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Russia’s first-half budget deficit hits 5.7 trillion rubles as oil revenue shortfalls persist

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Russia’s federal budget deficit narrowed to 5.7 trillion rubles, or 2.5% of gross domestic product (GDP), during the January–June period of 2026, according to preliminary budget execution data released by the Ministry of Finance on July 9. This contraction marks the first decline in the fiscal deficit since the beginning of the year. In June, the gap between expenditures and revenues decreased by approximately 5% month-on-month, shrinking by about 279 billion rubles. Despite this marginal improvement, the deficit remains 2.3 trillion rubles higher than the level recorded during the same period last year and stands roughly 50% above the 3.78 trillion ruble target projected for the full year of 2026.

Emil Ablayev, an expert at the Center for Macroeconomic Analysis and Short-Term Forecasting (TsMAKP), told the Vedomosti newspaper that the narrowing of the deficit was driven by the gradual fading of the front-loaded advance spending outlays made at the start of the year.

Budget expenditures rose to 3.56 trillion rubles in June, representing a 17.13% increase. Total spending in the first six months of the year reached 24.35 trillion rubles, up 16.1% compared to the same period last year.

The Ministry of Finance reiterated that the accelerated pace of spending was attributable to the early signing of contracts and advance payments made under specific budget items.

In contrast, budget revenues experienced a more subdued increase compared to expenditures. Total revenues in the first half of the year rose by 5.8% year-on-year to reach 18.6 trillion rubles. In June, however, revenues surged by 25.85% year-on-year to 3.82 trillion rubles.

Non-oil tax revenues accelerate

Ablayev noted that the acceleration of non-oil and gas revenues played a key role in narrowing the budget deficit. The year-on-year growth rate for these revenues rose from just over 12% in the January–May period to 16.3% in the January–June period. Non-oil and gas revenues reached 14.96 trillion rubles in the first half of the year. In June, these revenues increased by 26.75% year-on-year to 3.1 trillion rubles.

According to Natalya Milchakova, Chief Analyst at Freedom Global, this growth was driven by the increase in the VAT rate effective January 1, along with prior hikes in personal income tax for high-income brackets and corporate income taxes. VAT revenues rose by 22.6% to 8.58 trillion rubles in the first six months of the year.

Ablayev pointed out that VAT is the tax category most sensitive to domestic demand, consumption, and imports, indicating that the increase reflects sustained domestic demand.

Ablayev also stated that improvements in tax administration and a reduction in the shadow economy supported this positive trend. He added that due to the strong performance of the ruble in the second quarter of 2025, import-related VAT revenues had a more limited negative impact on a year-on-year basis.

According to experts, the trajectory of non-oil and gas revenues in the second half of the year will depend on a slowdown in consumer demand, import volumes, the ruble exchange rate, and the tax performance of non-oil exporters.

Sergey Klisenko, General Director of the NRA Rating Service, projected that the growth rate of non-oil and gas revenues could slow from the 16% level recorded in the first half to a range of 12% to 14%. However, he noted that this would still be sufficient to meet or even exceed the targets set for 2026.

Oil revenues recovered in June

According to Klisenko, the budget surplus in June stood at approximately 280 billion rubles, largely driven by the strong performance of oil and gas revenues.

These revenues rose roughly 65% above the January–February average. The analyst attributed this increase primarily to the elevated level of Russian oil prices in May.

Oil and gas revenues in June rose by 4.7 billion rubles compared to May, reaching 683.6 billion rubles. However, the cumulative total for the first half of the year remained at 3.66 trillion rubles, representing a 22.7% decline compared to the same period last year.

Ablayev stated that the primary reasons for the first-half decline were a strong ruble, delayed tax collection effects, and the structural composition of the revenues.

Klisenko calculated that while the budget projections assumed an average exchange rate of 92.2 rubles per US dollar, the actual average for the first half of the year remained at 77.2 rubles, depriving the budget of 1.5 trillion to 2 trillion rubles in oil and gas revenues.

Oil and gas prices, which had spiked in the spring due to the conflict between the US and Iran and the subsequent closure of the Strait of Hormuz, declined again during the summer months.

According to Ministry of Economic Development data, the average price of Urals crude was $44.59 per barrel in February, rose to $94.87 in April, fell to $86.52 in May, and dropped to $63.52 in June.

Ablayev noted that oil and gas revenues could show a noticeable improvement in July as additional income tax from the second quarter is reflected in the budget. Nonetheless, he cautioned that year-end performance would depend on oil discount levels, demand for Russian crude, the ruble exchange rate, and developments in the domestic fuel market, adding that rising refinery subsidies and damper payments could limit revenue growth. The expert expects year-end oil and gas revenues to exceed 2025 levels but remain below budget targets.

Experts expect year-end deficit to exceed targets

Ablayev stated that budget execution remains under pressure, with expenditures running significantly higher than last year and the deficit exceeding initial forecasts. He estimated that the year-end deficit could reach 3% to 3.5% of GDP, or approximately 6.5 trillion to 7.5 trillion rubles, which would require deviations from the fiscal rule and increased borrowing.

