy flows in the Middle East keeping global prices elevated, KSE Institute projects Russia’s oil exports revenues to reach $193 billion in 2026 before falling to $158 billion in 2027.

The cumulative federal budget deficit fell to 5.8 trillion rubles in August, in line with the seasonal surpluses seen in recent years. The August surplus was driven by a 23% month-on-month decline in expenditures and a 31% increase in non-oil and gas revenues. However, the January-August deficit remains 48% larger than a year earlier and already exceeds the Ministry of Finance’s revised full-year target of 4.8 trillion rubles by 21%. Over the first eight months of 2026, oil and gas revenues were 17% lower year-on-year, while non-oil and gas revenues were 18% higher and expenditures were 15% above last year’s level.

Financing pressures are becoming more pronounced. Net OFZ issuance and National Wealth Fund withdrawals fell 3.0 trillion rubles ($39 billion) short of the deficit in January-August, contributing to a 3.7 trillion ruble decline in Treasury cash since December. After a two-month pause, the Ministry of Finance returned to the domestic market and borrowed 1.3 trillion rubles by September 23 — the highest level since November 2025 and enough to bring execution of the 2026 domestic borrowing plan to 75%. Domestic banks remain the only major buyers of OFZs, while Central Bank repo operations exceeded 6 trillion rubles around auction days. Federal domestic debt reached 32.6 trillion rubles in August, twice its February 2022 level and around 15% of GDP. As of July, the liquid assets of the National Wealth Fund were down 60% since early 2022 and accounted for only 30% of the fund, compared with 75% then.

The macroeconomic picture remains weak despite the energy windfall. Real GDP grew 1.3% year-on-year in Q2 2026 after a 0.2% contraction in the first quarter, but international institutions expect growth of around 1% or less in 2026-27. Industrial production fell 0.6% year-on-year in August after growing 0.4% in July, while  growth slowed across all military sectors tracked in the Chartbook in August, with military vehicle production down 3.0% year-on-year. Headline inflation was 6.3% year-on-year in July, still well above the Central Bank’s 4% target, and borrowing costs remain historically high. 

Higher oil prices are easing near-term pressure, but they are not removing the structural constraints on Russia’s economy.