Rodion Latypov, Chief Economist at VTB Group, projected that the main reasons for exceeding the planned 3.8 trillion ruble deficit would be an estimated 1.5 trillion ruble shortfall in oil and gas revenues due to the strong ruble, alongside potential spending overruns. Excluding potential additional spending increases, Latypov expects the year-end deficit to be around 5 trillion rubles.

Milchakova stated that the budget deficit at the end of the year would most likely remain around 2.5% of GDP, driven primarily by weak oil and gas revenues and anticipated increases in public spending—particularly due to the fuel crisis, refinery subsidies, and damper payments.

Klisenko, meanwhile, estimated that the deficit would reach 2.5% to 3% of GDP, amounting to approximately 6 trillion to 7 trillion rubles.

Ablayev noted that a high budget deficit supports domestic demand, making a rapid slowdown in inflation more difficult, though certain mechanisms, such as damper payments, limit price pressures specifically within the fuel market.

Klisenko remarked that the rise in the budget deficit from 1.6% to 2.5% of GDP is not critical and that its impact on inflation does not exceed 1 percentage point.

Latypov argued that the budget’s impact on the money supply and total nominal demand is more accurately measured by the change in net claims on public administration, rather than the federal budget deficit itself.

He highlighted that this indicator has increased by approximately 3 trillion rubles since the beginning of the year, remaining significantly lower than the accumulated budget deficit.

Russia

Russia relaxes diesel export curbs after talks with Trump

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Russia has announced that it will ship 500,000 tonnes of diesel fuel to the global market under a partial lifting of its diesel export ban, enacted as part of measures concerning the Ukraine crisis and energy markets.

A statement from the Russian government said the decision was implemented in accordance with understandings reached between Russian President Vladimir Putin and US President Donald Trump.

Under the decision, which came into effect on 10 October, an initial phase of 500,000 tonnes of diesel fuel will be supplied to the global market.

“Following the rescinded decision, Russian oil companies, in coordination with the government, will immediately begin signing diesel fuel supply contracts with foreign business partners,” the government statement said.

Assessing the matter, Deputy Prime Minister Aleksandr Novak stressed that the decision would not affect the interests of Russian consumers.

Noting that diesel fuel is produced from Russian crude at domestic refineries, Novak stated that production volumes are sufficient both to meet all domestic market requirements in full and to ship the specified quantities to the global market.

The ban on diesel fuel exports in Russia was initially put into effect on 31 January 2026, covering only non-producing companies.

The government tightened the restrictions on 9 July by expanding them to include direct producers. Previously announced to remain in place until the end of October, the ban was partially relaxed in light of current developments.

Vladimir Putin and Donald Trump held a telephone conversation on 9 October. Following the call, US President Trump announced that an agreement had been reached on the supply of Russian diesel.

Trump said Russia had agreed to send more than 300,000 tonnes of fuel to American and global markets in the initial phase, 500,000 tonnes in November, and 1 million tonnes thereafter.

Trump also stated that an additional shipment of 3 million tonnes could follow at a later stage, adding that they expect this agreement to reduce diesel fuel prices rapidly.

Following the conversation, the US Department of the Treasury, on Trump’s instructions, issued a temporary general licence exempting Russian diesel fuel transactions and shipments to the US—previously prohibited under sanctions—until 7 April 2027.

Putin, in a statement after the call, confirmed Russia’s readiness to supply crude oil and petroleum products to American and global markets, noting that this would have a positive impact on the world economy.

Putin also noted that the two leaders discussed prospects for resolving the conflict in Ukraine, the situation surrounding Iran, and bilateral relations, agreeing to maintain contacts through presidential envoys, intelligence agencies, and other institutions.

A statement issued by Novak’s office after the call said Russia was prepared to ship diesel to the US within October.

Novak stated that export volumes could be increased in November and December as refineries emerge from scheduled maintenance.

Novak also conveyed that Moscow views positively Washington’s steps towards stabilising the global energy market and normalising energy trade.

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Drone strike shuts down Yandex data centre in Russia’s Ryazan region

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A drone strike has hit a data centre belonging to Russian internet company Yandex in the town of Sasovo, located in the Ryazan region.

The company announced that a fire triggered by the attack damaged part of the infrastructure and resulted in a complete shutdown of the facility’s operations. No casualties or injuries were reported in the incident.

In a statement, Yandex said competent authorities and relevant teams were working at the scene to remediate the damage.

Owing to the facility being knocked offline, it was noted that some of the company’s online services might temporarily become inaccessible to users.

The company provided no details regarding the financial scale of the damage or when the data centre would be brought back into service.

Shares slide, cloud infrastructure curbs introduced

Following the developments, Yandex shares fell by more than 3.4% as of 10:10 Türkiye time.

A drone threat alert was reportedly communicated to residents of the Ryazan region at 23:48 on the night of 7 October, with the alarm lifted at 02:46 on the morning of 8 October. The facility in Sasovo had commenced operations in 2014.

In an advisory issued via the Yandex Cloud Alerts channel, it was reported that power issues were occurring in the system’s “ru-central1-b” availability zone.

The company stated that efforts to transfer data workloads to other availability zones had been completed and that services in other zones continued to operate normally.

However, it was noted that temporary restrictions could be imposed on the creation of new resources within the cloud infrastructure. According to data from outage-monitoring platform Downdetector, an increase in user complaints concerning Yandex, Yandex Cloud, and the real estate platform CIAN was recorded on the morning of 8 October. Reports were observed to have originated predominantly from Moscow and surrounding regions.

Data centre targeted for first time after logistics warehouses

Whether the attack directly targeted the data centre remains unconfirmed. Nevertheless, as of 8 October, this went on record as the first drone strike directed at data centres in Russia.

Beginning in the summer months of 2026, warehouses belonging to Russia’s leading e-commerce platforms had faced drone attacks.

Fires at several warehouses owned by the company Wildberries caused hundreds of billions of roubles in losses for sellers, after which logistics centres belonging to the company Ozon were also targeted.

Both companies amended their contractual terms, shifting liability for damages arising from attacks onto sellers.

Yandex facilities had previously experienced a widespread outage on 30 March 2025 due to a transformer failure, which temporarily disabled services including Yandex Cloud, Yandex Music, and Yandex Lavka.

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US and Russian figures discuss American stake in Nord Stream lines

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Senior officials from Russia and the US have reportedly discussed involving an American investor in the Nord Stream natural gas pipelines.

According to a report by the Reuters news agency based on five sources, those taking part in contacts included Kirill Dmitriyev, head of the Russian Direct Investment Fund (RDIF) and the Russian president’s special representative for investment and economic cooperation with foreign states, and Jared Kushner, son-in-law of the US leader.

Two sources providing information on the scope of the discussions said that while it remains unclear how detailed the consideration of the Nord Stream topic was, the matter nevertheless remains on the agenda.

Kushner reportedly views business-oriented cooperation as an instrument in initiatives aimed at ending the war in Ukraine.

A potential agreement could reportedly offer US investors an opportunity to profit from energy shipments to Europe once the war ends.

White House states no recent contacts have taken place

A White House official told Reuters that no negotiations regarding Nord Stream have been conducted recently.

The official emphasised that any agreement with Russia would require approval from the US International Development Finance Corporation (DFC) and the US Department of the Treasury, adding that such steps must yield benefits for US taxpayers and companies.

Another US official described reaching an understanding in the medium term as unlikely due to existing obstacles.

The natural gas pipelines are subject to US and European Union sanctions. A spokesperson for the German Federal Ministry for Economic Affairs and Energy stated that the approval of the German federal government is mandatory for the pipelines to be brought back into service, adding that the Berlin administration does not support such a step.

The spokesperson also recalled that Germany has secured alternative supplies to Russian gas.

The ownership structure of Nord Stream also features among the issues complicating the ground for negotiations.

In the consortium operating the project, Russian energy giant Gazprom holds a 51% stake, while the combined share of two German partners stands at 31%.

The remaining shares are held by France- and Netherlands-based companies.

A source speaking to the agency stated that the German partners wish to retain their stakes in order to preserve their influence in the project should Gazprom’s shares be sold.

What had American investor Lynch proposed?

The concept of involving a US financier in the Nord Stream projects had also surfaced in 2024.

American investor Stephen Lynch, founder of Monte Valle Partners, who conducted commercial activities in Russia for 20 years, had applied to the US administration for a licence allowing him to bid if the Nord Stream 2 pipeline were put up for auction.

Lynch described this potential move as an opportunity to keep Europe’s energy supply under control until the fossil-fuel era ends, as well as leverage against Russia in peace negotiations.

The Alternative for Germany (AfD) party described the possibility of transferring the pipeline to Lynch as an illustration of the German government’s irrational policy.

Separately, The New York Times (NYT) reported earlier this month that Ukraine-related contacts between Russia and the US were expanding to include a multi-billion-dollar oil deal covering Lukoil’s foreign assets.

The assets in question included Lukoil’s refineries in Eastern Europe as well as filling stations in the US.

NYT sources reported that discussions in this framework were also addressed during a meeting between Russian President Vladimir Putin, Steven Witkoff, and Kushner.

The sabotage of the Nord Stream pipelines took place in September 2022, with three of the four lines damaged by explosions.

One string of the Nord Stream 2 pipeline, which had not yet been commissioned at the time, remained intact.

The Federal Security Service of the Russian Federation (FSB) classified the incident as an act of international terrorism, while Putin claimed that “Anglo-Saxons” were behind the attack.

In investigations into the incident, judicial proceedings were pursued against several Ukrainian citizens, including professional diver Vladimir Juravlyov, suspected of planting explosives off the island of Bornholm, and Sergey Kuznetsov, who allegedly skippered the yacht Andromeda.

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